Family Business in Nebraska

Contents

1. What counts as a family business
2. A builder in its fifth generation
3. A cafe and a farm
4. The three generation rule
5. Why handovers go wrong
6. Several heirs and one business
7. Help available in Nebraska
8. The vocabulary worth knowing

Brent O’Mara works with business owners and multigenerational families, and a family business is where those two groups overlap. Two things are often confused at the start of that subject: family ownership and family management. A company can be owned by a family and run by hired managers, run by a family that owns only part of it, or both owned and run by the same people around the same table. The Cornell family business center makes the distinction in its own way, arguing that the subject is really families in business rather than family business, and noting that 77 percent of new ventures in the United States are founded with significant family involvement.⁵ This entry keeps the two senses apart and looks at what Nebraska examples and the national research show.

What counts as a family business

By the Cornell compilation there are 5.5 million family businesses in the United States, contributing 57 percent of gross domestic product and employing 63 percent of the workforce, and a little over a third of the largest 500 companies are family controlled.⁵ The common thread is not size but the overlap of two systems, a family and an enterprise, each with its own rules about who belongs, who decides and how money moves.

A builder in its fifth generation

A profile published by UNO’s business development center describes a Norfolk contractor whose beginnings in Wakefield date to 1878, eleven years after statehood. Roughly 35 to 40 people work there now, the projects run from schools and churches to hospitals across Nebraska and into neighboring states, and leadership sits with the fifth generation while a niece from the sixth is already on the payroll. One owner who came back in 2008 after years away in corporate work said the point of it all was having kept the line unbroken and the name trusted.¹

Figure

Three Nebraska family businesses by founding year

1. 01
   1878A Wakefield contractor opens its doors eleven years after statehood; today it works out of Norfolk under its fifth generation of family leadership.
2. 02
   1911A Saunders County farm is bought by a great grandfather and passed down through the generations; a daughter now grows popcorn on part of it.
3. 03
   1922A Polish immigrant opens a small bar with five tables beside the South Omaha stockyards; his grandchildren run the steakhouse it became.

A cafe and a farm

Two smaller examples make the same point at different scales. A south Omaha steakhouse began in 1922 when a Polish immigrant bought a little bar with five tables next to the stockyards; as the yards grew the restaurant grew, the next generation took it over, and his grandchildren run it now, with customers who first came as children bringing their own grandchildren.⁴ In Saunders County a farm bought by a great grandfather in 1911 has been passed down through the generations, and a daughter now grows popcorn on a few acres of it, sharing a six row combine with her father, as a way of marking a century of the family keeping the land.³ The farm version of this story is told under farm and ranch handoffs.

The three generation rule

The statistic most often attached to family businesses is a failure rate. Cornell cites figures that put the average life span of a family owned business at 24 years, with about 40 percent passing to a second generation, 13 percent to a third and 3 percent to a fourth or beyond.⁵ Two Harvard Business Review authors have questioned the three generation rule as conventional wisdom, pointing out that most writing on the subject opens with some version of it and that public feuds in a few famous families make family enterprises look more fragile than the evidence supports.⁶ A fair reading is that the numbers describe a real pattern and a loose one; many businesses close for reasons that have nothing to do with the family.

Figure

How many family businesses reach each generation

• Reach a second generation40
• Reach a third generation13
• Reach a fourth or beyond3

percent

Why handovers go wrong

The reasons a handover fails are consistent across sources. The Wall Street Journal lists a lack of communication between generations, a failure to plan ahead and, hardest of all, a reluctance to let go, and quotes an adviser comparing an unplanned death or incapacity to putting Humpty back together again.⁸ Cornell’s figures show the scale of the reluctance: 30.5 percent of family business owners say they never plan to retire, another 29.2 percent put retirement more than eleven years away, and 31.4 percent have no estate plan beyond a will. In nearly half of family business collapses the failure was precipitated by the founder’s death.⁵ A second Harvard Business Review piece describes the quieter version, a family that assumes the next generation can take over where a parent left off without ever writing a job description for the top role or settling how the company is governed.⁷

Several heirs and one business

Where several children will inherit, ownership structure becomes the hard question. Advisers quoted by the Wall Street Journal commonly recommend placing voting control with whichever heir manages the operation and giving the siblings noncontrolling stakes, so that stewardship and day to day authority do not pull against each other.⁹ CNBC adds the consultants’ view that a management plan and an ownership plan are separate documents, that ten years is a reasonable period for completing a transfer, and that outsiders, whether promoted employees or hired executives, belong on the list of candidates for key roles.¹⁰ How any of this is drawn up depends on each family’s circumstances and is best handled by qualified professionals in finance, law and tax.

Figure

Two plans the family business literature describes

	Management succession plan	Ownership succession plan
What it decides	Who leads the business next and how they are prepared	Who owns the shares and in what proportions
Typical time frame	About ten years, by one consultant's estimate	Set by the owner's own timing, estate documents and the tax rules in force
Common gap	No written job description for the top role	Several heirs and no decision on control

Help available in Nebraska

The state has a public resource for owners thinking about a transfer. The Nebraska Business Development Center at UNO offers exit and succession planning that covers every type of transition, from a sale to an outside buyer or a key employee group to family succession, and works alongside an owner’s existing accountant, lawyer and financial adviser rather than replacing them.² The same center has supported the Norfolk construction company since 2008 through a program that helps businesses find government contracting work.¹ The general subject of how an owner leaves a company is covered under business succession planning.

The vocabulary worth knowing

Family business. A company in which a family holds ownership, management or both; the two can be separated and often are.

Three generation rule. The folk statistic that most family businesses do not survive past the founder’s grandchildren; cited everywhere, and questioned by some researchers.⁶

Management succession plan. The document that names the next leader and how that person is prepared.¹⁰

Ownership succession plan. The document that decides where the shares go, in what proportion and with what control.¹⁰

Controlling interest. The share of ownership that carries the deciding vote, which advisers often suggest giving to the heir who manages the business.⁹