A family business is a commercial organization that is actively managed or owned by one or more members of the family. Undoubtedly, it is influenced by the decision-making, willingness, and ability of the family members at all stages. And, to run a successful family business, one dedicatedly needs to keep one’s vision and real ideals preserved.
In this article, we will talk about the person who already has a family business and the challenges he/she faces and the ways to overcome the same.
Family businesses are naturally owned by families. It is comprised of individuals having a unique mixture of history, value, and emotional relationships. A successful family business does not allow the family to ruin the business or the business to ruin the family. It keeps both the business and the family valued. Furthermore, it runs in a way that does not distort or lessen family harmony.
One cannot deny the fact that there will be recurring family business issues. Those issues will directly or indirectly impact the business and will emerge financial pressures. As the family expands, issues are inevitable to occur because of the emotional and changing needs of each family member.
These issues are prevalent in almost every family business. The difference will lie if you as an FBL (Family Business Leader) handle it efficiently. After all, a successful family business is not measured in monetary terms only, but the degree of harmony in the family too.
Be it business or family, something is always changing. At no point during the on-going journey, both are static. Family members are passing college, getting married, expanding their own family i.e., having children, aging, sick, and divorced. Similarly, the business runs in a dynamic state- Increased labor-turnover rate, new competitors, and changing customers every now and then. It is this constant change in the family and the business- that creates the new issues that need to be addressed efficiently by the FBL to increase the profitability of the business while keeping the family harmony intact.
Contents
- 1 Successful Family Business: Issues, Challenges and Strategies
- 1.1 Common family issues arise out of the following 4 segments:
- 1.2 Focus on the four different factors to handle family business issues:
- 1.3 What should be considered?
- 1.4 The Challenge of Creating a Successful Family Business Legacy
- 1.5 Any Business Family has Three Generic Choices
- 1.6 Understanding the Business’ Future Management Needs
- 1.7 CONCLUSION
Successful Family Business: Issues, Challenges and Strategies
Common family issues arise out of the following 4 segments:
- Inter-generational: Issues pertaining to equity, finance, and control issues. These issues emerge between different generations.
- Intra-generational: Same issues occur related to equity, finance, and power, but within the same generations.
- Partisanship: Privileges to a favorite family member are given sub-consciously.
- Competition: Rivalries within the family business for love, money, and recognition.
Focus on the four different factors to handle family business issues:
- Your Mindset: Accept the fact that issues are inevitable and normal to occur. This will change as the family and business grow simultaneously.
- Your Process: The rules you adopt play a significant role to effectively manage family business issues. Contemplating on the outdated rules and coming up with new and effective ones will certainly help.
- Your Perspective: The perspective of the FBL i.e. Family Business Leader should consider the perspective of each family member.
- Your Family Values: The values that you look for in the business should be able to conquer over jealousies, personal rivalries, and personal monetary self-interest.
If you do not want your business to destroy your family, and family to destroy your business, you need to understand the following points:
- You cannot manage the family business issues in the old style. You need to be acceptable to the new changes that your business demands.
- The way family members communicate, debate, and reach consensus should be given equal attention as a specific family issue.
- Family business issues take time to get resolved due to their complex nature. Suffice time should be taken by each person to understand other people’s perspectives and to reach harmony.
- Becoming proactive will help more than becoming reactive. Proactively dealing can mitigate the greed, anger, jealousy, and thoughtless opinions.
- Values such as fairness, integrity, respect, and love are the bedrock of reaching long-term mutually beneficial results.
- Respectful listening yields great results than a quick solution. It is not only an obligation for the family members but also for the FBL (Family Business Leader).
What should be considered?
It should be obvious to the FBL that each family member’s view towards the family business and expectations will change as the individual grows.
FBL needs to be tactful and anticipate the following changes:
- Reaching age 18
- Admission in college
- Marriage
- Having children
- Sickness
- Financial setbacks
- Divorce
- Reaching age 30, 40, 50, 60…
- Disability
- Death
Any of the above family events can completely change the overall psychological and/or financial needs resulting in changing the sheer perspective of the family business. In most of the aforementioned cases, the pressure of providing more perks, dividends, pay, etc, increases.
So, for that, you as the FBL need to be aware of the fact that these issues are more complex than the normal business issues that revolve around marketing, accounting, building strategies, etc.
