How a Family Business can survive the Family Drama and Strengthen Their Position in the Market

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Family businesses have its own dynamics that make it unique, but those differences often can make it difficult to get things done. Bottom line, family businesses don’t always have it easy. Internal conflicts, family drama, inconsistent standards, side bar conversations, emotional decisions, a lack of alignment are only a few of the typical pitfalls family businesses face. Each of these elements are only magnified by an executive team and board whose members know the most intimate knowledge about each other – having grown up together..

So how do family businesses turn those pitfalls into opportunities and carve out a niche for themselves in the market?

  • Align all under one vision

Most businesses exist for one reason – to build profits and grow. But family businesses often have another reason, to build a sustainable business that can last generations and continue to serve the family’s interest.  This typical translates into a longer term vision and different approach to managing risk.   With a long game in mind, family businesses will manage cash, risk and investments much differently than a non-family business so it is important for both family members and non-family members alike to align under the long term vision.

It is critical that each family member is marching to the same drum and that the family has been honest with each other and its employees on the overall vision of the business.   Each strategy developed from this point forward, will be in alignment. For example, if decisions are made that made slow down growth, what is the impact to incentive programs for employees? If they are tied to growth, are you holding back? Can you realign your compensation structure with the goals of the employee and the business?   From an operating standpoint, if the family decides to not be as aggressive with the launch of new products, technology or service – what will the impact be to the customers. How are you aligning your market message to your strategy? Having an end in mind, helps each decision from this point forward.

  • Avoid Common Traps

Let’s face it; the odds are against you…. Statistically, 70% of the businesses fail by the second generation and out of those that make it out of that hurdle, only 10% will survive for the third generation. Why, because the ideas go stale. In contrast to public companies, a CEO’s tenure may be 6 years before he/she is replaced where as in private companies, a CEO can remain at the helm for 25 years and can add to the difficulties associated with changing technologies, business trends and models and most importantly, customer behavior.

Trap 1: Promoting Family Members

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Many family businesses will add family members such as spouses and children without evaluating skills and contribution. And despite their lack of skills and experience will rise to leadership positions simply because they are part of the family, increasing the chances of failure.

Avoid this at all cost by creating proper training and screening. The position should not be an entitlement but something that is earned. Go through the process of very evaluating your children’s talents and skills and earmark them for the right position where they can be successful and make a strong contribution. Do not earmark them for CEO just because they are family. They may not have what it takes.   I am a strong believer of sending your kids out to work for other firms before joining yours. The experience gained is invaluable.

 

Trap 2: Not Hiring Non Family Members

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Similar to above, let’s remember you are running a business. Don’t assume “Jr” is the right candidate for the position. The family businesses that succeed through multiple generations often have a non-family member as CEO or holding other essential offices within your organization.

Experience is the # 1 asset a leader can offer so infuse talent outside the family into your business and scale down the infusion of new family members to the needs of the business. By creating policies around when, whom and what positions to hire for, you will set a great precedence that will strengthen your position in the market. A non-family member isn’t wrapped up in the family drama, typically doesn’t have the same allegiances and can offer you an independent perspective that could prove to be invaluable to your business at large.

They can provide mentorship and training to the new generations coming into the business and as long as the vision is clear, will be able to execute flawlessly on the family’s behalf while providing candid feedback to the owners.

 

Trap 3: Family Members Specialize in the Same Skills

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In many family businesses, you will see that fathers and sons/daughters tend to specialize in the same function within the business. As Dad takes Jr under his wing, he has a tendency to develop him in his own skin so we see specialized silos created. The risk is that the next generation typically fail to gain the cross functional expertise need for executive leadership. They are limiting their ability to gain broad experiences throughout the entire business. When you think about when the business got started, there is most likely many stories of struggle, creativity and “all hands on deck”. This is what makes an entrepreneur unique and is not something that can be passed along. It is something that has to be experienced.

When developing the career path, have the next generation spend a year in each department so they have a vast understanding of the nuts and bolts. Have them participate in high risk decisions and deal with the consequences of those decisions (both good and bad). And appoint nonfamily mentors to help guide them along the process.

 

It is unrealistic to think that you can create a nepotism free family owned/operated business. It is one of the reason you started your business in the first place but you can lay the groundwork for your business to be sustainable by adopting formal policies about who to employ, promote, and the rules of the game.   Don’t have one set of rules for the family and another for the employees. And lastly, separate out the business interest and the family interest especially on personal time. If you are at the Thanksgiving Dinner Table talking strategy that would typically involve others, stop immediately, enjoy your time with your family and re-engage back in the office the next day.

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