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The same attributes that can make a family business strong can also provide the greatest challenge. Namely: relationships.
Family-owned businesses are a key segment of the economy, accounting for 50 percent of gross national product and 78 percent of new job creation, according to the University of Southern Maine’s Institute for Family-Owned Business.
Then why do only 30 percent end up being successfully managed by a second generation?
Many who launch a family-owned business do so to create wealth and long-term financial stability for their children and other relatives. A sense of shared ownership, creation of a legacy and participation in profits are major perks of working in a family business instead of an outside firm. Many relatives feel more secure in an uncertain world with the knowledge that “there’s always a place for you here.”
But when the sense of security and entitlement translate into treating the business with the intimacy of home, problems can quickly arise. Over time, taking the resources and success of the company for granted will erode productivity and can create a snowball effect resulting in failure. Founding a company often requires great commitment and sacrifice. It could be argued that, lacking this great personal effort, subsequent generations often don’t have the necessary drive to push the company to continued success.
To be successful, the company must operate like a business and separate out family dynamics, whether that involves human resources decisions, attitudes or work performance. While promotion as family owned and operated may be a desirable marketing message, arguments between employees, slovenliness and poor service are not appreciated by customers. They don’t care about the blood tie between the owner and the surly clerk at the desk.
As with most initiatives, improving communication and behavior starts at the top. Values, operating principles and goals must be clearly stated and passed on to all employees, family or not.
According to studies, not sharing the same goals is a critical downfall in family businesses. (See article on opposite page.) Family members need to understand and buy-in to the company’s vision as much as employees hired from the outside. Otherwise, how can they make appropriate decisions and work toward that vision?
Another difficult issue arises when family members are treated differently than other employees when it comes to productivity, procedures or performance.
This doesn’t benefit the family member and will also anger non-related staff. All employees must be held to the same standard and all need to be trained the same way. It’s not enough to say, “Answer the phones,” without telling someone how they should handle calls, or plop someone into a supervisory role when they have no relevant education or experience.
Matching family members with nonfamily employees can be an effective way to objectively train and mentor new hires.
Longevity of leadership and rigid roles are two other areas that hamper family-owned businesses. Average CEO tenure in general is six years while in a family-owned business it can be 20 years or more.
The problem is that the same skills that founded and grew the company may not be those that will help it adapt to changing industry and economic conditions. Just because someone will be the patriarch or matriarch until death, doesn’t mean they need to lead the company until then.
Many second generation leaders are frustrated by the reluctance of their parents to relinquish the reins. Disconnecting family and business roles can help address this.
Be objective when hiring family members. Figure out their strengths and where they best fit.
Responsibilities should also be appropriate to titles conferred. A number of successful family enterprises are requiring college education and outside experience as a condition of employment. A tone of professionalism is key to operating like a business. Just as employees need to leave their personal problems at home, so do family members. Establishing clear methods and channels of communication will help.
Bringing in an outside facilitator or trainer can help a company move past bad communication habits and learn to deal with conflict. Emotional intelligence – the ability to empathize, understand and communicate with others – is increasingly regarded as an essential management skill.
Emotional intelligence coaching can help leaders learn essential skills to pass along to family members – along with the keys to the company.