As being a family member, you are emotionally connected with your family too. Also, you have preconceptions about your children about how they should treat you, they should act, and how you should treat them.
| Negative Family Management Attributes | Positive Family Management Attributes |
|---|---|
| Impatience | Patience |
| Fast decision making | Taking sufficient time before making a decision |
| Father-knows-best attitude | Listening to each member |
| Command and control attitude | Empathy |
| Hierarchical or patriarchal attitude | Sensitivity |
| Controlling People | Respecting People |
The Challenge of Creating a Successful Family Business Legacy
Whenever any new company is established, it is rarely seen as a family business. It is usually considered as a product of the entrepreneur’s vision. At the moment of its inception, the FBL views it as “my business”.
Although, it runs with the financial and emotional support of the family- and of course employees- that play a crucial role in the background.
The thought of keeping the business in the family has incredible benefits:
- The opportunities to enjoy family relationships.
- The advantage for the FBL to always keep his or her hand in the business.
The major challenge which is faced by the FBL is to secure a commitment from his/her next generation/family:
Securing Family Commitment
It is the foremost duty of the FBL (Family Business Leader) to look for the family’s commitment. Without family commitment, there can be no Parallel Planning Process. If the family cannot participate and invest in the business, then it’s time to liquidate it.
The FBL should explore what the family wants pertaining to the future of the business. He/she should assess the willingness of the family to work as it plays a vital role in keeping the family harmony preserved.
Understanding Family Commitment
Commitment is a significant aspect in understanding individual behavior and organizational relationships. Commitment can be reflected in an individual’s willingness to contribute to the organization. Also, it can be shown in the desire for a relationship with the business/organization.
Any Business Family has Three Generic Choices
1. Business First
The “Business First” approach goes more in favor of the company, including the employees, shareholders, and customers. The family adheres to professional principles that govern matters like hiring, compensation, and promotion. They are willing to be strictly lawful even if any of the rules leads to unequal treatment of any family member or, even to selling the business.
2. Family First
This approach keeps the family’s happiness and sense of togetherness at its priority. All family business decisions will favor family unity and equality, even at the cost of the company’s future. The pragmatic outcome of this approach is that differences in the degree of performance of family members will not be fully recognized.
Such families will pay equally to everyone and rare will be the case that any family member gets fired. For such families, keeping the family united and happy is more important even if it generates financial harm.
3. Family Enterprise Approach
This approach is followed by those who believe in maintaining a balance between the family members and the business. This approach holds the philosophy that provides satisfaction to the family members without compromising on the economic health of the business. Such families believe that damaging the needs of either business or family will be like abusing their own future, be it at a personal level or a professional level. This approach demands the family to be fully cooperative and to resolve conflicts efficiently considering the interests of both the family and the business.
| Business Decision | Business First | Family First | Family Enterprise Approach |
|---|---|---|---|
| Entry rules | Specific job, if qualified | All Welcome | Opportunities for all individuals in the business. |
| Compensation | Based on Job-Description and market standards. | Equal pay for family members. | Acceptable family standard of living assured for each individual. |
| Dividends | None | Stable, fair return. | Variable, modest return to capital. |
| Titles and Authority | Based on the hierarchy, where each person has only one boss. | Equal titles for each member and role in decision-making. | Equal roles for all those with a high degree of competence. |
| Role in Community | Leadership | Voluntary | Active according to family needs and individual interests. |
Understanding the Business’ Future Management Needs
The FBL should always consider the fact that the next generation of management will lead the organization that is very different from the earlier ones. The dynamic market conditions, growth of the family, and maturation of the family firm create a new set of demands on managers.
Management skills and styles that were successful earlier may not work today because of new employee values, changes in technology, new global markets, or severe competition. Too often, family businesses just replicate the skills and practices of the past without feeling the need for considering the external changes or the factors.
You may also like: 12 Keys to Successful Family Business
CONCLUSION
Handling a family business will not require you (FBL) to have business acumen skills only but the skills that play a critical role at the life level as well. Comparing a non-family business and its aspects with a family business will generate innumerable differences highlighting the complexity of the family business. Thus, you being the FBL of a family business are required to consider the business aspects and the family aspects to take your business to pinnacle.
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