Family is a Family Business’s Greatest Liability – and its Greatest Asset

Family businesses are all around us—from neighborhood mom-and-pop stores to household names such as BMW, Samsung, and Wal-Mart Stores. Approximately 80% of all businesses in the United States are classified as a family business, meaning that a family owns a significant share and can influence important decisions, particularly the election of the chairman and CEO. These businesses create nearly 78% of all new jobs and employ almost half of US workers.  There are distinct advantages to family ownership like stability, commitment to employees, focus on social responsibility, and a long-term outlook that allow family businesses to succeed when other businesses struggle.

While family business is an undeniable economic driver, there are often complex personal and strategic challenges that prevent these businesses from prospering.  Issues like internal conflicts, inconsistent standards, nepotism, and lack of discipline can plague a family business because family loyalty or unwillingness to accept that a family member is not up to the challenge prevents leadership from making necessary changes. In fact, only 13% of family businesses make it to the third generation.   The high failure rates of family businesses may seem unavoidable. But my experience with high performing family companies identifies 3 common roadblocks that can be overcome with a carefully articulated long-term strategy ultimately boosting the odds of long-term survival.

3 Common Roadblocks in Family Business

1. Culture
Like any organization, the culture of a family business is the set of behaviors, values, reward systems, and customs that make up the organization.  In a healthy family business, you can “feel” culture when you visit a company, because it is often evident in people’s commitment to service, ways of relating to one another, high engagement, and optimism for the future.  The organizational culture encourages living outside of a job description and gives employees the freedom to do what is right for the company and the customer regardless of their placement on the organizational chart.  Likewise, a family business culture that has unclear goals, loosely defined financial objectives, poor communication, and unresolved conflict robs its team members of the opportunity to do the work that can truly differentiate a company in the marketplace.

Overcoming cultural dysfunction requires that family ownership assess how the business culture is viewed today to identify what is bringing value to the longevity of the company and what might be detracting from the values and vision of the family. Creating a culture that encompasses both the entrepreneurial vision that likely started the business and a focus on innovation of ideas to enhance and grow the business increases the likelihood that the business will evolve and stay relevant for future generations.  Family business must cultivate its most unique assets – a shared sense of history, a common purpose, and a desire to create a legacy – in ways that encourage everyone in the organization to achieve long term business goals. The strength of culture will often fuel the success of business performance.  This makes it vital for a family business to consciously design its culture and to implement specific actions to enhance it.

2. Tradition
The beauty of family business is often a fondness and nostalgia for the past and a deep sense of pride in the traditions that made the business successful in the first place.   Unfortunately, these attachments can sometimes create emotional ties to the old way of doing business and produce inertia in decision making.

Family business leaders can mitigate this risk by taking the time to articulate a strategic plan that outlines a compelling future vision and by becoming skilled at navigating intelligent change.   Interactions between family members can often bring in a host of emotional issues – past hurts and resentments, mismatches between goals of parents and children and misunderstandings about business roles to name a few – but a family business leader that can proactively address these issues and focus energy on achieving business goals can nimbly guide the company to innovate and change much more quickly than larger, more bureaucratic entities.

3. Leadership
Family business faces the same leadership challenges as any other organization.  However, there are additional dynamics within the family and workforce that require finesse to effectively overcome these challenges. Too often leadership in family business retains a tight grip on the company until a sudden or unexpected event – illness, divorce, death – requires that a leadership change is made.   In this situation, the business is left reeling while the family scrambles to reorganize.

When managing and leading the business, it is important to invest in developing people, both family members and non-family members, who have the skills, talents, and desire to lead the organization into the future. It is crucial to identify leaders in the organization who are passionate about the family business but not burdened with a sense of entitlement and work with these leaders to create a succession plan.  By clearly defining roles and expectations and by holding all team members accountable for meeting expectations, current leaders create a path for the company to move forward in ways that support the traditions of the past while creating conditions for change, innovation and growth.   Next generation leaders can bring new energy, a depth of knowledge, and a new level of commitment to the business when they are properly prepared through thoughtful planning for their future roles.

To overcome these 3 common roadblocks in family business, the key is balancing F-suite tradition and long-term outlooks with C-suite strategy and focus on returns.


Grow with purpose…

By |2018-04-24T10:24:06-05:00September 15th, 2017|