What to Ask before Joining a Family Business

by Amy MacMillan Bankson on April 7, 2017 · 3 comments

in Alumni Life, Management

Stephen DeFalco ’83, SM ’88

Stephen DeFalco ’83, SM ’88 spoke at Sloan.

Thinking about going into your family business? Or any family business? Be sure to do your due diligence first, said Stephen DeFalco ’83, SM ’88.

DeFalco, CEO of Crane Currency, spoke March 13 with members of the MIT Sloan Family Business Club. As an “outsider” who was chosen to lead the centuries-old Crane Currency company in 2011 and as the son of an Italian immigrant who owned a grocery store, DeFalco has seen both sides of a family-run business up close. Before he joined Crane Currency, DeFalco was CEO and president of MDS, Inc., a global life sciences company.

DeFalco is the first CEO to be recruited from the outside and only the third non-family CEO in the history of Crane Currency, a business that has supplied the material—a cotton and linen mix similar to blue jeans—for U.S. bank notes since the days of Paul Revere. Today’s bills also feature micro-optic technology—or the secret sauce, in DeFalco’s words—to foil counterfeiting attempts.

Although Crane Currency has a storied history, the company has undergone massive changes on its high-tech path to  becoming a major player for supplying currency for central banks worldwide. Sixty percent of Crane’s revenue now comes from outside the United States. After being family-owned since 1801, the private equity firm Lindsay Goldberg stepped in and acquired a 49 percent stake in the company in 2008. The board of directors is a balance of Lindsay Goldberg, Crane family members, and independent representatives.

Here’s what DeFalco said you should ask before you join your family business—or someone else’s:

What generation is the family business in?
“The lower the number, the easier it is to join,” DeFalco said. “Because when you get into third- and fourth-generations, and there are multiple cousins involved … things get complicated exponentially. If you told me, ‘My dad started the business. I’m an only child, and he’s getting old,’ well, that one is straightforward. But, if it was your grandfather’s business and there are multiple older cousins involved, that gets a little more complicated.”

If I’m an outsider joining a family business, what kind of skills should I have to navigate family politics?
“I think I would have failed miserably if [working at Crane] had been my first CEO experience. Early in my career, consistent feedback was always, ‘Stephen’s a little rough around the edges.’ Over time, hopefully, I’ve become … more of a diplomat. At an early board meeting I presented an analysis and they just weren’t used to someone coming in and saying, ‘Here’s an analysis. We are going to do X.’ I was pushing the board to close in on a decision, and just then the private equity guys stepped in and said, ‘Let’s let the board members think about it. We’re in no rush. We can decide in two weeks.’

“After that meeting, the private equity guys coached me: ‘Don’t ever rush a family member into a decision that they are not ready to make. It will backfire on you.’ They wanted everyone to move along together, because they wanted consensus. It was a great advice, because I probably wouldn’t have gotten a unanimous board vote that day … and over time it’s really important to get unanimous board votes.”

I’m considering joining my family business, but what kind of outside experience should I get first?
“I worked at McKinsey & Company after I graduated MIT Sloan, and [a former colleague] said, ‘Stephen, the problem with people who leave McKinsey is that they think they are an ‘end product.’ You are not an end product. You need to go somewhere where you can learn at the same rate you learned at Sloan and McKinsey. You are not ready to be a CEO.’

“And that was very helpful to me. I would say to you: Pick the best development experience that you can. Don’t think that you’ve got this great MBA and now you are done. Learning to be a president is definitely an apprenticeship. The big consulting firms offer good development experiences and top company leadership rotations are also great. Work yourself up to a general management role. If you want to run the family business, you’ve got to find a way to do that.”

{ 2 comments… read them below or add one }

clemente Pereda April 7, 2017 at 9:52 am

Joining a new corporation? First of all, study the corporation documents. Then the profiles of the top executives, also their social relationships. Most of all, do not carry in with you the policies of your previous employer, wait and see. Do not present yourself as a know it all, particularly if it is a different business. Study the market and the contacts, the relationship with other business and the government. Listen to the new partners in the corporation. I found this important in my experience as changing from an industry to another, specifically from the oil corporation, then to a cement manufacturer and finally to a paper manufacturer. The petroleum industry was not a family owned corporation, the cement and paper company were pretty much family owned. It took some time to learn the specifics of a totally different industry in each case, it was necessary to study and be patient, to be friendly to the new associates. As an engineer, a graduate of MIT, I had the basis to adjust to a different technology. Success came in due time. In the family business, if you are not a part of the family, try to find out who are the prevailing or directing members of the family. Also, who are the easy riders, those that will not likely interfere with new policies that you might want to enact. Be diplomatic. Move with care.
Be like Stephen de Falco.

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Clemente Pereda April 7, 2017 at 5:57 pm

It was a privilege to attend MIT. I came from RPI, equally strong in engineering. After RPI came something unespected, the Korean War and military service in Fort Belvoir, VA Teaching concrete technology to the troops, including Korean officer groups. I spent many years with the venezuelan industry, petroleum, cement and paper technology. Most of the time I had a private consulting firm, first with Hidrotecnica and later Pereda and Associates, doing engineering design for urban development in and around Caracas, Venezuela. When I read Stephen DeFalco counseling CEOs in family based corporations, I came to remembering my service with the two family run corporations, lthe cement company by the Mendoza Grioup where I became Research and Development Manager, after that MANPA, the paper company of the Delfino Group based in Maracay, Venezuela. These two corporations had a distinct philosophy, reflecting the views of the founders, Eugenio Mendoza and CARLOS Delfino. It was a necessity to follow the criteria of the founders and the families in order to succeed as a manager. When I was asked to join MANPA I wondered what would happen, since I did not have experience in paper manufacture. Thanks to continued effort success came to me, ending up as Technical Manager. I agree with Mr. DeFalco, it was important to be humble, not to asume the so called “cap of the bottle” attitude at the start. Slowly but sure one can ascend in meritocracy. The tools were there to be managed. It is a fortune to have been trained in RPI and MIT. I particularly remember quizzes and exams that required thinking along, it was not a word by word repetition of lectures and books of learning. Now is the time to collect experience and continue to be useful in society. It was, as Mr. DeFalco points out, the question of FINDING THE WAY. I definitely agree with him.

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