Family businesses really are unique beasts – no two are the same. Amongst the most successful in the business arena, they can breed impressive and awe-inspiring dynastic empires, but they can also feel like a closed shop, with claustrophobic familial power struggles jostling for prominence.
So, what’s the secret to a successful family company? And how does a new employee fit in to the structure when the business expands’ We talked to Fretwell-Downing Hospitality’s founder, Professor Anthony Fretwell-Downing, on the cusp of his 75th birthday celebrations and just ahead of the company’s sponsorship of the Eat Sheffield awards, about what really goes into the secret sauce of a family business.
From the history of Fretwell-Downing it’s clear that one of the secrets to a successful family business is its ability to thrive in adversity. Research conducted by the Harvard Business Review indicates that during economic slumps family businesses far outshine non-family businesses. Do you think this is true, and if so why do you think it happens?
In a recession the first thing that happens is that there’s a colossal pressure from a corporate position on banking facilities and the amount of capital you have, so you have to very quickly adjust by cutting costs. Otherwise you’d just go bust!
To put our adversity into context, in 1978, in spite of all the political problems of the seventies, like the famous three day week and the build up to the second miners’ strike, our business was actually doing very well. And then in the first week of October 1980 – in just one week – a third of our business went, because businesses just stopped entertaining on a large scale. This was because of the miners’ strike looming and the ultimate crunch between left and right politics: people didn’t want to be seen in Rolls Royces anymore. So I was left with a company which basically, if I didn’t do something about it, would very quickly go bankrupt.
And how did we get through that economic crash’ We adjusted the size of the catering company, and we used whatever reserves we had to build up the computer side which I’d joined full time. We survived by using a combination of extraordinary innovation and highly intelligent people from the whole range of different universities, from computer science to marketing, from history, geography – lots of good brains together, to try and work out how to use the first-generation micros. Our mindset was purely survivalist – it was a new mindset to us, but it was that or lose your job! Lastly, because we had to initially borrow about £250k and later £700k (£1.5million in today’s prices) from the bank, the only way we could do that was to mortgage all our houses. Our whole family was in hot water, and that rather focuses attention on the challenge!
With family businesses, you’re nearly always in a start-up situation, or a state of disruption. You need a gut instinct to overcome the odds by thinking differently, and by taking risks. (That’s unless you’re very lucky, or until you’re very successful – as we are now!) But this doesn’t come about simply by hard work – you need to draft in some smart people to be able to do it. We invented this special technology (which I designed!), some of which ran for twenty years, and then we handed it over to younger, more professional people in the computer science world, and that’s brought us to the success we have today.
The bottom line is that you can either do ‘x’ or ‘y’, and the ‘y’ might lead you out of business, so that of course increases your determination to do ‘x’ and overcome the odds. The debate within the company changes into a different scenario: we’re always looking to each other because people don’t want to lose their jobs. So you develop a tremendous sense of team spirit, provided the leadership is there. Some people, of course, just panic, they disintegrate and that’s when businesses fold. It all comes down to self-confidence, at the end of the day – do you believe you can do it?
Is there more passion to make it work when it’s a family business?
Yes, because you’ve got so many other people involved, and you have to be responsible for them. An employee of ours could hand in their notice to leave the company, of course, but you can’t hand in your notice to leave your family. You’re all in it together, and it’s your survival income. You’re all interlocked in some way by it.
Family businesses are sometimes believed to be difficult to run because they are likely to nurture familial frictions – sibling rivalries, jealousy over promotions and so on. Do you think there’s any truth in these stereotypes and if so, how would you advise a family business to deal with them from your experience?
Each family business is unique. With my brother and I, there was a very clear demarcation of what we were doing. He was on the front-line, a charismatic socialite who was chatting everybody up and getting fantastic sales. He was a brilliant salesman, but nevertheless, he never had to deliver anything. He’d just put the products on my desk, and say ‘how do we deliver that” But that was how it worked: I didn’t want to do what he was doing and he didn’t want to do what I was doing – so that was fine.
But if you’ve got two people trying to fight over the same territory, that’s obviously very unfortunate. There’s no formula for resolving it. Someone’s got to win or the whole thing will disintegrate. In our case, when we faced massive changes in the 1980s, we changed the business from pure catering to a mix of catering and software. We’d got up to 300 staff in our early days, but that decreased considerably over the next four or five years – even though our turnover was still millions of pounds.
That’s when mine and my brother’s roles got completely reversed. I went out on the front-line, selling the ideas and design concepts of the software company that I had invented. This changed the very nature of our software development. However, the knowledge gained during my chemistry Ph.D. was of minimal help. The key was the help of our team of computer scientists, who helped us change theory into practice. The special code was completed with the year. Subsequently, they made our Catering and Student Record Management Information Systems fit for market.
