Emily: I'm going to go ahead and invite Jamie and Paul to come on up. I first got to know Jamie initially and got to know Paul a little bit later through their work at Booth. Both of them are academics in one part of their life. I’ll let them explain the other parts of their lives. But as academics they both study and teach on the concept of multi-generational family businesses at the business school at the University of Chicago.

I've gotten the joy of getting to go up there and speak to their classes and their fascinating students, many of whom represent multi-generational family businesses from around the world. I talked to a guy who had a Moroccan construction company that I believe he was the third generation of.

So a really interesting heritage and representation within that class. But they both also have related careers in family businesses. So maybe we can start there. Jamie, you want to talk a little bit about your background on the family business side?

Jamie: Yeah. It's nice to be here.

I'm excited that everyone's excited about this topic. My background is that I did everything that I could to not join the family business. I worked in every other industry in every other place before I joined my family business.

I worked in investment banking. I worked in technology. I was [00:02:00] in VC. I went to business school because that's what you do when you're lost and you have nowhere else to go. 

And then I finally joined my family's business. And it's a business that my father started 40 years ago out of the basement of our house.

We sell laboratory chemicals to pharmaceutical companies and universities across the world, helping people solve all kinds of things from baldness to cancer. So everything you can imagine. We get to be a little part of that drug discovery process. I always say that I did all the things before I joined my family business in a hope and an expectation that I would come to my business ready to run it.

And I was rudely awakened when I actually had none of the skills to do that successfully. So that's why I started teaching because I was looking for the answers and I was incredibly curious about what is the research out there? And how can we get this data? And what can I do to be a more successful steward of my family's business?

So that's why I teach, really because I have more questions and answers. But I appreciate Emily, [00:03:00] you coming to the class always and providing your insight because a lot of students don't recognize what they have in front of their face. Many students are family come from family businesses and are looking for some other answer, looking for some way to find their way and they don't always realize that they could be looking inwards at their own business. So that's my story. 

Emily: That’s fantastic. Paul.

Paul: Thank you very much for having me. I came into family business a bit of a different way. In college I became kind of a de facto family member of my, my roommate's family, I was at all the family meals. I was there for Thanksgiving. And fast forward a little bit, I was asked to join their family business as an operator. We were in the bicycle shop business. So we had seven bicycle shops in and around Baltimore, Maryland. And I operated and kind of ran those businesses for 10, 11 years.

I just loved every aspect of it and really loved kind of meeting other entrepreneurs and talking to other entrepreneurs and decided I wanted to kind of branch out and find a job where I got to do that all day long. I had to kind of figure out, well, who does that work? Who gets to talk to entrepreneurs all day long?

And I was like, is it city governments? Is it academia? And I was fortunate enough to find a position at the University of Chicago. So I work at the Entrepreneurship Center called the Polsky Center at Chicago Booth. And I started by running our entrepreneurship through acquisition programming and wanted to work more on kind of day to day operations.

So now I run one of our accelerators for very early-stage startups. Through meeting Jamie and getting to work closely with Jamie, we do some great work in family business and I get to run a number of programs that connect our students at Chicago Booth to community businesses, [00:05:00] family-owned businesses on the south side of Chicago.

That's how I got here. 

Emily: There's an interesting crossover between personal experience and academic research. And I remember the first time I came to Jamie's class and for me it was interesting because I had had lots of reps talking to family owners and hearing their stories.

And often I'm talking to second or third gen who's having the conversation about selling or it's the father who's saying, Do I want to leave it to my kids? So I knew sort of the qualitative. And it was very interesting to see some of the frameworks that you all teach about, the pattern recognition within how these families function, and how it impacts the business.

And specifically, there's a triangle that that I have seen several times in the class. So maybe can we talk through what you all see as the triangle and how you think it helps businesses or families to better understand how they [00:06:00] may drive the business forward?

Jamie: So what you're alluding to is called the family business triangle and imagine like an equilateral equilateral triangle where the top part is growth.

One of the sides is one of the other points is Control. And the other point is liquidity. And imagine that forces are pulling those that triangle apart in different ways. And because of that, if you're moving growth in one direction, control has to move with it in order to still stay in an intact triangle.

And those are the forces that are at work when you're thinking about family business endeavors. If you want to grow the business, you are either going to have to take on liquidity or if you're going to have to give up control or get liquidity. So if you think about the three different factors, those are the things that you have to have in mind when you're developing a framework.

It actually comes back to the three-circle model as well, but it's a common family business methodology framework of three circles of the family business. There's family, there's [00:07:00] ownership, and there's management. And imagine them being three concentric circles.

