Keeping the Family Business Healthy: Four Keys to Success

Keeping the Family Business Healthy:
Four Keys to Success

by Karen Vinton

Family business plays a major role in our economy. It is estimated that over 90% of all businesses are family-owned or controlled. These businesses contribute almost 50% of our nation’s GNP. Yet what are the typical stereotypes that surround these businesses? We frequently think of “Mom and Pop” stores, the undeserving child who inherits the business, the family squabbles which end up in court, and family businesses as portrayed on TV and in movies (Bonanza, Dynasty, etc.).

Many of these stereotypes tend to be very negative and may lead us to make wrong decisions about our own family businesses. In fact, some consultants and business experts say the way to “save” a family business is to take the “family” out of the business! But is this practical advise?? NO!!!

For many families, the business is the major part of a family’s estate. In order for a family to survive and prosper, the business must prosper. And in order for many of the businesses to prosper, they must be run by the family. Family businesses can survive and be healthy but it is necessary to learn how to work with those that you love. A seemingly easy task (who better to work with than people you know well and love dearly?), but everyone knows that this is not always easy.

What is a family business? There are various definitions, but in general a family-owned business is:

  1. A business in which 2 or more extended family members influence the business through the exercise of kinship ties, management roles and ownership rights, and/or 
  2. A business which the owner intends to pass to a family heir.

It is obvious from these definitions why there are so many family businesses in the United State. And since we are facing a time when many of these businesses will be passed from one generation to the next, the crucial issue is how to keep these family businesses healthy.

First we have to know what is healthy?? While definitions about “healthy” may vary, for a family business healthy needs to be the combination of two systems: a healthy business system and a healthy family system. A healthy business needs to be economically viable (also known as profitable) over the long haul. A healthy family system means that relationships between the various family members need to be good. Not perfect! But good.

So…how do we achieve a healthy family-owned business? This article will explore four major keys for keeping a family-owned business healthy. There are a myriad of factors which contribute to keeping a family business healthy, but these four keys have proven to be extremely important:

  1. Understand the unique interrelationships between various family and business roles.
  2. Treat the business as a business.
  3. Plan for the future of the family and the business.
  4. Don’t be afraid to ask advice.

Key #l–Understand the unique interrelationships between various family and business roles

What makes family-owned businesses truly unique is the fact that there is an interrelationship between family and business roles which is not typically found in non-family-owned businesses. Understanding this interrelationship is the primary key to making family-owned businesses healthy. A “role” is a part you play in the family-owned business drama. There are three primary roles: family (are you a mom, son, niece, uncle, in-law?); ownership (are you a stockholder?); business (who works at the business?).

These roles can change over time and you can have roles which overlap and which may cause many conflicts. For example, the father in a family-owned business may be the owner, the boss, a parent and a spouse. The children in the family also have numerous and conflicting roles: daughter, worker, boss’s daughter and potential (or future) owner. When the boss gives an order at work, it is sometimes difficult (if not impossible) for the worker to see the boss as a boss and not as a “nagging parent.” And it’s difficult for the boss to view the worker as simply a worker, and not a child who is not living up to the parent’s expectations.

An easy way to visualize these interactions it to use a systems approach (Lansberg, 1988).Systems theory provides a clear understanding of how the three sub-systems–family, ownership, and business–interact with one another and the environment. It is particularly important to note that a change in any part of the system affects the entire system. Participants in each system have different goals and expectations.

“For example, family members often view the firm both as an important part of the family’s identity and heritage and as a source of financial security that will enable them to satisfy their life-style expectations…In contrast, those in (the business) see their careers as tied to the firm and tend to regard the business as a vehicle for professional development and economic achievement…Finally, owners view the business predominantly as an investment from which they want to receive a fair return” (Lansberg, 1988, pp. 122-123).

Once people start to understand how conflicting roles work in a family-owned business, the conflicts don’t go away, but one can start understanding how they occur. With understanding, come the ability to better handle these conflicts and resolve them for the benefit of both the business and the family.

Key #2–Treat the business as a business

This is a business, not a hobby. This doesn’t mean that you can’t thoroughly love your business and what you do at your business, but it needs to be profitable and successful in order to survive and support your family. A student, doing a class assignment, interviewed an entrepreneur who expressed this concept well: “You own a business to make money, if you’re in it for a hobby you’ll never last for more than a year.” Here are five techniques for making your business more effective and healthy:

  1. Establish ongoing communications
  2. Create a family business vision statement
  3. Remember the non-family employees
  4. Provide training and education opportunities for all employees and stakeholders
  5. Have clear job expectations for everyone

Establish ongoing communications by setting specific times to discuss business and family issues. This technique contributes to both a healthy business and a healthy family. One way of accomplishing ongoing communications is by establishing meetings both with all business participants and with family members. Many families have established family councils (Jaffe, 1992) as a way of formalizing communication among family members.

Create a family business vision statement or a mission statement, which sets forth the core purpose of the family and of the business. You may have a separate statement for each. It should be short (100 words) and be emotionally moving (give you goose bumps). For example, one family’s statement reads as follows:

Our business is about service–to family, to employees, to customers, and to the community. We want to grow ourselves, and we want our company to grow, in order to provide a secure ‘home base’ for everyone. A thriving business will create opportunities for growth, community involvement, and fulfillment for everyone, family and employees alike (Jaffe, 1992, p. 56).

