What is the future of the family-owned dairy? As the average age of the American farmer increases to 58, this question becomes an industry-wide concern.
How do we perpetuate these family-owned dairies and pass them on to a prepared and capable next generation?
To begin to understand that question, it makes sense to look at a Venn diagram developed by Tagiuri and Davis at Harvard University in the early 1980s. This model offers perspective into the human elements of having a family-owned dairy.
The diagram is based on three circles with overlapping edges. Broadly, the first circle encompasses all of the family members connected with the dairy, the second represents those who have ownership in the dairy, and the third includes those who work on the dairy.
It may seem that some of those individuals are one and the same. That’s where the intersections of the three circles are descriptive. In all, there are seven different owning/working/family combinations possible in every family-owned dairy.
Let’s examine each group and the specific questions they have about the future of the dairy operation. This question-and-answer process is one each dairy management team should go through in order to identify the perceptions, expectations and needs of the people who make up the organization.
What do 1’s think about the dairy?
This group is made up of family members who neither own nor work on the dairy. For the most part, this group has opinions about the future of the dairy, but they lack power or influence.
This group may have a general desire to see the dairy remain in the family to respect the heritage of their ancestors or for sentimental reasons. They may be thinking:
- Why would “they” change or sell the dairy? It was a huge part of our childhood.
- How will I be able to teach my kids about what the dairy means to me if I don’t own or operate it?
Who are 2’s and what worries them?
Investors, lending organizations and trustees are examples of group No. 2. This group is very focused on the dairy as a financial asset and look at its performance from that standpoint.
This group is typically not emotionally invested in the operation, but they do have real questions about its management and performance. They consider:
- What is the dairy worth?
- What is the return on my investment?
- This family thinks they want to run it for another generation, but do I trust the next generation will manage it profitably?
What do 3’s worry about?
People who would be considered in group No. 3 are employees of the dairy and may worry about what will happen to their jobs if the family that owns the dairy doesn’t have a plan.
They worry about family members returning to the dairy and limiting their opportunities or even taking their jobs. They worry:
- If Junior comes home from college and wants in, does that mean I lose my job?
- Am I always going to be the hired hand?
- How likely is it that the family will keep the dairy in the family for another generation?
- Do I want to work here if Junior becomes my boss?
- If Junior doesn’t come back to the dairy, would I have an opportunity to expand my role, maybe even buy into ownership?
What do 4’s care about?
Fours are individuals that are family members and have an ownership stake in the dairy but do not actively work in the operation and have some unique concerns. Fours wonder if they should be patient when the dairy isn’t providing them with much cash flow.
They are sometimes the first to second-guess the management of the operation. This group often feels they aren’t communicated with about what is happening on the dairy. While to everyone else it might seem “lucky” to be a non-operating owner, to them it has its own set of challenges. They worry:
- Is the dairy profitable?
- Should I just wait quietly when the dairy is not providing me cash flow?
- Should I view the dairy as a family stewardship or just a financial asset?
- How do I feel about the management of the operation?
- Do I feel informed about what is really going on at the dairy?
What are the concerns of a 5?
As a non-family owner and active participant in the dairy, this group has its own set of questions. Those considered 5’s worry about next-generation family members coming back to the operation. They sometimes wonder if they are coming back to bring value to the dairy or if they are returning because they couldn’t find another job.
Fives may also question the compensation of family members working in the operation. The biggest worry for this group is: When “family issues” crop up, do they automatically become issues for the dairy as well? They may wonder:
- Are family employees talented and competent?
- Is compensation for family members who work for the dairy a fair-market wage?
- Does the majority owner have a plan that includes making me an owner with someone I don’t want to work with?
- Are family issues, like divorce or sibling rivalry, creeping in and becoming business issues?
- Do No. 4’s really understand the long-term value of the strategic plan?
What do 6’s think about?
The perceptions and challenges of a family member employed by the dairy without any ownership are distinct. These individuals wonder what it will take to become an owner. They worry about what their parents will says. They may even fear having to share ownership with all of their non-operating siblings (No. 1’s) and the challenges that will create.
Sixes also would like to know if ownership will be gifted to them or if they will need to buy the operation from their parents. Sadly, some wonder if they will be “just a farm hand” for the rest of their life. They also wonder:
- Does Dad/Mom have an estate plan that includes me in the ownership of the farm?
- Why does No. 4 get ownership of the farm when they don’t even work at the dairy?
- What will it take for me to become a No. 7?
What unique questions do 7’s have?
The unfortunate and sometimes overwhelming challenges of the controlling owner group are that they are forced to deal with all of the questions of all of the other groups. They worry about how to satisfy the different needs of each of the other groups. Sevens struggle with the questions that surround life after being a controlling owner.
Many lack hobbies or other meaningful activities away from the dairy. It can be depressing just thinking about having someone else make the day-to-day decisions about the operation that they built.
Finally, many struggle to figure out their cash-flow needs during retirement. The questions of when to retire, how much money to expect retirement to require and where it will come from are all typical challenges of controlling owners. They also question:
- Does anyone really care about this farm, or do they just want money from it?
- Could I be happy as a No. 4?
- Do I believe the next generation is prepared to inherit and operate the dairy?
- Do my heirs really understand what I had to go through to build this?
This three-circle model offers a practical viewpoint to address the key questions of all involved with the dairy. Consider what you have done to confront and discuss these questions in your succession plan. PD
Dave is the author of The Farm Whisperer and founder of Advising Generations, a strategy-consulting firm for family businesses. Download his smartphone app “Inspired Questions For Farmers” to aid in succession planning. Contact him at (509) 318-0706 or visit The Farm Whisperer.
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- Email Dave Specht