In the United States, and NH, family businesses account for approximately 90 percent of all businesses. Their life span is about 24 years—a little more than one generation. Fewer than one in three makes it to a second generation.
Family businesses embody the solidarity, culture, values, traditions, behaviors, ethics and beliefs of the family that created them. These characteristics may be decades and even generations old. They are often long baked into the family and subsequently into the business—sometimes for better and sometimes for worse.
All family businesses share the opportunity to have family members work closely together and share in the prosperity and competitive advantage of their combined efforts. They also run the risk of blurring the boundaries between being a healthy and loving family and being a healthy and prosperous business. The careful management of when and how to make business-based decisions and family-based decisions is constantly at risk.
Starting with the truism that “every solution comes wrapped in a problem,” here are some of the problems commonly encountered by family-owned businesses and beginning solutions.
Family First vs. Business First
Every day, family businesses are faced with deciding when to use family-based values and solutions versus business-based ones to solve family issues that arise in the business. The problem is that the values that make for a secure and loving family are exactly the opposite of those that make for a successful business.
• Emotionally based
• Lifetime membership
• Relationship driven
• Unity and support
• Tradition focused
• Objectively based
• Earned membership
• Results driven
• Innovation focused
The core problem happens by applying family-based values when business values are needed. These problems most frequently occur when allowing family members to have different rules regarding their behavior, performance and expectations in the business. Arrival times, shortened work days, compensation, innumerable vacation days and unearned titles are but a few. These family members are seen by nonfamily employees as indulged because they are a family member.
The result is a corrosive effect on employee morale, respect and advancement.
A simple solution to avoid these issues with family members is for the family business owner, and all of management, to ask themselves, “Am I using a family-based value in making this decision, or am I using a business-based value?” Ninety-five percent of the time, a business-based value is the better choice. Balancing and separating love of a family member from competency is the constant challenge.
Conflict and Communication
It is amazing to what end families will go to sidestep direct communication and conflict. Adding a business to the family dynamic amplifies the problem. Families strive for closeness and harmony, and businesses strive for results. Putting the two together is like combining nitric acid and glycerin in a cocktail glass—shaken, not stirred.
Conflicts are inevitable in any family and every business. A simple model of handling conflict with others comes from author Don Miguel Ruiz in his book, The Four Agreements:
1. Be impeccable with your word: Speak with integrity. Say only what you mean.
2. Don’t take anything personally: Everything isn’t about you.
3. Don’t make assumptions: Ask questions to clarify what others are saying and thinking.
4. Always do your best: Although it will change from moment to moment.
Communication is often informal, infrequent and incomplete in many family businesses. Certain family members can get overlooked, and secrets can abound. Quarterly family council meetings with professional facilitation are a powerful antidote to any family and business information system that is subject to misunderstandings, distortions, mistruths and gossip.
Selection and Compensation of Family Business Members
“Anyone from the family who wants to work in the family business is welcome.”
“The business is here to serve the family.”
When family business owners make statements like these, major problems in family selection and compensation will occur.
The need to develop a standardized way all family members will be considered, interviewed, evaluated, compensated and supervised is a must. Begin with a written, clear, specific, operationally defined job description with stated experience and education qualifications. And be sure the family member applying generally meets them.
While the company might offer special initial opportunities to family members in entry-level positions, performance, assessment and compensation levels should well be within the industry/market standards and rates. Hiring a family member based primarily on their DNA will almost always backfire and actually be a disservice to them and influence company morale.
They will fail, and the company will be seen as unprofessional and unfair. Competency should always rule.
Use a model that is as objective as possible based on company need, job requirements and personal qualifications. Make sure that if you employ a family member, he or she is managed, supervised and evaluated by a nonfamily member of the business. Remember the rule: “Promise should never surpass performance.”
Problems in a family business are never more complicated, or emotionally charged, than when the founder or family business owner has decided that it is time to transition the business to a family member, an outside sale, an ESOP or a liquidation.
Transition to another family member is often the norm to carry on the family business, name and legacy.
A model to consider is a five-part succession process with portions that occur both concurrently and serially. Critical assessments and decisions are to be made in each part with a team of trusted professional advisors, including a family business consultant, accountant, lawyer, banker, estate planner and insurance underwriter.
Simultaneously, active discussions initiated by the family business can begin at the board of directors and family member level.
The five-part process is:
• Business Transition: Determine if this is a business that is viable, both today and in the future. Can it support the next generation?
• Founder’s/Owner’s Transition: Is he or she ready to go? Shift from “doer” to “mentor;” get financially clear of the business; begin relinquishing real control; and drive the process to completion.
• Management Transition: Who is running the business or can do so? Outline the leadership skills needed and plan the process.
• Ownership Transition: Who can own and control the business? How will it be paid for?
• Estate Transition: Include business and nonbusiness assets, and determine among the heirs what will be fair versus equal.
Change Management and Strategic Planning
Change management and its prime driver, strategic planning, are significant and challenging business undertakings. They can often be interpreted as an affront to the long-standing traditions and legacies of family business. People don’t fear change, they fear its attending loss: the loss of the familiar, an identity, routines and traditions, relationships and mastered tasks.
Strategic planning, while crucial for the prosperity and survival of family businesses, is often met with resistance. It is frequently seen as a daunting, lengthy, complicated and somewhat intimidating process. Not true. All family enterprises should regularly engage in structured annual strategic planning meetings. In these, they should generate action plans from answers to these seven strategic planning questions:
• Where are we?
• Where do we want to go?
• How do we get there?
• How much will it cost?
• When do we arrive?
• Who is responsible for what?
• How do we monitor our progress toward our goals?
Everett Moitoza, EdD, MBA, of Moitoza Consultancy, is a family business consultant at the University of NH
Center for Family Business in Durham. For more information, visit moitoza.com or familybusiness.unh.edu.