Episode 2: On Family Business

[MUSIC] You're listening to Community Crafted Education, where we explore alternatives to conventional K-12 education and their potential impacts on society and culture. I'm Eric Weirn, Director of the National Hybrid Schools Project. On this episode, we're joined by Sarah Davis from the Family Enterprise Center at Kinesau State University. We'll talk about parallels between founding a family business and launching a community-driven school about setting up and maintaining multi-generational success and about supporting local community values. Welcome to the Community Crafted Education Podcast. We're here today to talk about hybrid schools and micro schools and their relation to family business. And to do that, we have Sarah Davis from the Family Enterprise Center at Kinesau State University. Sarah, thanks for being here. Thank you so much for having me this morning. So as Eric said, I am Sarah Davis with the Family Enterprise Center at Kinesau State University. And we work with family businesses in the community, regardless of their affiliation with the university. And we help empower leaders to grow their business while preserving their legacy and navigating family dynamics. Great. Great. I know you guys do all kinds of work around town with those kinds of operations. So a lot of hybrid schools and micro schools are started literally by families or by small groups of parents that kind of act like families, right? So I think there are a lot of parallels between the way these things are founded and start up and the way family businesses work. That's a hunch that I have. Can you talk about that a little bit? I would agree. The little bit of work that I have done with you in your center, I see those parallels as well. So often when we talk with family businesses, the things that stand out are preservation of a legacy. They want something to last longer than the business. Maybe it's the impact on their family or maybe it's the impact on the community. We also see a focus on long-term time horizons. So we're not making decisions that are going to create the greatest impact or the greatest returns for shareholders, but rather something that is long-term sustainable. So when I've spoken with the micro schools and the hybrid school directors in the past, I see those same patterns come up in our conversation. They want to make a great impact on their community and they don't necessarily need to become rich in the next 18 months, but rather they want to create something that is sustainable. Mm-hmm. And I know you support things like multi-generational success with these businesses. I know school leaders who talk that way too. They'll start up their micro school and they'll say, my interest is in building something that I can have my children and grandchildren take over for the long term or if not take over, they'll attend it. But often the idea is they want to create a small business and hand it off to someone else. Here's what you'll see teachers, for example, start up schools, run them for a few years, but now they're looking to sell it or do something else. But others want to create this lasting institution, something they can hand on when they retire. So can you talk a little bit about the idea of succession and multi-generational success and how these founders or potential founders might think about this and what they might do to plan for it? So often you'll hear a statistic thrown around when we talk about transgenerational succession. And that is from the first generation to the second generation, you're looking at about a 30% success rate. And then moving from the second to third, we're at about 12%. And to get to that fourth generation, we're in single digits. And that can seem disheartening. A lot of people will go, oh, well, maybe I don't want the next generation to take over if they're not going to succeed, but I like to counter that point. It's not that they're not succeeding. It's just that success might look like something different. So perhaps it is selling the business instead. Maybe it's going public. But also business success rates often don't last decades and decades. And so the idea of not being able to make it to the fourth generation shouldn't stop you from doing something great in this decade. And so when we think about the future, I tell people it's never too early to start. If you're starting your business, you should go ahead and think about how you want to exit because that will impact what you do in the short run. So if your goal is to sell your business, it is important that you hit certain success metrics, whatever those may be for your industry. So of course, a buyer is going to want profitability. But what does that look like in a hybrid school? And I don't typically work in that environment, so I can just speculate, but it's probably going to be enrollment numbers, retention. You have quality instructors. Those are the things that a buyer is going to want to see. And I'm not saying those aren't important, but if you're instead of looking to sell the school and you want to pass on to the next generation, maybe you're going to invest a little differently. So you won't have as many students, but maybe you have a niche of students that you work with. Or maybe you're not going to focus on growing in one aspect when what you were really passionate about is something niche. And so knowing what the end is and keeping that in mind while you're beginning and while you're growing will allow you to make strategic decisions that will better position you for whatever that future is that you want. So if you think about an example of a business that successfully, so either way, either successfully handed off to the next generation or fumbled when they they intended to, but they didn't work out, can you can you think of any kind of consistent reasons why that works or why it doesn't work? If I were to distill all of my observations into one word, one word for you, I would say it's communication, the lack of communication causes things to crumble. And there's so many things to communicate about what are the expectations? What do you want to see for the business? And then if you're looking to give it to the next generation, that's likely going to be your child. And so when they