10 Tips for Navigating Family Business
Updated: Oct 27, 2020
If anyone thinks running a business is easy (it's not!), then try running a family business.
A family business faces all of the same challenges that a non-family owned business does. Challenges like cash-flow, supply-chain issues and finding customers. But a family business also has it's own unique challenges.
These unique challenges come in the form of family relationships and family dynamics.
In our work to support family owned business, we have found that nothing poses a greater threat to the health and viability of the family business than finding a balance between the needs of the business and the needs of inter-family relationships.
To help you avoid some common pitfalls families make when they are in business together, here is a list of 10 tips you can follow to minimize the conflict in your family business and promote a healthy working relationship between family members and generations.
1. Define The Purpose of the Business
Businesses can exist for many different reasons, but normally the foundational reason a business exists is to be profitable and generate a good return on investment for it's owners.
In a family business, the balance between doing what is right for the business and trying to maintain family harmony can conflict. As a ownership group, you need to decide if your business exists to make a profit, or to serve the individual interests of family members.
Once you know the foundational purpose of your business, decisions need to be made that are in alignment with this purpose.
2. Separate Birthright from Employment Status in the Company
A common challenge family businesses deal with is how to assign job titles, roles, responsibilities and compensation to family members. Especially when family members have varying degrees of education, experience and skill set.
Again, I refer you to point #1. If your family business exists to be profitable than human resource decisions need to be approached in a business-like manner.
Position, compensation etc. need to be based on merit if your family business exists to be profitable and viable. If financial viability is not your primary concern than you can use other factors to determine who does what in the family business.
In most cases, compensation should be based on industry standards.
3. Set Expectations
When we hire a non-family member, we normally set the expectations for the role they are hired for pretty clearly.
This isn't always the case in a family business.
To avoid misunderstandings, hurt feelings, etc., it is important that expectations be set and clearly communicated for all positions. This includes the founding generation CEO, to the third generation administration assistant.
Everyone needs to know what is expected of them, and that everyone knows what is expected of their family member co-worker.
4. Clarify Job Roles
Few things create dis-harmony in a family business like unclear job roles and responsibilities.
Job roles and responsibilities need to be clearly defined and communicated.
When this doesn't happen, people tend to drift into someone else's 'lane' and conflict begins.
Like expectations, job roles need to be established early and monitored regularly.
5. Put the Right Person in the Right Position
Always be mindful to assign roles and responsibilities to the right person. Whether that person is a family member or not.
If you put a family member in a role where they will have a difficult time excelling due to lack of skills, experience or training, you are setting that family member up for failure and increasing the chances that family conflict will be a result.
What are the odds that other family members will begin to complain about 'John" because he isn't performing his job well? Pretty good. So make sure everyone is in a role where they can be successful.
6. Decide How Profits will be Distributed
In a multi-generational family business, there is a natural tendency to have different views on profits.
The senior generation may want to pull as much profit as possible from the company to help fund their upcoming retirement.
The second generation may prefer to re-invest the profits back into the company to purchase new equipment to make the company more efficient.
The youngest generation, may be trying to gather enough money for a down-payment on their first home, so taking profit out of the family business is their priority.
Neither position is wrong. But an agreement regarding the amount and distribution of profits needs to be talked about and agreed on between shareholders.
7. Company Policies Need to Apply to Everyone
If you have policies in your family business, and I hope that you do, they need to apply to everyone. Equally.
This means that everyone has to follow the same rules. If a family-member, or a generation of family members are exempt from company wide polices, this will lead to dissatisfied family members.
Consistency is the goal. Apply a standard to everyone.
8. Separate Family Titles and Company Titles
If you are reading this article, I'm assuming that you have first-hand experience in family business and you know that at the best of times, separating our title and position in the family unit from our title and position in the business is difficult.
To help keep the lines of business and family from getting blurred, separate the titles that you use to address your family members.
Don't use 'mom and dad' at work. Don't use family nicknames. Keep it professional and address family members in the family business as you would if you were not related.
I often get push back on this, as some will protest that it is dis-respectful to call their parent or grandparent by their first name. I can assure you it's not. What is dis-respectful is when family titles are used as a form of manipulation (whether intentional or accidental). Or when unproductive communication occurs because the lines of titles have been blurred or crossed.
9. Write it Down
In family business, there is a tendency to not write things down, or document agreements, policies, etc.
This practice is a recipe for disaster.
The truth is conversations get forgotten about, or people have different perceptions of the same conversation. Without documentation, there is nothing to refer to when different opinions or recollections arise.
I would suggest, that in a family business, there is even a greater need to write things down and be diligent to do so because there is so much more to lose in terms of family harmony if disagreement arise because something wasn't written down.
10. Be Vigilant
This one is especially directed at the senior generation in the business and the majority shareholders.
Just because family relationships are good today, doesn't mean they will be good tomorrow. Relationships can change pretty quick in a family business due to triggers and past family history.
As the leader of the business, one of your core responsibilities is to monitor the family relationships and take action as soon as you notice something going off the rails. Standing back and hoping conflict doesn't happen, or hoping the problem will fix itself, is a doomed strategy.
Be vigilant and take corrective action as soon as it is required.
Success and happiness in a family business is possible and highly probable. But it often doesn't happen on its own. Do your best to apply the tips above to ensure that your family and your family business enjoy the best of what is possible in a family business.