Family businesses are all around us—from privately owned neighborhood mom-and-pop stores to publicly held household names such as Wal-Mart, Ford, and Cargill. Family-owned businesses are the backbone of the American economy. According to the US Census Bureau, 90% of all enterprises in North America are classified as a family business, meaning that a family owns a significant share (50%+ if privately owned and at least 32% if publicly listed) and can influence important decisions, particularly the election of the chairman and CEO. These businesses create nearly 80% of all new jobs and employ more than 60% of workers. There are distinct advantages to family ownership like stability, commitment to employees, and a focus on social responsibility that allow family businesses to succeed when other companies struggle.
While family business is an undeniable economic driver, there are often complex personal and strategic challenges that prevent these businesses from sustaining future generations. 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. Only about one-third of family businesses make it to the second generation, 12% still exist in the third generation, and a mere 3% operate into the fourth generation and beyond, according to the Family Business Alliance. The high failure rates of family businesses may seem unavoidable. Yet, my experience with high-performing family companies identifies three common roadblocks that can be overcome, boosting the odds of long-term survival.
3 Common Roadblocks in Family Business
Like any company, the culture of a family business is the set of behaviors, values, reward systems, and customs that make up the organization. A healthy family business culture is evident in people’s commitment to service, ways of relating to one another, levels of 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 accountability, and unresolved conflict robs its team members of the opportunity to do the work that can truly differentiate a company in the marketplace.
Overcoming organizational 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 family’s values and vision. Creating a culture that encompasses both the entrepreneurial spirit that likely sparked the business and a focus on innovation of ideas to enhance and grow the company 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. Because business performance is propelled by a healthy organizational culture, it’s vital for a family business to consciously design its culture and intentionally steward it.
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. However, a family business leader that can skillfully address these issues and focus energy on achieving business goals can guide the company to innovate and change as priorities shift and business conditions require.
Family businesses face many of the same leadership challenges as other organizations. However, there are additional dynamics within the family and workforce that require diplomacy 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 essential to invest in developing people, both family members and non-family members, who have the skills, talents, and a strong 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 establish a path for the company to move forward in ways that support the traditions of the past while encouraging future 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 adequately prepared through thoughtful planning for their future roles.
To overcome these three common roadblocks in family business, the key is balancing F-suite tradition with C-suite strategy and a relentless focus on the outcomes that matter most.