Family- Owned Businesses: The Good, The Bad And The Better
Family mixed with business can be a challenging mix. Here are some ways to meet the challenge.
The Good News
Creating, building, and sustaining a family business is not only a fundamental American dream (over 20 million family businesses in the U.S.—92% of all U.S. businesses), but is also a powerful dream in most other modern capitalist economies (for example, over 75% of all U.K. businesses are family owned). The benefits of family businesses are manifold, genuine, and in many cases psychologically profound.
Consider what’s in it for the family. A family business:
- Creates a heritage for the family and serves as a medium for perpetuating a family’s history, traditions, pride, core values and beliefs
- Serves as a powerful testimonial to the success and potency of a family
- Provides the ultimate career and financial safety net to one’s children and grandchildren
- Offers participating family members greater independence and control of their fate than a more traditional career path
- Establishes a very special glue (a bonding material, as it were) that can hold a family together around a common set of interests, activities, challenges, opportunities, threats, milestones, relationships, and daily schedules
- Demonstrates to an entire community (and various sub-communities) that this is a family to be admired and respected
- Makes it more certain that individual family members will have the fullest opportunities as adults to “stretch” developmentally and to self-actualize
- Improves the chances that family members will be able to involve themselves in meaningful philanthropic activities and become pillars of their communities
- Make it more likely that financial advantages, non-trivial net worth (a.k.a. wealth), and “security” will accrue to the family
- Provides greater stability and welfare for its employees and for the community in which it operates
- Average life span for n FOB is less than 25 years, which just happens to be the average tenure for a founder.
- Only a minority of FOBs have a documented strategic plan and, historically, succession planning has been toward the bottom of their To-Do List.
- The four most supercharged inter- generational issues for family members in FOBs are the long-term vision; defining division of labor around management roles; money; and ownership.
- “FOBs account for more than 65% of all businesses in the world and are becoming more, not less, prevalent.” Harvard Business School, 2001
- Fewer than 33% of FOBs make it to the second generation. Only about 15% make it to the third generation and just 3% beyond that.
The Bad News
The odds are very tough. The head of an FOB faces a daunting array of dicey challenges, many of which are never faced by the head of a public company. So, besides all the common competitive marketplace barriers and obstacles that confront all business leaders, the head of a family business must also contend with a parallel set of near radio- active, family-based issues that inevitable arise in family businesses. Consider the import-for real people in real families—of the situations and questions below:
- Most families prefer to create some version of an egalitarian family culture. However, in their business the family head must operate based more on meritocratic principles, which often demand that children in the business end up with different-sized roles. How does the founder or current head resolve this family vs. business paradox?
- Founders generally grow more conservative as they age and approach that time when they need to pass the baton to G- 2 (i.e., the second generation), which is perhaps the most supercharged process of all family business transitions. How does G-2 handle this sensitive and supercharged issue and how do founders get out of their own way for the greater good of succeeding generations? How does the founder let go of his/her “baby”? How does the founder confront mortality (aka retirement) under this stark set of circumstances? (By the way, are we talking “family dynamics” here, or would it be more apt to say “family dynamite”?)
- Family “dynamics” (to put it politely) typically heighten and exacerbate problems and conflicts at work. In the business, how do the family head and involved family members handle such family dynamics as rivalries, feuds, jealousy, selfishness, rebelliousness, passive-aggressive behavior, playing of one family member off another, and so forth?
- Not infrequently, a fundamental charge for the founder and the founder’s spouse is to rear their children into mature adults and into mature business people, as well. A tall order, to be sure. How does the founding couple navigate these waters? (Jack Welch didn’t have to do that!)
So, as is apparent, the “opportunities” to make Solomon-like decisions are virtually endless. For example, to what degree are hiring and promotion decisions based on an offspring’s “birthright”, as opposed to their competencies and true potential? Are family members brought into the business for their own security or because of how well their talents, interests, and personality fit the requirements of the business? Should we reinvest in the business or siphon cash out of the business to fund my future retirement or ensure my adult children’s lifestyle and quality of life now? And so on,
Managing for Continuity:
The Safest Approach
- For better or worse, many of the most fundamental challenges that confront the family business head are psycho- logical in nature. (This is not so different in kind from what a CEO in a publicly-owned environment faces. However, the “family-owned” dimension creates a multiplier effect on the psychological challenges that confront the head of a family business. Hence, the “Jack-Welch-didn’t-have-it-so-tough” remark above!)
- By examining the schematic below, you’ll readily see why there is a critical need for psychological savvy, leadership finesse, and adroit relationship management skills to engage the ten fundamental levers that steer an FOB.
Managing for Future Generations:
The Ten Levers Needed to Steer a Family Business
Shared Vision & Values: Regarding strategy, relationships, work ethic, money, and success
Shared Influence: Across generations, among spouses, and among siblings/cousins and geared to individual capabilities
Valued Traditions:That are characteristic of this family and set it apart from other families
Receptivity to Learning and Growing: Being open to new perspectives and new approaches; embodies a critical orientation that underlies mastering change and overcoming obstacles
Investment in Relationship Enhancement: The most robust families have traditions and mechanisms they use to play together and enjoy one another; these accumulated playful experiences serve as a buffer during difficult times
Demonstrative Caring: Open demonstrations of empathy for family members during good times and bad; making the clear statement, “You are important to me.”
Mutual Admiration: Earned by building trust, based on a track record of being consistently accountable and true to your word
Being There: Especially at times of grief, failure, or embarrassment; how a family interacts with a distressed family member is highly correlated with long-term family harmony and business success
Maintaining Space: Respect for individual privacy and for the privacy of each family unit within the extended family constellation
Circumscribed/Managed Conflicts: Feuding members all too frequently bring in “reinforcements”. The family needs to know how to prevent members, who are tangential to a given conflict, out of the middle and then address the conflict with finesse
The New Life Group’s Consulting Solutions for FOB Continuity
The ten levers needed to steer a family business must be embedded in a variety of concrete initiatives that need to be undertaken by any self-preserving family-owned business. Specifically, in the workaday lives of a family- business leader and family co-participants, practical but potent solutions are required to manage for longevity. The kinds of solutions that our firm is called upon to deliver to FOBs include the following:
- Succession Planning and Assessment-Building Family Bench Strength and Steering Leadership Transitions
- Facilitating Family Meetings and Family Councils
- Conflict Resolution, Relationship Fix-Its, and Promoting Familial Harmony
- Creating and Perpetuating Family/Business Vision, Mission, Core Values, and Covenants
- High-Impact Coaching for a variety of purposes:
- Accelerating the development (and maturation) of key family members
- Executive and Leadership Coaching
- Addressing “Sudden Wealth Syndrome”
- Coaching for career development, satisfaction, and success
- Derailment prevention
- Solidifying Family Commitment to the Business
- Ensuring That the Family Gets Hung-Up on Striving for Goals, Not on Power and Control
- Building a Company Culture That Creates a Satisfying, High-Performance Work Environment
- Developing Productive Teams
- Adopting Effective Communication Techniques and Influencing Skills
- Mastering Change to Produce Strategic Renewal of Business