5 Essential Tips for Family Business Success
Family businesses struggle for many reasons. From conflict arising from mixing professional and personal relationships to a general lack of interest from one generation to the next, the family business dynamic adds an extra layer of complexity.
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A successful family business can be an amazing opportunity to build something lasting for your family; a legacy to be passed down through the generations with a sense of pride and heritage. But if the family dynamic is mismanaged, it can lead to family feuds, damaged relationships, and ultimately the demise of the business.
According to the nonprofit Family Business Institute, only about 30 percent of businesses make it to the second generation, and only around 12 percent of businesses are viable into the third generation.
So how can your business beat the odds?
Here are some essential tips to help you run a successful family business, and deal with some of the common challenges faced by family businesses.
1. Be active in managing family dynamics
Communication is key in running any business, but is particularly important, and can be an especially thorny issue, in running a family business. When you are at work, the focus should be on ‘business’, when you are at home, the focus should be on ‘family’. Problems arise when you blur the line between the two.
Setting up open, straightforward methods of communication and establishing some boundaries will help head problems off at the pass. Have a process in place for how to deal with family conflict both in the business and out. Communicate with family members in the same way that you would with any other employee, and don’t assume they know what you expect of them; make it clear.
Don’t forget to have fun. Make sure you place as much emphasis on building your relationships outside of the business, as you do within it. Having fun together helps build healthy, strong relationships and keeps the family unified, giving you a firm foundation to ride out tough times.
2. Don’t be afraid to hire externally
Choose the right person for the job, irrespective of lineage. If your business is successful, at some point it will grow to the stage where family members don’t have the necessary skills and you need to bring in outside expertise.
It can be easy to put a family member in a certain position to avoid conflict in the short term, but if that person isn’t right for the job, the consequences for the business, and your relationships, can be far-reaching.
Some businesses overpromote and overpay family members, while others do the opposite. Either way, this is a mistake. Running your business as a meritocracy ensures family members and non-family employees are treated alike, reducing the likelihood of resentment on either side.
3. Seek new perspectives
Innovation and creativity can sometimes get lost in the mire of family dynamics. Family businesses can become too closed; seeking advice from people outside of the family will help you incorporate fresh ideas and facilitate creative thinking.
Similarly, decision-making can be intrinsically difficult for family members who are emotionally attached to the business. Outside advisors or board members can bring objectivity and clarity to decision-making that the business would otherwise lack.
4. Establish rules and structures
Family relationships change and grow over time, and so does their relationship with the business. With this in mind, establishing plans and processes for the family’s involvement with the business is essential. Formal structures may sound unnecessary or too complicated to implement, but they can help you avoid conflict in the future.
Clearly define each family member’s role in the business and put it in writing, such as an employment contract. You should treat this like any other business relationship.
5. Don’t put off succession planning
If you want to pass your business on to the next generation, you need a business succession plan. Don’t put this off; the longer you spend on succession planning, the smoother the transition will be when the time comes. Starting your succession plan 5-10 years in advance is a good idea; an even better idea is to build it directly into your business plan.
Involve your family in succession planning; open discussion will help you ascertain the level of commitment each family member has for the business and what degree of involvement they want for themselves, and can help you get ahead of problems arising from potential rivalries between family members.
Be realistic; if your preferred heir to the business has interests that lie elsewhere, forcing them to take over is not a viable plan. If there isn’t a family member with the skills or inclination to take over the business, selling might be your best option.
How TAB can help
While every family business is different, they all experience similar challenges. Whether it’s engaging the next generation, managing conflict in family relationships, or working out a succession plan, you are not the first to face these challenges.
The good news is, there’s help available. Contact us to find out how you can connect with other family business owners for guidance and support in managing the complex and unique aspects of a family-owned business.
Find out what experienced TAB members have to say about the challenges faced by family businesses. Check out “8 Common Challenges Every Family-Owned Faces.”