Remember the non-family employees; they are a vital component of many family businesses. It is important to involve them in appropriate decisions; be honest about what their opportunities are in the business; and don’t promise (or hint at) ownership if it is not a possibility.

Provide training and education opportunities for all employees and stakeholders in order to keep your human resources working at maximum capacity. A great way for family members (who may have always worked in the family business) to get additional perspective on your business and industry is to attend additional training and educational workshops or courses. This is frequently available through industry or trade organizations. Professional meetings provide numerous educational and training opportunities.

Also encourage spouses to understand the business better. They may need to attend professional meetings or educational workshops. Spouses (even those not actively working in the business) play a very critical role in family-owned businesses. They need to understand the business in order to provide better counsel to their mates and in case they ever become more actively involved in the business through ownership or a job.

Have clear job expectations for everyone including relatives who work in the business. Even if you and your children worked on the ranch your whole life, if you make a child foreman, don’t assume the child can read your mind and know what your expectations are! You need to sit down and discuss the job, your expectations, your goals. Write this down, if necessary. Re-discuss these issues constantly and change the expectations as necessary.

Key #3–Plan for the future of the family and the business

It is evident with the family-owned business systems model that family and business are not mutually exclusive! So when planning for one, you necessarily plan for the other (whether you mean to or not!). Two techniques for helping you plan are as follows:

  1. Develop goals, objectives and a plan of action for your business.
  2. Develop good communication skills. Realize that good communication sometimes includes speaking the unspeakable!!!

The first step in planning is to look at your vision or mission statement. Where do you want to be in the future? You need to set goals, develop measurable objectives and a plan of action to help you reach your desired future. This is a great activity for the whole family. You can work on this during a family meeting. If you have a really large family, divide into subgroups and have each subgroup work on a certain aspect of the plan. Then combine each part into a whole plan.

Communication in a family-owned business cannot be emphasized enough. However, this sometimes means having to talk about the unspeakable: death, wills, money, politics, etc. Why is it important to discuss these? Because if you don’t, they can be the root of many problems. For example, what happens if you don’t tell your heirs what’s going to happen to the business when you die? Your children and spouse may not be prepared to handle the business. Do you have sufficient money in your estate to pay taxes or will the business have to be sold or closed?

It is also important to really talk to family members about whether they really want to be involved in the family-owned business or not. Allow children to make their own decisions. Forcing a child to be involved in a business can be bad for both the business and the child. Talk to your children about what their expectations and goals are. Talk to your children about what your expectations and goals are. Are these compatible?

Key #4–Don’t be afraid to ask advice

Even though it may seem so at times, you are not alone in the world; there are many resources available to businesses today! The trick is knowing who and where to ask? The first place to start is by keeping up-to-date by reading! Your local library may have a number of resources available. Here are some other potential sources of advice and information:

  1. Respected friends, family members, and business colleagues.
  2. Service providers: accountant, banker, lawyer, financial consultant, insurance agent, business consultant, counselor.
  3. Extension agents, university professors, members of various government agencies and development agencies.
  4. SCORE (Service Corp of Retired Executives), trade association, and development corporations.

These are only a few of the many sources of information and help for businesses. However, it is important to know how to select advisors. The following are some suggestions:

  1. Get referrals.
  2. Interview advisor before hiring.
  3. Ask for a list of references from potential advisor.
  4. Does advisor have the necessary technical skills?
  5. Ask what fees are.

David Bork, in his book Family Business, Risky Business suggests asking the following questions during a reference check for a business advisor:

  1. What was the nature of the problem that prompted you to call the advisor?
  2. How did the advisor go about helping you find an acceptable solution?
  3. Did the advisor manage the relationship in a satisfactory manner?
  4. Did the advisor understand the special conditions found in family business?
  5. Was the advisor a good listener, and did s/he really grasp the problem in its entirety?
  6. Were you satisfied with the final outcome?
  7. What recommendations do you have for making the best use of the advisor’s talents and skills?

The primary key to selecting an advisor for a family-owned business is, Does the advisor understand the special conditions found in a family business? Some advisors feel they know “the best way.” Some advisors feel the best way to run a family-owned business is to get the family out of the business. While this may be true in some cases, is it always true? You need an advisor who not only knows the technical issues of his/her specialty, but one who also understands the interrelating roles of family and business. You need an advisor who will help you and your family face the important issues and decisions and not just make the decisions for you.

Summary

Understanding and communications are consistent themes which are found in all four keys to keeping the family business healthy. Understanding interrelationships and the nature of your business…communicating with family members and non-family employees…communicating with advisors and understanding the impact of their advice on both your family and business…all of these will contribute to working effectively with those you love while keeping both your family and your business healthy.

Working in a family-owned business can be a wonderful adventure for everyone if you keep these keys in mind. Remember, you need to think of a family business as a growing system; you have to be prepared for some troubles in the system, for they will come. But, by developing these four keys, you can overcome the troubles and get back on track. Following these four keys will help both your business and your family stay healthy.

References

Bork, David. Family Business, Risky Business. New York: American Management, 1986.

Jaffe, Dennis. Working With the Ones You Love. Berkeley, CA: Conari Press, 1990.

Jaffe, Dennis. “How to Create a Family Council.” Nation’s Business, June 1992, 54-56.

Lansberg, Ivan. “The Succession Conspiracy.” Family Business Review, 1988,1(2), 119-143.