Family business…success is dependent on balance!
Updated: Jan 9, 2019
It often starts out as a dream – owning a profitable business with your family. What could be better? After all, working with those you love most, building a legacy business and eventually employing the kids seems like a dream come true. Just one big, happy family – right?
As idealistic as this sounds, most family business owners know the truth is far from this altruistic picture. Conflict is a natural offshoot of any business but is especially prevalent in family owned businesses. It also becomes challenging to manage between the family system, business system and the often-undefined boundary in between. In order to be effective, however, it is critical that family members in business together learn to navigate this space successfully.
Most family owned businesses include a few key roles: family member, shareholder and operations management. Family members in business belong to the family circle and this unites them from both a personal and business perspective. It is this bond that drives their investment in the success of the business for generations to come. As shareholders, family members have a different role – this one is to drive business equity, profitability and wealth creation. They may be depending on the business as a source of income, so the profitability and sustainability of it becomes exceptionally important. Finally, family members may work for the business in a key operational or management role, making daily decisions that have the ability to impact the performance of the company and those involved. All three roles are important to a family business, but there is a tendency for them to be in conflict due to their competing priorities and interests.
It is difficult to be successful in navigating between family and business systems without identifying some of the main recurring patterns of familial behavior. These behaviors, which start with the family, are often carried into the business environment causing unhealthy dynamics and decision-making. This can include:
Informal rules or procedures for how its members function and interact with each other. The emotional reality of the family’s early years remains, even as the children become adults.
Unrealistic expectations. Many children have unrealistic expectations of what they should receive from their parents; these expectations become magnified in a family business where large amounts of cash & assets are to be equally distributed at some point.
The family hierarchy, with unwritten and often unspoken roles and tasks, looms large. For example, it can be hard for the older sister to take orders from her younger sister.
Family patterns are difficult to break. When trouble arises, family members can behave in ways shockingly similar to the way they acted decades earlier – revisiting old family patterns of interaction.
Communication challenges and the tendency to triangulate. Being unwilling to address issues face-to-face and instead using another family member to resolve issues.
Being aware of these dynamics and their impact on the transparency of communication and healthy functions of the business is critical. Conflict avoidance is a hallmark of family business relationships and a struggling block for transparency. Actively working to identify and prevent these mishaps will help family businesses operate optimally and without drama.
Given the challenges of the family dynamic and the desire for success of the business, it is critical that family businesses have a clearly defined organizational structure, formal procedures and role descriptions. The more a business can formalize and standardize, the less ambiguous the decision-making, responsibilities, and scope of role and authority. Formal guidelines also reduce the tendency for family businesses to revert to some of the unhealthy practices noted above and help optimize business value creation. These guidelines may include processes around how decisions are made or implemented, how conflict is addressed and/or resolved within roles, and when to involve owners/shareholders. The expectations of the various roles must always encompass the values held up by the business, clearly setting the standard and expectation for interaction in the business setting. It will likely be necessary to regularly reinforce the roles, responsibilities, structure and interaction methodologies, as change is challenging and old habits die hard. Making a commitment to personal and group accountability will ensure the changes made are sustainable.
Businesses succeed or fail based on the family’s ability to run the business as a business. It may not be easy to change the organizational ways-of-working, especially if they represent generations of engagement dynamics, but to do so is to take a step in the direction of creating clarity, alignment and ultimately driving business value. It also liberates family members to act appropriately in both settings – as a familial member at family functions and as a business stakeholder during business hours. As this differentiation becomes clear, family members will be able to more effectively balance between family and business systems and manage the boundary between.
Jayne McQuillan, CPA, MBA, CEPA is a strategic management consultant, and the owner of Journey Consulting, LLC, in Green Bay