Over 70% of family-owned business fail before they make it to their second generation.
Even more dishearteningly, less than one in five will make it to their third and fourth generations, losing that legacy its founders worked to build.
What’s behind these abysmal success rates? Are family conflicts simply too complicated to overcome? Do family business conflict resolution strategies not work? Is the pressure to fill in the shoes of the previous generation a barrier preventing real innovation and success?
We’re discussing the pros and cons of mixing family and business — a recipe that, when done well, can result in one of the most fulfilling achievements of your life.
No pulling punches or family politics here. Just family business success strategies meant to overcome this niche’s unique issues and improve your organization and relationships.
Challenges of Family Businesses
Family-owned business problems can be particularly tangled — especially when they’re rooted in the following situations.
1. The Blurring of Personal and Professional Lives
Members of a family business don’t maintain the traditional boundaries of a personal and professional life. In fact, those boundaries are the antithesis of their business model.
It’s no surprise, then, that one of the top issues cited during family business conflict is the lack of an “off” button. Those involved in the business may feel they can’t get the rest and reprieve at home that’s so pivotal to a healthy, balanced life — and a healthy, balanced workplace. Setting clear boundaries between work and private life is essential to successfully managing family business conflicts.
2. Tethered Income
The pressure to perform — and avoid failure — can be excruciating when a family’s entire set of finances hinges on a single source.
This stressor is particularly heavy on couples who’ve decided to start a business together. Their household now revolves around one variable income, and they’ve added more weight, responsibility and expectations on to their partnership — expectations few can fully rise to.
3. Lack of Communication
Lack of functional communication is one of the most-cited problems faced by family businesses.
Whether its vague work roles, poor internal decisionmaking channels or opposing views on the very direction of the business, the results are the same — a lack of communication erodes trust and fuels competition, which is the bedrock of family business conflict.
Family businesses must constantly guard against impressions of favoritism. Any organization, family-run or not, that awards titles and roles based on anything outside a meritocratic system will disintegrate employee trust. Without a solid foundation of hardworking, motivated and engaged workers, organizations of any size and scale simply won’t last.
Conflict Management Strategies in Family Business
Is there a way for family-run businesses to proactively manage their inevitable conflicts?
For decades, everyone from psychologists to family business consultants has weighed in. Their insights have shaped many family business conflict resolution strategies, including the following.
1. Objective Meritocracy
Family businesses must work twice as hard to combat any feeling of nepotism. Passing your business’ leadership torch to the next of kin regardless of that inheritor’s fitness or willingness to lead is the quickest way to sow discord.
Organizations can avoid this pitfall by institutionalizing objective performance scorecards and employee review processes. These processes should be established and communicated from an employee’s first day on the job, regardless of if that employee shares your last name or not.
2. Conflict Resolution Training
Undergoing conflict resolution training is a proactive approach to handling family business issues before they grow existential.
Conflict resolution training can take many forms, addressing distinct problems underlying family tension. Yet programs also share commonalities, such as helping participants:
- Better identify the true source of a conflict
- Navigate conversations where all sides are heard
- Negotiating agreeable solutions
- And more
3. Dedicated Family Retreats
Many business leaders today employ day-long, overnight or even weekend retreats for their teams. These out-of-office gatherings can help spur creativity and high-value ideation during times of company strategic planning. Yet they also serve another purpose, allowing fellow employees to spend time together in a more personable, relaxed setting.
Family businesses should take a page out of the retreat playbook by organizing their own getaways. Family retreats can mix work with relaxation but should prioritize a set of concrete goals for participants to collaborate on during their time away.
Top Mistakes Family Businesses Make
Many family business issues stem from ambiguous or poorly communicated expectations, both amongst family members and with themselves.
There is no single list of concerns to expect when starting a business with family. However, many headaches can be avoided by addressing these top family business mistakes before they manifest into full-blown calamities.
1. The Blurring of Personal and Professional Lives
Less than 20% of family businesses have a formal succession plan in place.
That means four out of every five family businesses are not operating with the confidence and clarity needed to ensure a smooth operational transition. What’s more, without a succession plan, familial rivalries are far more likely to rear their heads, causing horizontal and vertical conflicts that destabilize the everyday workings of the business.
Families today can’t just assume the eldest sibling is next in line to helm the business. Establishing a clear, merit-based succession plan must be a top priority for today’s family businesses — and something every family member expects and embraces.
2. They Prioritize Legacy Over Innovation…
Another major pain point for family businesses? Leadership chained to past generation’s ideas of products, services and company identity — often at the expense of keeping up with the times.
Honoring your company’s origins while looking toward future growth is a delicate balancing act. It’s also one of the top reasons family businesses bring on outside help. Business consultants help realign everyone’s expectations of the organization, reviewing its structures, operations and relationship dynamics to overcome stagnancy.
3. …Or Innovation Over Heritage
Moral of the story? Avoid blinders tethering you too much to an unsustainable business portrait. Whether than portrait is rooted in the past or projecting too far into the future doesn’t matter. Your family business needs a strategic balance of both.
4. There Aren’t Skills-Based Roles
Progression through the company should always be defined by skills and achievements — not because someone is next of kin. Furthermore, every role within the business should come with formal expectations outlined in writing. These should include the traits and abilities expected from someone in a distinct position, plus an understanding of why those abilities are pivotal to the organization’s success.
5. They Never Step Outside
Outsider perspectives are instrumental in unlocking the full advantages of a family business. Often, you can have your nose pressed so firmly against the glass of your family business that you don’t see its cracks.