were a kid, when they were under the age of 18, you probably communicated with them a little differently, then you do as they are now a partner in the business. And often I'll see communication revert back to how you talk to them when they were 13 and they're not 13 anymore. They've grown. Hopefully, hopefully they have grown and developed into a beautiful person who can make great decisions, but it's so easy to slip back into. You remember that time you snuck out from the house and I don't know if I can still trust you. So the great thing about family businesses is that you have this history together and you can do so much with that trust. The bad thing is you have this history together and it constantly is brought up and can impact future decisions. So making sure that there's communication just on a personal level, what do you expect? And then communication regarding the transfer itself. So often the next generation assumes that they're going to be gifted a business and most of us can't afford to just gift our whole income to someone. So we'll see owners that have this expectation that the next generation is going to buy out the business, but the next generation probably doesn't have the money for that. So what does that process look like? And there's not a right way or a wrong way. It's just there are a lot of different ways. So perhaps there is a buyout, maybe there's a partnership for a while. Maybe you take on external debt in order to make that transition, but we have one generation that is likely looking to retire or move on to something else in their life. And then another generation that's looking to start their business and start their career as an owner and both of them need financing, both of them need money. And so coming to the table with an understanding that most likely they're not out to get you or anything bad and that sort, but just that everyone has their own goals and our behavior is often determined by our goals. So if you think someone is doing something silly, communicate with them, open the discussion, what is your goal? What are you trying to get to and how can we work together to get there? So I would say communicate is the most important thing. Yeah, that's great. No, I mean, things that you wouldn't think about if you were dealing with strangers suddenly become much more complicated when it's your children and parents or close friends. And unfortunately, even in large businesses, you'll get to be in the boardroom and come to find out this argument has nothing to do with what's happening in the business and everything to do with who got the Lake House last summer. Yeah, yeah. It's more complicated. Yep. Yep. Well, let's talk about some practical, some other practical things then. So, you know, running a family business can be very hands on, right? So the same thing is true with community crafted schools, right? You might be the teacher and the principal and the accountant and the janitor and all kinds of other things, right? So how does that kind of translate between family businesses and these kinds of schools? So. So often entrepreneurs have to wear many hats and Sometimes you have formal training in that sometimes it was a hyper focus and you learned a lot on your own and sometimes You're just doing your best and I see that Especially with my craft entrepreneurs. So I work with quite a few businesses who have this skill and maybe it is catering maybe it is offering a service. Maybe it's a a school program and they are excellent at it. So I'm sure most of your listeners are amazing teachers and that is their craft and their great at it And that is a important component of a business but an Equally important component of the business is running the business and so often the craft entrepreneurs I work with will forget that It's not just about providing a great service or a great product, but that you have to be able to Run a sustainable business and I often say that Profits not a dirty word. It's what's necessary to pay your bills and the people who support you Want you to be successful. They want you to continue They like the service that you're providing and they want to continue to receive that service and Most people understand that in order for you to continue providing that service that you have to pay all your bills and Profits not a dirty word. It's a necessary component of being able to do the great work that these craft entrepreneurs are doing Yeah, it's a tricky thing because a lot of these people come into this Not from business backgrounds, but from wanting to either help people or just do something for their family or their community and so it's They don't realize that they're providing something that has A value that maybe is greater than they think. Yes, right? So so they a lot of them will tend to Scholarship too many kids or or lowball themselves right the negotiate against themselves when they're setting two ishians or things like that So so yeah, I I agree. I think this is a An important point for these founders and leaders to realize that they have to know their own value Yes, and then it's not a bad thing to know your value It's it's okay people expect to pay for something exceptional and I would imagine most the listeners are doing something exceptional so Understanding what the value of your service offering it might require benchmarking Looking at what other competitors are doing we here are in Metro Atlanta And so the pricing is going to be very different than if you were to go to my home state of West Virginia And so when doing bitch marking look at other areas that are similar to you, but also look at Services that are in a similar niche if you are providing General education to the whole population That's going to be valued at one dollar amount But if you're providing customized niche services for a population that's often overlooked There's more value to that the the parents of those children are going to Want to pay more because they want to know that they are getting something exceptional for their children and and so understanding that what we're doing is valuable and Engaging in benchmarking. I think those are two ways that are are very helpful But remember as as the owner and I see this often you have to pay yourself your time is worth so much And