Skip These 4 Unnecessary Missteps in Your Family Business
Family-owned businesses, according to some research, make up a majority of all businesses worldwide, and in the U.S., family firms account for as much as $7.7 trillion in GDP. However, running and sustaining a family business comes with challenges.
"While family businesses may be a major economic driver, only a mere 30% endure into a second generation, 12% last into a third generation, and just 3% make it to the fourth generation," notes a post by Walden University.
Business scholars, leaders, and entrepreneurs say there are various reasons behind a family business failing.
Josh Baron and Rob Lachenauer, co-authors of The Harvard Business Review Family Business Handbook, say there is no "one single way" and few universal best practices when building a family business that lasts.
The authors shared that family businesses frequently fail in the absence of diligent work by the owners, other family members, and staff. They added in the article for Harvard Business Review that to prevent the numerous conflicting interests from becoming destructive, a lot of energy is required.
That said, if you're running a family business - or have started hiring family members - here are four missteps you'll want to avoid.
Without well-defined boundaries, personal matters between family members will more easily spill over into the workplace.
Setting clear boundaries aids in balancing your personal and professional lives.
"Setting clear boundaries is so important—especially if you want to run a successful business and still have a family to come home to," says a blog on the multimedia platform Ramsey Solutions.
For example, keep personal and emotional issues at bay while at work. Don't discuss work when you are at home, the blog recommends, stressing the importance of taking off your employer or boss hat when the lights go out and just be family.
"Boundaries must be set to keep the personal drama at home instead of potentially ruining the work environment for everyone in the company, "says Kevin Daum, entrepreneur and author, in an Inc. blog. "Leaving it to chance or just good judgment generally results in disaster."
Lack of Attention to Family Dynamics
According to founder and president of GAI Capital Ltd., George Isaac, effective management of family dynamics is a crucial success factor for multi-generational family businesses.
Most problems in thriving family dynamics center on the 4Cs: consideration, communication, connectivity, and compensation, he writes in a post on his website.
For family stakeholders, feeling that their opinions are genuinely taken into account, that they are connected to the company and kept up to date, and that they're treated fairly financial is key, he shared.
For each of the four Cs, specific activities and plans must be devised and approved, Isaac added in the post.
You don't want circumstances where family problems are allowed to fester in the background and drive the persons involved to a breaking point, he writes, adding that those arguments are much more challenging to resolve by then.
Isaac suggests having processes and agreements for dealing with family conflict on and off-site.
Emphasis on Family
Too much emphasis on family vs. on business may lead to problems down the road. Don't hesitate to define roles for every family member working at your business, to remind everyone where their focus belongs.
Create job descriptions for specific jobs and family employees just like you would with positions and other contract terms you'd establish with non-family members.
The dangers of undefined roles and terms can be especially acute when it comes to a family launching a startup.
Sometimes, family members join in on the excitement of a starting company without fully understanding what their role would be after the company is up and running, write entrepreneurs Jeff and Rich Sloan in an article posted on StartupNation, the site co-founded by the brothers.
If your new business involves family members, you should be up up and honest about remuneration, exit strategies, and other aspects before they become a problem, according to the article.
Family-only Decisions, Hires
It seems natural to bring on more family members as employees and rely on family for decision-making - afterall, these are the people you trust.
However, experts and experienced business owners say it's best to find outside expertise for decisions and to look at non-family candidates for leadership positions, particularly when family members hold ownership or partnership roles.
“Successful businesses seek advice from outside advisors,” notes the Ramsey Solutions blog.
Perhaps you need assistance setting objectives, identifying your blind spots, or tackling those challenging interpersonal problems, the blog adds.
Regardless, according to the blog, it's critical to continue developing, learning, and seeking out others' opinions on how to advance to the next level of achievement.
Moreover, according to Isaac, searching outside the family for a leadership role may help you find someone who can improve the performance of the business. Run the company as a meritocracy, he adds in his blog. It will boost productivity and minimize general employee animosity, Isaac wrote.