How Does a Family Business Survive?

The family business is an often-unheralded engine of the economy. Public corporations tend to get more press, but family-owned businesses (FOB) dominate. More than half of GDP in the United States comes from FOBs, which can be anything from sole proprietors to giants like Walmart. FOBs account for 60% of employment, 78% of new jobs, and 65% of total wages. They are less likely to lay off employees when times get tough, have more women in senior leadership positions, and show higher profitability in the long run.

There is one area, though, in which FOBs struggle: long-term survival. For family-owned businesses, perpetuating themselves requires the next generation to be both willing and able to take over. Roughly 70% of FOBs fail or are sold before even the second generation ascends to leadership. Only 10% continue as active, privately held companies for the third generation to lead. How many make it to fourth generation? The statistics don’t even address that.

Victoria Mars YC ’78 is part of the fourth generation of her family to work at Mars, Inc., the giant candy and pet food company. Now the chairman of the board, she has spent most of her adult life at the enterprise. In a conversation with Yale Insights, she said that getting a family-owned business to that next generation requires keeping family members involved. “You need to find a way to keep the family educated from generation to generation,” she said. “You need to put effort into policies that help govern the family, which in a public business you don’t have to do.”

Q: How important is company culture at Mars? And how do you think about establishing and maintaining the right culture?

Company culture at Mars is probably the absolute key to our success and our sense of pride about who we are. It all starts with our very strong Five Principles—family values that were formally written down in the 1980s. These are principles that we expect every one of our associates to live by. And it’s not just about knowing what they are: it’s actually making decisions in line with the principles. They’re not just pretty words on a wall. The Five Principles are the foundation of how we do business—not the what of our business, but the how of our business. Those we do business with have a sense we are living our five principles. And it’s really key that we educate, inform, and teach our associates as they walk in the door as new associates what these Five Principles are and what it looks like to live them. And we repeat, repeat, repeat. It is very unlikely that a conversation with a senior leader will not include somebody referring back to the Five Principles.

Q: Can you explain how the Five Principles dictate decisions?

At Mars, Incorporated, our objective is to create growth we’re proud of. As an organization we need to grow; and if you don’t continue to grow, you die. So growing is important.

How we grow is where we generate pride. We’re proud of what we stand for. For example, many years ago our pet care segment was just a pet food segment. We’ve expanded since then into a pet care segment that looks at the whole ecosystem of what pet ownership is about. We want pets to live happy, healthy, long lives. So how can we help these pets that are so important to their owners have a long and healthy life?

One piece of that is clearly feeding these animals good pet food. Quality pet food is much better for your pet than table scraps. They need a balanced diet just like humans. So the question becomes, “How do we develop the best pet food?” You need data to be able to do that.

We can accumulate data through animal hospitals we’ve acquired. We get data that allows us to say, “Where are the big issues? What are we seeing? Is there diabetes in dogs? Is there obesity in dogs?” Cats have huge urinary issues; they’ve always had them. Now I can gather that data, and that helps us develop your pet’s food. It helps us influence pet owners to make the lives of their pets better.

In our pet care segment, our mission really is to make a better world for pets, because we know that pets make a better world for us.

Q: Has the company looked at a deal and decided it doesn’t line up with the principles?

Definitely. So, when we acquire a company, we’re bringing a foreign body into our own ecosystem. We look carefully, not just at the business model and the financial returns, but also at the people, because usually what you’re really buying is a lot of talented people. It’s important that you look at their values and their principles, and say, “Are they going to be able to integrate?”

And our model has been integration; it’s not a holding company. It comes back the Five Principles, the one string that connects all of the Mars businesses. An associate can walk into any Mars office and feel at home. It’s very important to actually look at a potential business’s culture and look at their principles and evaluate, “Are they going to be a good fit?” And if they were not a good fit, we would not acquire them.

Q: How do you make the company’s mission feel organic to your associates and not something only for public relations?

I think it’s two things. One is you develop the mission and goals together. It’s not somebody sitting in a room and saying, “Okay, well this is going to be our mission. Here you go; everybody take it.” It’s a collaborative effort of people working together and that resonates with people. And then it’s about communication and talking about it and making sure it’s not just some words that somebody saw in a PowerPoint presentation or something that people bring out when they want to show something off.

Q: Are there certain types of people who are going to fit in better at Mars than others?

I think every organization has a culture and every organization has a way of doing business, and I don’t think every place is right for everybody. We’re very transparent when we are interviewing about our culture. For example, we sit in open offices; nobody has a special private office. Everybody sits in open space; there are no walls, there are no doors, there are no secretaries to get past to see someone. It allows open communication and dialogue and idea-sharing.

We have hierarchy, because every organization has hierarchy, but we minimize the impact of that hierarchy. Whatever level you are in the organization, you can talk to anybody at any level. So there’s nothing that says, “If you’re this level you can’t talk to the CEO or you can’t talk to a vice president.”

If you’re somebody who really values hierarchy and the structure that comes with that, or if you want your private office because that matters to you, then you’re not going to fit well in our organization, and that’s OK. People have different needs. It’s not bad or good, but that’s just who we are.

Q: Where do teams fit into the life at Mars? And how difficult is it to do so on a global basis?

As we have become more of a global company, we’ve built cross-functional and cross-global teams. Technology enables us to communicate with each other more easily, but we still spend quite a bit of time traveling to our other sites and meeting people face-to-face, and experiencing what’s happening in different parts of the world. There’s a lot of cross-collaboration and information sharing, and hopefully learning so that we don’t make the same mistakes.

One of the things I always say to new associates is, “Just because you’re in the pet care team doesn’t mean you can’t pick up the phone and reach out to somebody in the chocolate team. You’re all part of the same organization; use each other, learn from each other, ask questions.”

Q: The profile of your company has historically been very low. Could you explain how that’s changing and what it means for Mars?

The company is built on our brands. My grandfather really believed that each brand should stand on its own. It didn’t matter if people didn’t know that Snickers was made by the same people who made M&Ms or Uncle Ben’s or Pedigree. Consumers didn’t care.

Now consumers want to know who’s behind their brands. They want to know, “What type of company makes Snickers? What type of company makes Pedigree?” And if they trust the company that makes Snickers, then they’re also going to say, “Well, then I’ll trust their other products.” Quality, our first principle, talks about meeting our consumers’ needs. So we have to be more open and transparent, and be able to provide that information.

It’s also important in terms of talent. Existing associates and potential associates want to know about the company they’re working for. Do the company’s principles line up with their personal principles? Existing associates need to continue to feel proud about what the company stands for, while potential associates want to know, “What are you doing to impact the world in a positive way?”

As a company, inside our four walls, we’ve always been very transparent about what Mars stands for. Information sharing happens opening and frequently. We’ve just had to shift and tell people outside who we are and what we’re all about. And we’re really proud about who we are as a company.

Q: Are there any disadvantages to being a private, family-owned company?

The thing that is different in a private company is the need to find ways to keep the family engaged. You need to find a way to keep the family connected and educated about the business from generation to generation. You need policies that help govern the family as an entity connected to the company, which in a public business you don’t have to do. I don’t think that’s a disadvantage; it’s just an added perspective that doesn’t exist in a public business. However, being private, you retain the freedom to do what you think is the right thing, the right way, how you can make a positive impact while doing business.