Family business consultants bring a fresh, intentional and objective lens to the challenges facing a family business. They review its current strengths and weaknesses, then provide direction and accountability on tangible patterns of improvement, all reducing family business conflicts.
What to Do If Your Family Business Is Struggling
Yes, there is help for struggling family businesses.
If you’re experiencing friction within your family-run organization, consider the following steps to get to the source of the issue, then devise actionable solutions.
- Admit there’s a problem: Resentment builds when people avoid constructively communicating their thoughts and feelings. If there’s a problem in the business, whether financial, operational, interpersonal or something else altogether, you must set aside time to name and discuss it with effected individuals, ideally while practicing good conflict management techniques.
- Honestly assess strengths, weaknesses: After you’ve identified the problem, deploy a business assessment model to temperature-check the scale of the issue while learning more about its causes and details. Consider using structured analyses like SWOT, voice of customer (VoC) research or employee satisfaction surveys to better characterize current capacities.
- Revise the business plan: Funnel your findings from your SWOT analysis into clear SMART objectives collaborated amongst key business leadership. These SMART objectives will help scaffold items in the overall business plan, from new sales or marketing strategies down to a complete overhaul of operations.
- Establish new benchmarks: Your SMART goals should help install quantitative metrics tracking any changes wrought by your business plan. Benchmark data also indicate if those changes are working, plus points toward tweaks you can make to amplify results.
- Seek a family business consultant: As described earlier, these individuals have made a career of transforming family business issues into insights and innovation. If operational or interpersonal conflicts are proving too stressful, a family business coach may be your most straightforward solution.
Is Going Into Business With Family a Good Idea?
Only you can answer this question.
Just remember — having reservations about mixing family and business is natural. Help put those reservations in their rightful place by considering the following before joining or starting your family business.
- Motivation: Am I doing this because it’s truly what I want for my career and future? Or because I feel obligated?
- Timing: Does the prospective role in the family business make sense for where I am with my abilities, experience level and career ambitions?
- Resources: What funding, network and connections do we have that buoy our business? How can we formally and strategically leverage them?
- Conflict tolerance: Do you tend to let frustrations go or fester? Are you comfortable having, or at least partaking in, uncomfortable yet inevitable conversations with loved ones?
- Qualifications and experience: If you were a hiring manager, would you pick you for the job?
How Can You Protect Yourself When Going Into Business With Family?
Be confident in your decision to join the family business by using the following tips and strategies.
1. Use Employee and Business Ownership Agreements
Employee agreements should be used across every tier of the organization — but especially between family members.
Use employee agreements to describe the titles and subsequent responsibilities of each family member. Also outline, with as much detail as possible, the ownership breakdown of each family member to avoid legal complications during times of transition. You can also use employee and business ownership agreements to detail what happens if someone exits the family business — a scenario that quickly turns sticky if not accounted for.
2. Initiate Objective Performance Measurements
You can conduct performance reviews internally between family members. Use those employee contracts described above as a starting point, as well as employee performance scorecards and metrics agreed to at the beginning of your tenure.
Using only these written expectations and deliverables ensures no subjective bias creeps into performance reviews. You might also consider asking for an external reviewer to create scorecards or conduct annual performance reviews for your family business, securing even further objectivity.
3. Get Your Head Straight
Conflict is inevitable. Family businesses are far from immune, and the effects of prolonged challenges can begin to impair the strength and sustainability of the business’ future.
It’s essential to accept the undeniable reality that tension, disagreements and even arguments will strike when working with your family. Conflict is not an inherently bad thing — but your handling of it certainly can be.
Tips for Improving Family Businesses
Looking for ways to tip the scale when it comes to the pros and cons of a family business? Avoid many of the mistakes detailed above by bearing in mind these family business insights:
- Don’t create a binary: Be careful about all the ways you could be reinforcing an “insider” or “outsider” mentality within your organization — that is, family or non-family. While you do want to celebrate your heritage and legacy, you don’t want to overshadow the work executed by employees without your last name. You also don’t want to play favorites, give special attention to or perform favors for one group and one group only — or create the wider impression non-family members can’t speak up and contribute to business decisions.
- Establish an external management council: External councils can weigh in on executive business matters as well as act as mediaries during family conflict. Those assigned to this independent management council should not be in your family, ensuring more judicious and objective business advice and direction as well as a skill or experience balance.
- Give personalized attention: Yes, it’s a family business. But families are made up of individuals, each with their own goals, ideas and visions. Just as a private, non-family owned business likely supports professional development and enrichment programs for their employees to nurture skillsets, so, too, should your family business. You should also review the current communications channels and practices used at your workplace. All employees should have access to and feel comfortable interfacing with management, particularly when it comes to relaying ideas or asking for assistance.
- Don’t forget to have some fun: Go out for lunch, bring in favorite treats, book special employee outings and more. Even if payroll consists of just you and your spouse, make sure to take time for a little fun. Doing so can help remind you that family always comes first and that the moments shared with them are some of life’s brightest.
Not Sure What to Do About Family Business Issues? Call Coachfirm.
Managing a family business can leave you feeling uniquely overwhelmed. The same rules and structures that control conflict in other businesses simply won’t work in yours. Yet that doesn’t mean you’re alone.
Contact Coachfirm if you’re struggling with family business problems. Many of our own team members have come from and worked for family businesses. We understand the nuanced dynamics at play when mixing family and business and can help you evolve past familial struggles into business continuity.