I frequently tell my businesses that you are not profitable if you are not paying yourself a salary because that is another bill That needs to be paid and you're not profitable if you're not paying all your bills. Yeah. Oh, that's great So okay, let's let's keep going with with this idea then so So you value yourself appropriately say Even if you do that a lot of these schools have to operate on Lean budgets and be creative with their use of resources just like small family businesses Are there any lessons from from those kinds of businesses that these schools could take about How do you get by on these razor thin margins? Yes, it's it's difficult especially in the early years we'll see businesses start up on Just excitement a adrenaline is kind of what's getting things going will have a really passionate owner Who's out there doing the most that they can and they have stretched themselves so thin and then They might bring on someone they might grow a little bit But the there's this key Point in time and it happens. It's different in different industries, but very shortly after a business starts and It's how do I bring on another person? I need to grow I need help But I can't afford it and sometimes you have to take that leap of faith and know that When you bring on this other person definitely do the calculations run your budgets in the background Make a good business decision But sometimes you have to know that when you bring this extra person on you'll be able to say open another classroom And when you open another classroom you're gonna bring on what maybe five seven ten more students What does that tuition look like and and you'll be able to see the revenue sources that this person will bring in We often like to use the rule of thumb of when you're bringing someone in Are they increasing your revenue? Three to four times what their salary is and it might not be within the first six months But when they are fully onboarded are you seeing that and so knowing Those sorts of rules of thumb I think are helpful when making that difficult decision But back to your original question. How do we get by on these razor-thin margins? I find a lot of businesses they they come together So there are groups kind of like what you're doing where they can trade insight trade resources Maybe I have a little extra this I'll trade you for that and we we kind of move back into this barter system of I'm really good at putting together marketing materials, but I don't know how to Post on social media. So if I create your flyers will you help me create my social media posts? and Collaborating because so often we get into our mind that we're in competition with everyone and we have to do it alone We don't have to do anything alone. We can we can bring on as many advocates and supporters as we want and so finding communities We do a lot of business networks. I know at our center. We have here groups that are helpful But finding those communities where people are going through similar struggles and they can help you With what you're not good at. Yeah, that's that's great So I want to change gears a little bit and talk about the idea of Scaling yes, so this in an education policy for a while this this was our education reform this was One of the big pushes From philanthropy from from a policy side That we were looking for school solutions that were successful in one place that we could then Just pick up and move in as many places as possible, right? And I you can kind of see why that makes sense right we're look we're casting around for solutions But there's been some tension with the rise of these Kind of hybrid and micro schools because the reasons they start is not so that they can Blow up and become the next you know whatever Company and then the the founders sell out a lot of times they start up because You know the founder wants a better place for their kids to go to school, right? or they you know they something they're They don't like the direction that their their neighborhood or their town is going so they want to start a school To kind of help preserve what they like about that neighborhood They like the idea of of opening a second campus much less spreading around the country doesn't even enter their minds, right? I think some of them will spread and and you know we've got some examples of Of micro school networks that are like franchised and are big and all over the country and that's fine But but there's a big contention of them that has no aspirations to that their aspiration is to their family and to their Town or their neighborhood, right? So what you know What can you say about that? How what how can family business kind of inform that idea? Yeah, so this this might be a controversial opinion if government policy is wanting us to move in one direction, but I think it's okay to not Now what does that do for your government funding? I'm not the person to ask for that But I will hold space for those businesses that don't want to grow into something large so when I first started working with family businesses I was doing economic development for my local hometown and I was working with Mostly small businesses because that's what we see in these areas of the United States that Don't have the population based to hold large corporations. So our whole downtown were adorable businesses tailored to our local community and I saw them engaging in behaviors that would not lead them to be the biggest the bestest and the fastest Instead they wanted to make a solid impact in their community. They wanted to maybe sponsor the Little League team They wanted to have you know Sundays off with their family and that was okay and they had Alternative goals that were in alignment with growing their business right there at the same level just as important. And I thought that was a really beautiful thing. And that's how I got into studying family businesses because in my undergraduate and in my master's program, we didn't talk about family businesses, but they make up the majority of the economy. And so when you're looking at these smaller businesses that make these hometowns great, we should make space for them. We should offer insights for those businesses. And so I see that in this in this hybrid school community that maybe you don't want to