7 Tips for Family Businesses

As with the management and operation of any business, running a family business is not without its challenges. In fact, given the emotional nature of personal relationships, the challenges associated with running a successful family business are often amplified if your business doesn’t have the proper structures and regulations in place to effectively manage conflict.   

Recent research from McKinsey reported that “less than 30 percent of family businesses survive into the third generation of family ownership”. While family businesses can fail for any number of reasons, some of the most common reasons include: conflicts over money and compensation, poor management due to nepotism, weak communication and succession plans, and a lack of an overarching vision, purpose, and future direction of the company.

Obviously, the challenges are apparent. With a shared vision and the right systems in place, however, you can put your family business on the road to success. If you have any doubt, just take a look at Walmart, Samsung, and Nike.

One family business will look entirely different than another. As one family office expert said, “when you’ve seen one family office, you’ve seen one family office”. While there is no uniform method of navigating family business and balancing personal and professional lives, there are some general pieces of advice that will be helpful.

 
Tip #1 – Keep family and business separate

As simple as this may seem, this piece of advice has proved to be much more difficult to achieve, in reality. Compartmentalizing these two realms of your life is an active process that takes conscious effort until it begins to feel natural to you. When the professional and personal spaces of your life become too intertwined, the productivity of your business and harmony in your family can suffer.

A seemingly obvious and highly effective way of forming this boundary is to clearly communicate with all employees/family members that all work matters are to be dealt with at the workplace. On the other hand, all family matters are to be dealt with at home. So, how do we begin to build this boundary?

In the workplace, strong HR policies governing acceptable standards of behavior and interactions among employees is a good way to develop that crucial personal vs. professional boundary. Accompanying these codes of conduct and standards, should be clearly defined disciplinary mechanisms if these rules are breached.

At home, try establishing simple rules such as “no work talk at the dinner table”. George Isaac, a family business consultant, says that these types of specific and tangible rules are an effective way to actively manage family dynamics by compartmentalizing these two realms of your life.
 

Tip #2 - Focus on communication

The importance of good communication cannot be stressed enough. When  communication is open, honest, respectful, and informative, there is a less chance conflict will arise because there is less opportunity to misunderstand the other party. In the event there is still conflict, resolution tends to come much quicker and more amicably due to the open lines of communication.

Communicating the vision, mission, and goals of your business will help in the development of a shared vision. Formal rules and processes need to be clearly communicated to all employees, as well, to ensure that roles, responsibilities, regulations, are fully understood.  

 
Tip #3 – Write everything down

On the topic of communication, it is important to note that this can be both verbally expressed and written. Even if you believe that everyone is on the same page, when employee responsibilities, HR policies, or other company processes and regulations are clearly written down, there is less opportunity for them to be misunderstood or forgotten.

Employees should be able to easily find both tangible and intangible processes/information in written form. This includes things such as the company’s vision, mission, and values, as well as more formal items such as job descriptions, formalized contracts, operating procedures, share issuances and your succession plan.

By posting appropriate documents and ensuring that employees can easily access these documents (with the exception of confidential company data, of course) everyone will be consistently reminded of the company’s purpose and strategy.
 

Tip #4 – Have a succession plan

Having a comprehensive succession plan helps to smooth the transition when it comes time to pass along the family business to the next generation.

The succession plan should include all details about how the company is currently operating. Such details could include an outline of the company’s organizational structure, a time table for training new management, financial plans for the company, etc. It should also outline the role that founders and former executive members will continue to play in the company (if any), and your intended date of retirement. This will help to smooth the transition when it comes time to pass along the torch.
 

Tip#5 – Avoid favoritism at all costs

A common root of conflict in family businesses is employees feeling as though they are being treated differently or unfairly compared to others. It is crucial that you avoid setting higher or lower standards for different family members. Evaluation of employee performance and outcomes should be based on objective metrics. Ensure that you don’t let family tension tempt you into making unprofessional decisions. Be cognizant of things such as scheduling, promotions, and praise or criticism.
 

Tip #6 - Hire externally

One of the appeals of family business is getting to work with your family. In some cases, however, family members may not be the best people for the job. If a family member does not have the qualifications for a certain job, there are two main options. Firstly, encourage them to obtain the required credentials so that they become a competent and suitable candidate for the position. Or secondly, look outside of the firm to attract the proper talent.

If a family member is put into a position they are obviously underqualified for, you risk losing trust and credibility with your other employees. Not only can this damage relationships and company culture, but it can also compromise efficiency and productivity levels, which in turn, harms profits.

It is also advised that you establish a board of directors or advisory group that consists of people outside of the family. George Isaac says that by “including non-family independent board directors or advisors, you bring objectivity and an extra degree of professionalism to your board meetings”.

 
Tip #7 – Maintain a culture of growth

As mentioned before, less than 30% of family businesses last three generations. A contributing factor of this could be the common notion to maintain the status quo throughout all generations. ‘If it isn’t broken, don’t fix it’ doesn’t apply in the case of business. Businesses need to continuously innovate and develop in order to remain competitive in their respective industry.  

Strategies, processes, and attitudes need to adapt to changing social, legal and technological landscapes. As technology and laws change, businesses have no choice but to change with them if they want to survive. Establishing a strong culture of innovation in your family business will keep employees committed to growth and result in the continued success of your family business.

 
By committing yourself and your company to principles centred on strong communication, personal and professional boundaries, and the promotion of a growth-oriented work environment, you will be better equipped to handle everyday family business challenges.   If you have any more questions, please do not hesitate to reach out to us at the Bongard Wealth Advisory Group.