It’s time to clear the air about family owned manufacturers. The fact is that most of them are very well managed and much leaner than anything Wall Street owns, and for very good reasons. For one, the folks in charge almost always know the product, the process, the customers and the people a whole lot better than any ‘professional manager’. For another, particularly when the plant is in a small town, there is a commitment to the employees and the communities that the publicly traded companies can not possibly understand. The attitude of the owners is a lot like Cortez burning his ships when he reached the coast of Mexico. There is no failure or quitting or turning back. That sort of drive can never be reached by a guy who spends his career one click away from having his resume up on the Monster Board. If that stress were not enough, the person running the family business is going to have to answer to Aunt Ethel at the Thanksgiving dinner if there is no dividend check. Facing down stock analysts is child’s play compared to that sort of pressure.
More important than these intangibles, however, is that a family owned business – all privately held businesses, for that matter – are usually cash driven, rather than by any book measure of business success. Balance sheets – practically sacred scripture in the publicly held companies – are not so important. The ‘market value’ of the business and the worth of the assets are not especially significant to someone who has no intention of ever selling the business to anyone under any circumstance. It is more likely that the attitude of the family owner is that people, machines and material are all assets when they are moving, and they are all liabilities when they are standing still. Production flow is more important to private businesses because production flow means cash flow.
Regarding the sensitive toes I stomped on with my off-handed remark about dim-witted sons in law, it is important that the family owned business have a clear headed notion concerning the skills needed to run the business, and whether the family members can actually bring those skills to the table. Will Rogers once said, "It is not what you pay a man that counts. It’s what he costs you." Nowhere is this more true than in a family business that puts someone in a position in order to share the wealth with a relative, only to have that person turn out to be lacking in the needed knowledge or skills. It would often be far cheaper to pay the relative to stay away and hire a non-family member to do the job right. But most family businesses figure this out soon enough.
I think the biggest pitfall for family owned manufacturers, and one I have seen pretty good small companies fall into many times over my career, is that they often succumb to the oily sales pitch of a consultant or a software peddler who is telling them they need the management sophistication of the big guys. The small manufacturer is bombarded with pressure to get an MRP system, or to put in flexible budget controls, or some other ‘proven’ big time management process. In fact, the reason many of these firms have been successful for generations is precisely because they do not manage themselves like General Motors.
The best and most frequent lean manufacturing success stories in the United States come from privately held, usually family owned business. They are our best and brightest hope for a resurgence of manufacturing prowess in America. My advice to those in the lean consulting arena is to stick with the private companies, especially the family owned ones. That is where the lean manufacturing opportunity lies and where we will all get the strongest results.
Finally, I will offer the following deal to the family owned business folks who have been after me so hard over the Estate Tax issue recently: I promise to never again criticize the Estate Tax repeal movement, and to never again refer to anyone in your family as "dim witted" or by any other derogatory term. In exchange, you pledge that you will never, under any circumstances, no matter how desperately you want to provide for your daughter, offer a management position in your factory to a husband she found through a chat room for prison inmates, or a starving artist she brought home from a commune on the outskirts of Taos. Do we have a deal?