grow to be the largest. You want to do the best for the community you have. And that's okay. There is nothing wrong with being there for your community. And so when we're talking about family businesses and what this looks like, I have a lot of family businesses that are growing that are scaling. I mean, look at Chick-fil-A. They're a Atlanta local family business, but they are massive. But most of the people that I work with aren't on a growth trajectory like that. And so understanding what it is that you want putting your flag firmly in the ground and leaning into it. So if you want to stay local and have that intense community network, that's okay. That can be your legacy. And that's a beautiful thing. And it sounds like you think that it can work too. So, you know, like forever, well, maybe not forever. For the last say, 100 or 100 in something years, the public schools have been kind of an anchor in local communities, right? Like everybody knows Friday night lights or things like that, right? I think that's becoming less the case. I mean, for a lot of reasons. In part because of the way we physically build schools now, they're so big for lots of reasons. But the emergence of these hybrid and micro schools has kind of shifted people's local allegiances a little bit. But so it sounds like you think that these schools can kind of occupy a similar niche to what the family businesses do in terms of kind of being the glue that maybe bigger conventional schools might have been in the past. Yes. So I like to think about it like Walmart. So Walmart came in and they build massive stores where you can get everything you need from shampoo to dog food to breakfast cereal. And and that's great. But they are right there on the edge of town. And they they don't service everyone. I personally don't enjoy going to Walmart because it's so big. I get overwhelmed. I get distracted. I have to walk back and forth through the school or through the store multiple times. And for some people, it's perfect. One stop shopping. And for some, they just don't enjoy it. So I think that the hybrid school is kind of in a similar area. Think about a town that you might know that doesn't have a Walmart where I grew up. We had we had plenty of them. Like you had to drive to the Walmart. And if if the town can't support a Walmart, then what you're relying on small businesses, which tend to be small family businesses. And you're going to go to one shop to get your pet food. You're going to go to another shop to get your breakfast cereal and you'll go someplace else for your shampoo. And that's okay. So it's in terms of business, you know, we had a lot of small businesses. Walmart came in, put out a lot of small businesses, but not everyone likes that. So then what comes in to replace the small businesses that were there, Walmart, we ended up with dollar generals. And so that's where the dollar general niche is that they their goal is to have a store. I don't remember if it's like every five miles, every seven miles. I wish I would have looked this up, but I didn't know this is where our conversation was going. But the goal is to fill those voids where Walmart doesn't doesn't fit anymore. And the small mom and pop shops have gone out of business. And so I see parallels with with the school system. I guess timelines a little backwards. We have the big one size fits all public school system. And then the opportunity to come in and serve that niche. Maybe I want specialty dog food that they don't sell at Walmart. Maybe I want my child to have a niche education that they're not going to get at the public school. So I think that it's it's not just a workable model. I think it's a necessary model. When we look at, you know, we had students back home that would drive an hour or more to get to high school. That's not sustainable. And so if you don't want that for your children, what else is there? It's going to be the hybrid schools. They're going to fill that void. Yeah. So great. So what advice would you give to a family or a small group of friends who are considering starting a micro school or a hybrid school? And would you give a family the same advice you would give a small group of friends? Oh, so a small group of friends is going to be a little different, especially if you're newer friends. If you were childhood friends, we're starting to move into that family almost. But I think the things that I would say, like, let's, let's start. You already are a great teacher because that's where these people typically come in. They have the skill. Let's talk about business. Find yourself a good business advisor, a business coach, find yourself a network of people that know the things that you don't. It is okay to not be the smartest person in the room. And if you find yourself being the smartest person in the room too often, go find yourself better rooms because we need to learn from the people around us. Business does not just happen. We often like poke fun at business majors. Like, what are you even learning there? But business doesn't happen on its own. There is a lot that goes into understanding the accounting, understanding payroll, understanding investments, what are our revenue streams. And if those are not things that you already know and have experience in, find a partner who does, find a coach who does learn as much as you can to ensure that your business is successful. And so once you start thinking about this as a business, because that's important, you have to pay your bills. And once you start thinking about it as a business, find the holes where you can bring in other people to support you. I'm a huge advocate of knowing your own limitations. Do the things that you do well and continue doing them. And the things that you're not good at hire someone else to do them. So for example, if you don't understand payroll and payroll taxes and all the laws associated with that, there are companies out there that don't charge a whole lot and they can help you out with that. And it would be a better investment of your money than it would be of your time to learn all of the laws associated with it. So again, value your own time. Keep that in mind. Work towards profitability, a lot of businesses, they take a little bit to get to that level of profitability, but have a line in the sand and know that I need to hit these numbers by this date. So having that plan and keeping, keeping it in mind. Now from the family aspect of it. So I can tell you how to be a good business, how to be a good family. I think, I think we're going to lean back into that word, communicate. What are the expectations? Who does what? Get it in writing because sometimes our memories don't always remember things the same way. That's right. So get it in writing. Who's doing what, when, why, how often, what's the ownership? Is it 50/50? 