Do Won Chang and Jin Sook Chang created the retail chain Forever 21 from nothing when they came to the U.S. from South Korea. They built it to revenues of more than $4B at its height and had 43,000 employees. Their daughters, Linda and Esther, both received Ivy-league educations and were given high-level executive positions. Mr. Chang was CEO dealing with real estate and vendors and Mrs. Chang was heading up design and merchandising.
At the end of last year, they were filing for bankruptcy.
Their story is a family business classic. Grit, drive, entrepreneurial smarts and risk-taking led to tremendous success… AND resulted in a false sense of their ability to manage a huge company because “We started it, who better to run it?”
There was suspicion of outsiders leading, they had no outside board members, and avoided hiring experienced executives from companies their size and with relevant industry experience. When they got desperate, they finally reached out to outside consultants (but didn’t take their recommendations), and ultimately they did not step aside when things got completely over their heads.
(As late as last year, Mr. Chang was signing off on employee expenses and questioning Uber rides! His company was sinking fast and this is how he spent his time?)
Starting and growing a business requires a different skill set than managing and leading a huge, complex organization. Just because you started it does not mean you have the skills to keep growing it; just because you gave birth to children does not mean they automatically have the skills to take over from you.
Don’t get me wrong: some entrepreneurs develop themselves for the long haul and that usually means hiring executives with more experience, who are smarter than they are. They recruit and develop a board with outside directors who add strategic value. The more your enterprise grows, the more you need to build structure around you with the right people.
What is the Lesson?
Enterprising Families: It is exciting to start and grow a business from nothing and eventually have the kids involved. If you are fortunate enough to grow beyond anything you have experience running, swallow your pride and seek out trusted outsiders. They can help you evaluate if you can learn and develop yourself to keep up at the helm, and if your kids are capable and productive where they are placed. If not, find other ways to be involved, e.g., as a board member on a board with outside directors as well, strategic owner, different position in company where you or kids can learn and contribute.
Advisors to Enterprising Families: You usually see this train wreck coming way before your clients do. They trust you and integrity dictates you have the difficult conversation and point out what is transpiring or bring in someone with expertise in unearthing it in a productive manner.
Read the NY Times article about Forever 21 here. If you do not have a subscription, they offer 20 articles free per month. If you are over 20, put your browser in private or incognito mode and gain access.