There are 5.5 million family-run businesses in the United States, employing 62 percent of the nation’s workforce and generating 64 percent of gross domestic product, according to Family Enterprise USA. The companies range in size from giants such as Walmart and Ford, where the founding families still exercise control, to small ventures like CoTwins Veterinary Care.
Despite the prevalence of family businesses, the odds are against one becoming a multi-generational success: 70 percent fail or are sold before the second generation can take over, and only 10 percent are still operating by the third generation, according to Harvard Business Review.
If you have seen one family business, you have seen one family business. No two are alike and each will need to determine what are the measures for success in their business. Each family will have varying levels of involvement in the business, varying levels of profitability, and each family member will undoubtedly have a different perspective on what the business means to them.
A family-run business is no different than any other. When it comes to operating, successful business practices tend to be common. And just like any other business, each entity has its own nuances. What’s that saying; you can pick your friends, but you can’t pick your family. In working in family-operated businesses, I have found several key ingredients that contribute to its sustainability.
The Pecking Order
Most businesses have departments where decision-making is clear and accountable. In a family-run business, these lines of responsibility can be blurred. Parents who maintain ownership will sometimes overrule a child’s decision or even find themselves refereeing siblings second-guessing each other. The downside can be feelings of discontent that result in disrupting company operations.
Again, like any business, the best way to avoid these issues is to set up formal lines of responsibility and accountability. In this way, family members can communicate to each other their expectations and maintain a level of sanity. And with any other business practice, employees should treat each other with the same respect that staff in any business would expect from one another.
Sounds good on paper right? But we all know that emotions run high and perspectives can be skewed. Which is all the more reason for open lines of communication and an environment that facilitates a purpose-driven agenda. Family members bring a valued dedication to the business and demonstrate a willingness to go the extra mile.
Get Outside Help
Rarely do family members provide all the experience and knowledge that the business demands. No business can survive unless it chooses the best people for each position, and sometimes that person is a non-family member. Therefore it’s important to consider hiring outside the family unit when necessary and to extend these professionals the same respect, compensation and opportunities given to a sibling in the same position.
Non-family Board of Advisors
The outside perspective of a board of advisors that’s comprised of non-family members can be invaluable in helping CEOs look at family business issues more objectively. This board might include such trusted business advisors as your attorney, banker and CPA, as well as business consultants, advisors and associates who are familiar with your business and industry.
Share with each other what the long-term plans are, will the business stay in the family? If so, what roles do buy-sell agreements, gifting and trusts play? Perhaps an outright sale is best? Will it be to a third party or strategic buyer? Consider an Internal sale. Employee stock ownership plans (ESOP) are gaining legitimate favor and provide for certain tax savings.
Limit Shoptalk at Home
While it may be impossible to completely eliminate all work talk while you’re at home, try to set some guidelines and boundaries. For example, establish “no shoptalk” timeframes in the evening or on weekends—violators could be required to drop a dollar in the kitty, and you could save up the money for a special family treat.
What Distinguishes A Family Business?
Control and influence through a combination of ownership, management and governance. Policies and procedures should be clearly stated and updated regularly. Employees want to find value in what they do, and the close alignment between ownership and management is prevalent in most family businesses. Achieving family business success requires success in two domains – family AND business.