And when you're a founder-led business, you're all one person. But as you move beyond generations, those circles start to separate and if you're an owner, or if you're a management person, or if you're a family person, you have different rights and different incentives.

And because of that, you may choose to act in a certain way, and I often equate it to plutonium. It's like if three different pieces of plutonium are put together. It can be an incredible, powerful force, but if it's put together incorrectly, it can be explosive. So all those different dynamics are at play with this triangle as well when you're thinking about what do we do for our business, but also what do we do for our family? 

Emily: It's an interesting visualization, especially when you think about it as tugging in one direction or the other, and that's what I hear expressed by most family[00:08:00] representatives when I talk to them: Look, we really want to grow, but we are constrained because we also are providing for liquidity needs for the family.

Jamie: Or we don't want to give up control…

Emily: The element of control is the piece that often leads to our discussion (as private equity) going nowhere, right? That's a piece that families really have to reconcile internally, whereas the liquidity piece is so interesting to me because there are lots of resolutions for that piece in particular.

There are ways to resolve how to grow as well, but if you have no compromise on control, I think that's the piece. So maybe let's talk about how governance then plays a role and how you all think about that, especially given the circles that you were just speaking to as the population grows and as it inevitably will in a family tree.

Who naturally gets to participate? How does that work? And should you expect that everyone [00:09:00] at least gets the invitation? How do you make sure somebody doesn't feel forced to participate? 

Jamie: Yeah at the end of the day, people are being entrepreneurial so they can have a sense of freedom. And then if you're kind of locking them into this business, they're really losing that. So there are different types of ownership methods.

Some will say that there's only one person who gets to make the decisions and there's a sole decision maker. And some of these people, some of these families are large and have many members and shareholders in it. But they're still only allowing one person to make the decision. So they're relinquishing all those rights for one person to make the decision. 

Then there are people who say that anybody who's in the family business, they get to make the decisions of whether it's a dividend or [00:10:00] whatever rights that they want that the business to have. 

And then there's also rules that say only people who are operating in the business can have rights when it concerns the business.

The truth and the reality is that it can be any combination and that every family business is different. Every family business is the same in that it really depends on what you as a family think is fair and equal. The challenge is that equal is not always fair and fair is not always equal. So there are some people who will say that we want pro rata shares for anybody who's just born into this family. And then now you have a free rider problem. 

The challenge really is in determining how do people want to build this legacy of their business and how do they want it to serve the family versus serve the business. And then you really get into this paradox of, well, do we serve the family and do we serve the business?

And really the answer is yes. It's not that you have to choose one or the other, and we often look at these challenges and we see them as problems that need to be solved, and they actually are unsolvable. And [00:11:00] once you try to get into this mindset of, I need to fix this, I need to fix this, you're going to start creating situations where people are going to feel unfairness or unliking of other people in their family.

So it's really just a matter of really thinking creatively about, what do you as a person want? What can you do for the other family members? And how can you develop a decision-making process together? There are family constitutions. There's different types of governance plans that you can put in place.

But it really comes from where do you as a family decide rights should be held? And what control do you want to let go? Would you add anything to that, Paul? 

Paul: I would say that, you do see kind of all different versions of those models. What we see far more often is there's no deliberateness there.

So be deliberate about, let's [00:12:00] have these conversations. Let's make sure that we understand this.

Emily: That was going to be my follow-up question. Does that happen in generation one? Or is that more of like, if that happens, I would imagine that's happening in the latter later generation?

Paul: I think that we all probably know the stereotype of the generation one Owner Operator who plans to die in their work seat and so why would we have to have these conversations? I think that does plague a lot of those generation one conversations, but I'm sure you have something to add there…

Jamie: I mean I'm living with the generation one. 

Emily: Maybe we can turn it back to your familial situation. Describe the family tree and who's involved.

Jamie: So my father is the founder of the business and then I have two sisters One sister is not in the business. I have a twin sister who's in the business. And then my mom plays a very behind-the-scenes role as many moms do when it comes to family businesses. M father, he is the CEO of the business. He controls a lot of the decision-making. But my twin sister and I will be taking over the business.

And there is so much psychological identity that is caught up in being the founder and starting this business as if it were a child. And when we think about the three circle model, he is all three of those circles all at once. He is the family. He is the the owner. He is the business.

And for him, it's really hard to separate any of those hats. So that's really the challenge we have. And we really used family meetings as a great way to start having those conversations. And we start every family meeting by saying we're the luckiest people in the world. Teally to come back to this idea of freedom and choice. If you don't feel like you're a lucky person to be a steward of this business, then you shouldn't be here. And the business is not here to kind of hold [00:14:00] you back. It should be moving you forward in every way possible. So we use family meetings as a way to start separating family and business and ownership and really thinking about, what are the different rights that each of those groups have?

