Family businesses comprise a huge and attractive market for CPAs and other service professionals. The more than 10 million family businesses in the U.S. range from mom-and-pop operations to Fortune 500 companies, and can be found in manufacturing, retail, the service sector, and many other fields. These varied enterprises are the engines that drive the American economy, and they have an assortment of ongoing business advisory needs that can only be met by knowledgeable service professionals.

The family-business market, however, has proven difficult for professional service firms to penetrate through traditional marketing strategies. Family firms tend to function independently and in idiosyncratic ways. Also they have not formed many associations based on their common status as family-owned firms.

Recent research by Massachusetts Mutual Insurance Co. revealed that there is a paucity of solid information about family businesses as a whole. Only in recent years have academicians and corporate researchers begun focusing on family businesses. Since marketing techniques rely on hard data gleaned from such research, it's not surprising that standard marketing approaches can fail to influence family businesses. Broad marketing overtures have not yielded dazzling results, also in part, because family businesses tend to hire advisors through highly personal processes, such as social or family networks.

The following paragraphs examine the challenge of marketing to family businesses and provide insights into using educational opportunities, such as those presented at Family Business Centers, as marketing resources to understand and work with family firms.

Family Businesses: They Succeed, but They Don't Survive

It is difficult to overestimate the importance of family business to the U.S. economy. For example -

* Family businesses account for 50% of the nation's gross domestic product and 65% of all wages. Some one third of the Fortune 500 companies are family businesses.

* They are successful - an analysis of stocks of family-owned businesses reveals that they significantly outperform the rest of the stock market.

* During the next two decades, an estimated $6.8 trillion of net worth will change hands from one generation to the next, with the peak period of distribution expected between 2002 and 2011. Much of this wealth is in the assets of family firms. Without proper planning, an estimated $3 to $4 trillion of this inheritance will be paid in taxes.

Another dark cloud looms over the bright family business landscape - an alarming number of family businesses will probably fail to survive the transition to the next generation. Less than three in 10 make it to a second generation, and only about one in 10 survives into a third. The average family business lasts just 24 years before it either dies or converts to a non-family business through a merger, sale, or other business transaction.

When a family business lives only 24 years, it represents a staggering loss of precious human and capital resources at a time when the country has an urgent need for jobs. The loss of family businesses also runs contrary to the national ethic of historic preservation and conserving precious resources.

Family + Business = Problems

Why do family businesses that are otherwise successful encounter great difficulties surviving and growing beyond one or two generations? For some, it is a case of there being no eligible heir; for others there is insufficient financing. But most experts believe that the overriding cause is the overwhelming complexity of family-owned businesses.

Simply being in business today is tougher than ever before. The pace of technological improvement is increasingly rapid, competition is fierce, and the only thing that is constant is change. Demands exist for greater than ever levels of professional talent to manage tighter margins and push faster inventory turns and lower receivables. Add to these problems the dilemmas unique to family businesses, and you have a whole new set of issues.

Values are often different in family businesses. The typical family business places a high value on "equality" and "feelings," while the nonfamily business is more likely to stress "fairness" and "logic." Take the examples of two firms - one a family business and the other a nonfamily firm - with three "cookies" to award. If the family firm has three children, you can be fairly certain that each of the kids will get a cookie, because that's equal and considers everyone's feelings. The same three cookies might be handed out differently at a nonfamily firm. The greater concern for fairness and logic could leave one employee with all three cookies.

When we combine the worlds of "family" and "business" the result can be overwhelming. Given that families have never been less functional and if business has never been more volatile, the impact of combining the two is exponential.

A family business is more complex than any other kind of business because family relationships can play themselves out in the business. In dealing with problems, family issues must be addressed before the business problems.

Major Family Business Issues

Before accountants can hope to work successfully with family businesses, they must develop an understanding of key issues that family companies face, as well as many pitfalls and traps in the family business world.

Two big issues for accountants participating in family business affairs are leadership succession and ownership transfer. These two issues - either alone or together - are the main culprits in the demise of many family businesses. These are issues on which accountants are particularly well-positioned to offer guidance.