50/50 is tough because who's going to break the tie? We're just going to sit and argue. I have some people that think 49/51s doing something, whatever makes you happy, but get it in writing. Know where the lines are and then have off times. So I work with one business, and they do it probably better than anyone I know. It's one parent, one child is in the business, the other parent, the other child, not in the business. And they have a role that they don't talk about work after like 6 p.m. You were not allowed to talk about work at dinner. And the other two call them on it, which is an important component. You can't just sit there and be a bystander, be like, work talk again, but have that balance. So you can maintain whether your relationship is familial or if it's just friends, but you want to remain, you want to strengthen that relationship outside of work because work is work. And you don't want it to road all the other good things that you have in your life. So find ways to keep that strong. Some of my larger businesses, they'll do what's called a family constitution, and they have roles that they follow, say family, this is who we are, this is what we believe in, and this is how we behave. And they call each other on it, which is, it's tough, it's tough, but it's very important. Something else that I think is helpful is understanding where people fit in because you'll have You have your family. You have family that's not involved in the business. You have advisors or a board of directors depending on how your business is structured. You have a top management team. You have other managers. You have staff. As the business grows, there's more layers to this. Where do people fit? Grab some crayons and draw out a diagram of where people fit and some people wear multiple hats. So your spouse who's not in the business, but is an important component of being able to support you starting a business? How much say do they have? What is that going to look like? I mean, it's not zero, even if you no matter what your crayon org chart looks like. I know when I started my business, I was able to do it because my husband had health insurance. And he had a reoccurring paycheck because the first months, maybe even years in a business, they're not always profitable. Yeah. So here's, so I have one last question for you, Sarah. Okay. And that is what is the most interesting thing happening in your field, the family business right now that people involved in these new school models would like to hear about? Okay, so very excited to share this. I'm seeing a trend in our family offices. And so what a family offices is when your family business grows to a certain point, often you'll have a office that handles your investments, which sounds great. I'm not to that point. But when you have enough money invested, perhaps not all of the next generation works in the business, but they still receive dividends from the business. So there's some options there, but those investments are determined by a group of investors as well as some representatives from the family. And what we're seeing is a generational shift. So we're moving to more millennials in those positions of decision making. And millennials have different values than the previous generations as every generation values something slightly different. But what we're seeing is a shift from investing in say real estate and putting your name up on a building to a shift in investing in the local community. And so one of the the cool stories that I'll share is this idea of I want to live in this particular town and it's a small town, maybe one without a Walmart. And there's there's not a good coffee shop. And so they invested in a local coffee business to help financially support provide maybe a little guidance to the to the people who know how to do good coffee and know what that looks like, but don't have the financial means to start a business doing it. And so we're seeing this shift into investing in our local community in ways that aren't as flashy, but impact everyone in the community. Now I don't know because I don't know all the family offices and all the family office managers, but I don't know if there's investment in hybrid schools, but I would imagine that there could be. Yeah, I think I think that would be a case that one could make. Yes, it makes sense if you're if you're concerned about your local community and you're investing in things such as coffee shops or maybe the development of a downtown area, would you not also be concerned about the education of the population? Yeah, that's that's great. That's that's that's an interesting one that I did not had not thought of. Good. I'm glad I was able to bring something you hadn't considered. Yeah. So Sarah Davis from the Family Enterprise Center at Kennesaw State, thank you for being on with us. If people want to hear more about your work or learn more about family business, how can they find you? Yes, if you would like to know more about what we're doing, go to familyenterprisecenter.com and you can learn about all of the work that we have going on. And if you'd like to talk to me directly, you can email me at Sarah. Davis at Kennesaw.edu. That's S-A-R-A dot D-A-V-I-S. All right, thanks again Sarah. This has been the Community Crafted Education podcast. Thanks for joining us. Thank you. Thank you for listening to Community Crafted Education, a podcast hosted by the National Hybrid Schools Project and Kennesaw State University's Michael J. Cole's College of Business. If you have any questions about the topics we discussed on today's show or want to learn more about what we do, please look up the National Hybrid Schools Project or reach out to us directly at coalscollege.com/hybrid.