It takes time. It's like a continuous conversation. We've been having these conversations for two years. I think for us, it's just really important to keep coming back to the table to keep having these conversations because I think once you stop talking about it, you're avoiding an issue and you're not really even trying to move something forward.

And avoidance is a huge topic in family business as well.

Emily: Yeah there's a lot of a lot of things that get swept under the rug until they become like an actual issue. Maybe to close out just for a minute on the basic steps that you all see that become an issue if you have multiple generations. What are the most basic versions of a family meeting or a constitution that are the building blocks to at least establishing some [00:15:00] rigor? And to your point, addressing the paradox without ignoring it, that this is both personal and professional for each individual at the table. 

Paul: I think what we found, especially in our class, when we're talking about these issues is maybe step one, and something that's possibly the easiest way to get into that, is talking about value sharing and talking about understanding, what my own values are, understanding what your values are.

So that when we're having those deeper conversations, it all makes sense. And interestingly, we find when we do this with students and when we do this with businesses, those values are are often very similar among among family members. They don't have to be. But so I think that's a really great step one.

Jamie: I mean, I love family meetings as a concrete way to start things. And we have as the final assignment in our class that Students do a family meeting and the number one task is to figure out what your core values are and are there shared values. [00:16:00] I definitely think that value piece is there.

I think when people think about family meetings, they already start to think about the boardroom and agenda. And I think I would let all of that go because when you think about governance, it can feel really stifling. Stuffy. It can feel like paperwork and can feel legal. And yeah, and we all have feelings about lawyers.

I would say make it fun. Just like do anything you can to make it enjoyable because that will keep everybody wanting to come back. And I think just keeping the conversation going. 

Emily: And an enthusiasm for the business, right? 

Jamie: Exactly.

Emily: I went up to class a couple of weeks ago and spoke with students and I had several students who noted to me that their family had a family business and sold it without talking to them about it.

And they're in business school and they're like, wait, what? Nobody talked to me. So twofold question. At what age do you start talking to the kids about the business? [00:17:00] And what's your response to those students? I know what I said, but I'd be curious how you guys would handle it.

Jamie: I feel like I learned about the family business in a very indirect way. And it was by going on visits to see customers or vendors, or we would go to conferences and every single summer vacation, every single winter vacation was doing one of those three things. Conference, vendor, customer, and we got to see the world through this, and it was amazing.

Yes, we're part of the business. It's the family business that is giving us these opportunities to do this. But it wasn't a sit down at the dinner table. This is what the business does. To be honest it wasn't until I started at the family business as an adult that I actually even realized what we did in some ways.

So it's so funny because I do feel like many of the students sometimes when they say I wasn't given the choice. I wasn't given the [00:18:00] option because I was never informed. And I think that information piece is always so valuable. 

I'm actually doing research right now. And I shared this with you on the story of Encanto. Encanto is a story about family businesses. And it's a great way to introduce children to the idea of different challenges in family business. I think people always want to avoid the topics of power dynamics, or we don't talk about Bruno and whatever he did. I think people are always scared of these family business dynamics.

So I think it can never start too early, but it also doesn't have to be so heavy handed, which is why I also think coming back to this idea of joy and fun is so valuable. So every year we do a family retreat and we talk about the business because it's something we're all in, but it's really to show the grandchildren and all the children what fun it is to be together.

Emily: Yep, that's fantastic. 

Paul: The only thing that I would add there that I think is we're talking about people that family businesses and they end up selling them from the class.

I think the other thing that we see is a lot of students who are coming from a family business, they’re second generation, they’re third generation and they want to launch a search fund. And it's like, well, you have this thing over here. What? What? What about that? 

Jamie: And we have somebody in the audience right now, Theodore, who had the same thing.

Paul: Calling you out. There's something about kind of a forcing function to like, let me really face this thing that I have because I'm looking at it through a very different lens that I'm looking through this other opportunity. And I know most of the people in the room probably don't have that family business to be like, Oh, well, I have these options.

But I do think that that's a really interesting kind of exercise from an external point of view

Emily: Yeah.

Jamie: No, that's very true. I mean, some people don't even realize that they actually have family businesses. Like you'll ask people, do you have a family business? The first thing that they'll say is like, no. But actually, my uncle did this thing or my dad started this thing and we've been doing it for a long time. And it's like. No, that's the family business. That's exactly what it is.

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