Who Follows the Leader? Family business succession problems range from competing successors to unwilling successors to no successors. Regardless of the succession problem at hand, the family business that wants to continue to the next generation is in need of sound advice that will allow them to go forward with the leadership of their choosing.

Take the case of the family business with an unwilling successor - a daughter resisting the intense entreaties of her parents to take over the family business. The daughter is distressed because she does not have the desire to take over, but loves and honors her parents and does not want to see the family business die.

Parents can place a great deal of pressure on children with constant reminders of how much they sacrificed for them, and how much the business means to them - a legacy to their children. The daughter is forced to decide how much she owes to her parents, vs. how much she owes herself and her own family. Situations like this exemplify why succession planning needs to occur early in the life of a family business. The longer a family business waits to plan for succession, the more difficult it is to achieve results satisfying to all.

An accountant who is experienced in the ways of family business can recognize the problem and offer options. Alternatives can be explored, e.g., a professional CEO from outside the organization, or a management team from within. Given more facts and a wider view of the issues at hand, family business members can make a less emotional and more rational decision.

Transferring Ownership. Accountants can also be helpful when the problem is transferring ownership. Family owners tend to underestimate the complexity of transfers, estate taxes, shareholder agreements, trusts, and other issues that arise when transferring business ownership.

Even when family business owners are aware they have to plan for succession, they may have the notion that the process is brief and simple. There can be a lack of appreciation for succession as a lengthy process, and doing it right usually requires a transition phase and a gradual changing of the guard. These are matters where accountants can offer assistance.

Courting Family Business Clients

Once they understand the key issues, accountants are in a position to court family businesses and talk intelligently to them. This process is sometimes difficult because family business owners generally don't want to spend a lot of time with advisors. Every hour spent with an accountant, attorney, financial planner, or insurance agent is an hour that can't be spent with a customer or supplier. Instead of spending money for advice, they'd rather be making money tending to their businesses.

When they do sit down with advisors, family business owners prefer advice that comes in bite-size nuggets. They want advisors to get to the point. Advisors are hired to make their lives less complicated, not more complex. They don't particularly care how it gets done, as long as it is legal and doesn't cost them either huge amounts of money or control over their business.

The challenge facing professional advisors is to position themselves as a positive force to improve performance. Some family business owners view professional service providers as a necessary evil. They use professionals in a defensive way - to avoid being sued or hauled before the IRS. While professional advisors can help "play defense," they should emphasize positive attributes they can bring to a business.

Any professional advisor knows the estate tax implications and other ramifications of a solely owned business reaching a market value of more than $600,000. This is elementary stuff, but don't assume every owner is aware of the possible problems. Once an owner is advised of those implications, he or she will more likely be receptive to creative approaches for minimizing the tax burden.

What can the individual advisor do to get the attention of family business owners?

Network Extensively. Family business owners rely heavily on personal references and social contacts - a friend of the family, a friend of a friend, a golfing or racquetball partner - when they enter into business relationships. It is impossible to overestimate the importance of networking.

Are You a Mirror Image? Family business owners like to see reflections of themselves when hiring professional advisors. Many family businesses are small businesses, and many owners like to work with advisors from smaller firms. Some feel that a large professional service firm won't provide the most attentive service, and some are just more comfortable.

Family Ties. There is a feeling of kinship and empathy with and for others in family-owned businesses. If a professional advisor is part of a family business, it may be valuable to emphasize this. If your firm is not a family business, it could be helpful to mention if you ever worked in a family business, or if you have clients who are family business owners. One lawyer who works for several family businesses occasionally tells stories about the time he spent in business with his father - to remind clients that he understands their problems.

Get in at the Right Time. When a family business hires an advisor, it tends to stick with that choice. It's especially important to reach family business owners at the time they are planning to hire an advisor; you may not get a second chance.

Many family business owners are avid readers of the trade magazines dedicated to tend to place considerable trust in the information they receive at seminars, conferences, and trade shows. This is a reflection of respect for their peers. They see strong benefits from associations based on common business interests.

Don't Trip on the Way in. Because they place a premium on trust, family business owners are fussy in how they hire professional advisors. Before they expose details of their businesses and families to a nonfamily member, they must have a good feeling about the person with whom they are dealing. Avoid poisoning the well with a family business owner.

