Human Resources

Tough Love: Sorting Out the Problems of a Family Business in Trouble

One of the greatest strengths of a family-owned business is the fact that the owners' ties run much deeper than a mere contractual agreement. Bound together by blood or marriage, they've often grown up together and intimately understand each other's decision-making processes, strengths and weaknesses.

But that close-knit working relationship can also make it tougher to bring about needed change, as Brazilian entrepreneur Rosani Aparecida de Souza Lopes discovered. "My father started Búfalo Ferramentas in 1978, which is when I started working for the company," she says, referring to her family's Sete Lagoas, Brazil-based firm, which manufactures and sells agricultural tools and other products in such industries as iron and steel, heavy construction, mining and transportation. "In the 1990s, the company was being mismanaged and the country was experiencing an economic downswing," she adds. "We had a lot of debt and we had to dismiss [most of] the employees and restructure the company, going from more than 40 people to about 14."

'Disability Management'

Aparecida de Souza Lopes knew that she'd have to ask some tough questions and take bold steps to turn the company around; she decided that family ties wouldn't keep her from doing what had to be done. "I realized that first, we needed to diagnose what happened and face the problem. Once you do that, you start what I call 'disability management,' immediately replacing [people who are not performing] with skilled people, whether or not they're from the family."

Some problems can be solved with a short-term emergency plan, she adds, "But you also need to think about another strategy for medium and long term to grow the business, and define a group that knows about management to control and monitor the process. The ideal is to have a results policy to keep it in control."

That can be tough to do in a family-owned or small business, she admits. But it's important to look at all the options, asking, for example, if the family should continue to run the enterprise or if it's better to sell the company. "It's necessary to think if some member of the family is prepared to take [over] the business," she notes. "Do they have the responsibility, interest and dedication to do it right?"

In Aparecida de Souza Lopes's case, the company had started to spiral downward after her father gave administrative responsibility to a trusted partner who, it turned out, had "no management competence." Ultimately, her father turned the company over to his daughter. "With a competent team, I improved the situation," she states, noting that the company added customers. "We are not comfortable yet, but everything is different now."

Aparecida de Souza Lopes says that education, experience and teamwork helped her to succeed. "Since I was a child, I admired my father's courage and ability to negotiate," she recalls. "As soon as I started working with my father, I took notes and liked when he gave me something to do. I enjoyed machines and the noise from industry. I studied a lot at that time, and those short courses were essential to organizing my work."

By the time she started running the business at age 27, "I knew about everything inside the company," says Aparecida de Souza Lopes. "I tried to correct some problems, asked for help with others and used my own experience to solve others."

Under Aparecida de Souza Lopes's watch, the company stopped manufacturing unprofitable products and, after some market research, added others like a new line of wheelbarrows designed with, as she puts it, "a feminine touch."

But the changeover meant jettisoning long-held practices, and restructuring more than just the product line. Interpersonal relationships had to be reworked, along with how the costumer was approached. "We worked with the numbers to control production processes and marketing," she says. Nowadays, we have credibility in the market and in the city."

Family Pressure

Aparecida de Souza Lopes's seven siblings all worked at the company at one time or another, but today, "those who are not working here are those who didn't adapt to the restructure."

Laying off or otherwise separating a relative from a family business is tough under any circumstances, but it's even tougher for a woman business owner, according to Maria Elisa Brandão, a strategy professor at Fundação Dom Cabral, an educational business institution in Brazil through which Aparecida de Souza Lopes participated in the Goldman Sachs 10,000 Women entrepreneurial training program. "Women owners here tend to have a lot of pressure from their extended family to hire relatives or relatives' husbands that are not employed," Brandão says. "It may have cultural roots, but we need more research to explain this."

Succession planning is often the biggest challenge for a family-owned business, Brandão notes. "An entrepreneur's children may have their own ideas about going into the business. So don't take anything for granted. The most important thing you can do is think about succession from the beginning."

Aparecida de Souza Lopes has done that, and today, she says, a number of people could step into her role. "Beyond my brothers, Márcio, my husband, works at the marketing and takes care of sales," she notes. "He's very committed and has a great market view. Clemente Heleno, my brother-in-law, is the production manager and is very engaged with the projects, proactive and able to solve problems. Giordani, my 20-year-old son, is responsible for deliveries, banking services, receiving the goods and some administrative tasks. He is studying administration and is enjoying it. His personal profile is similar to mine, and he wants to have his own business." If Giordani does end up at the helm, Búfalo Ferramentas, having already experienced an extensive restructuring, may be well positioned for a third generation of family leadership.