There was a huge reversal in mindset in our home and family environment. My brother was once our company’s front interface, but then the next minute he couldn’t stand up in front of anyone to tell them what we were doing, because it was a completely foreign language to him. Wheres’ the formula for that’ There isn’t one – it’s a unique situation. A jungle mentality must ensue: he who has the greater strength wins. And if someone doesn’t win, the business ends up in a shambles and will simply fail.
Because each of us had a set position, there was no anger because there was no overlap. It was all accepted common interest. We were arts and science – completely different, but with a common moral philosophy and a similar view of the world.
But there’s a great difference between those people who are prepared to take a real risk, and those who just want to be good at something. I wonder how many people employed by a family business really take a risk on a day-to-day basis’ How many people just simply do a really good professional job that’s been orchestrated and designed by somebody else as a scheduled task’ As a day-to-day job, there’s always a piece of software to write to be made into something solid and strong and good for the customer, and good for the company. But where’s the risk’ If the product doesn’t work, a non-family employee can write it off as a rotten job and say ‘well, it couldn’t be done’. But if you’re in charge and that product doesn’t work, you can swing for it. That’s the difference between being MD and any other role in a family business.
What advice would you give a family business just starting out?
My favourite one would be never to believe your own propaganda. Get your ideas and products thoroughly tested and make sure what you’re talking about makes sense. In my case with our software, it was impossible to do that because I was designing completely original work, so you couldn’t really get advice from anyone. All I received was help to translate a concept, but that’s a one off, and not the normal case.
But if you want to produce something technically difficult, then you need the expertise around you to ensure that it can work. That’s because, if you need to ask the bank for money and you find that if your business ideas, products and services don’t work, you go bust! You must clearly understand your objective. It’s so easy to say ‘I’ve got a great idea’ but you’ve got to test things out to make sure they’re viable, real and that they work.
Though not family members, Fretwell-Downing has a history of long-term employees. Do you think this has something to do with being a family business?
Fretwell-Downing has had more stability than a lot of companies have. I like to think that people stay because they like the environment. But you can’t run a company through a spreadsheet or by numbers alone – it’s too clinical. You can’t create a culture through that, it would be totally impractical. I think there’s a sense of loyalty both ways: people feel they’re getting looked after, and in the beginnings of the computing company, it was extremely exciting.
What do you think is the biggest challenge a company can face because it’s a family business?
The biggest thing is succession planning. We had trouble when my brother died, with the knock-on effects of shareholding, who owns the company and what happened to his shares. It could have been a real problem if the shares transferred to the wrong people because they could have skewed the power of the board toward’s one person’s views. In our case, fortunately, that all worked out fine. One of the biggest issues of all in family businesses is who owns it, particularly when someone dies, or wants to go to do something else and they want to sell their shares. Who do they sell their shares to’ The family control of the company is what a family business is all about ‘but the minute a family doesn’t control it, all sorts of things start happening. There are things like minority shareholding which can be used with disproportionate power, because in the big companies and PLCs, small shareholders were getting squeezed out and their views weren’t taken seriously. There’s now legislation in place to make sure that people who have a small number of shares still have a say. It’s interesting what comes out of the woodwork when things aren’t working well. In a family business, things can get extremely fractious, because you’re trapped within the family. You can’t become another family. You can lose one job and go get another one but you can’t get out of the family, unless you do some very clever genetic engineering!
What’s the best thing about working in a family business in your experience?
Having always been in it, I can only contrast my experience with my university career. The university world was very much a matter of professional integrity, you were told to get on with the job against a backdrop things of things that are much bigger than you, so you were only small in the scheme of things.
In the scheme of a family business on our scale, the best thing is the thrill of the race. It’s the fact you can actually see things coming to life. That was a complete shock, because we didn’t know in the 1980s that you could combine the technology of the Cambridge mainframe with different micros and various different computer sciences to produce something so unexpected. But once it was conceived, that embryo grew into the business, because the technology worked. It’s the excitement of it all and the fact you don’t feel external influence over you which is against the grain of your hopes and aspirations.
Family business may be a bit incestuous to some extent, but it feeds off itself. That’s what gives it its energy and its purpose. I’ve never thought about leaving the family business – although I’ve done other things in parallel – because it’s my whole lifestyle. It’s quite intangible! You hope that you develop relationships with customers and clients, that they invite you to do things and invite you to get involved in things, like extending into New Zealand like we’ve done with our clients, Compass, and these can extend into important relationships that make you feel life is worthwhile.