Speak No Evil. One way to get off on the wrong foot is to bad-mouth a competitor. Because family business owners place a high value on trust and loyalty, sentiments generally run against disparaging others.

Don't Come on Too Strong. Another way to turn off family business owners is to present yourself as an authority on their business. The average advisor probably knows a fraction of what the family business owner knows about their business.

Avoid Name-Dropping. Family business founders tend to be more impressed with what you've done rather than what or who you know or where you may have gone to school. In general, longtime family business owners are less willing to hire advisors who are young without "real experience" in running a business.

Taking a Leadership Role

Accountants frequently play a low-key, advisory role. Working with family businesses can provide a showcase for accountants in a leadership role, bringing together attorneys and others as a team to develop solutions to family business problems.

RELATED ARTICLE: FAMILY BUSINESSES WILLING TO TAKE THEIR PROBLEMS TO SCHOOL

One encouraging trend for professional advisors looking to penetrate the family business world is that many family business owners have come to recognize a need for outside guidance. In an effort to minimize the high risks of failure, some family businesses are attending a nationwide network of university-based family business centers.

A few years ago, these centers did not exist. Now, some 60 universities in nearly every major metropolitan area of the nation have family business centers in operation or planned for operation, or they offer some academic program designed for family businesses.

One reason for this rapid growth of academic centers is that they promote open and frank communication. Feelings are communicated more readily than in the past, and there is greater license to talk openly about things that formerly remained hidden.

Family business centers facilitate discussions about the issues and situations peculiar to family businesses. Owners are told they are not alone; other family businesses share their problems. They can all learn from one another. Once they become involved, family business members receive advice from accountants, academics, attorneys, and other professionals on issues like leadership succession, ownership transfer, and conflict resolution.

Family business members are often candid and revealing in discussing these issues. For example, participants at Northeastern University's Center for Family Business have talked openly about personal events such a prenuptial agreements or the devastating consequences one family experienced when one sibling was chosen over another as successor.

The Value of Sponsorship

Accounting firms and other professional service providers are key players in developing these centers, which are often funded through sponsorship by these firms.

The centers provide family business members access to extensive educational and research capabilities. They also provide the sponsoring professional service firms an opportunity to meet the key players in family businesses in a setting where they are discussing issues that these professionals deal with on a day-to-day basis.

Advisors participating in family business centers learn a great deal from the experiences being related by family business members. These advisors are in a position to offer solutions and engage in dialogue with family business members about how solutions might be implemented.

The Value of a Family Business Center

Family business centers provide a noncommercial setting in which to meet family business members who have a pressing need for professional services. The added bonus is that the academic setting promotes open discussion about the problems associated with family businesses and the possible available solutions.

When accounting firms become involved with family business centers, they have an opportunity to participate on advisory boards and influence the direction of these centers. They become a resource, part of the curriculum, and may even have the opportunity to make presentations on issues of special interest.

Through their presence at family business centers, advisors build relationships that are vital for communicating with the often-ignored members of the younger generation and tuning into the whole array of family business issues. One thing is for sure: If Dad has a relationship with the old accountant, but Junior doesn't, the old accountant is history! Advisors to family businesses must learn to avoid being trapped in the almost inevitable conflicts that arise between the members of the older and younger generations within family businesses.

If sponsorship is not an option, the next best thing is to make presentations at a family business center. Accountants making presentations should be aware that, while content is important, the quality of the presentation is twice as important. Without a quality presentation, the content will never be heard. Family business owners have been known to walk out on a presenter who drones on in dry technical language, regardless of content.

It is important for a presenter to show some empathy for the audience. If a presenter has had some experience with a family business then this should be part of the presentation; let family business members know if he or she walked in their shoes.

Paul I. Karofsky spent 22 years in his own family business before earning an advanced degree from Harvard University. He is director of the Northeastern University Center for Family Business, an instructor in Northeastern's MBA program, and a consultant to family businesses. Bonnie Mills oversees the marketing, research, and educational activities of the Family Business Marketing Enterprise at Massachusetts Mutual Life Insurance Co. Her extensive marketing backround includes experience us a marketing director for a Big-Six accounting firm.