According to the Family-Owned Business Institute out of Grand Valley State University, the majority of the world’s wealth is created by family-owned businesses. In the United States alone, there are 5.5 million family businesses that employ over 98 million people (April, 2019).
Family-owned businesses are vital to our economy, and they range from the small mom-and-pop start-ups to businesses in the multi-million-dollar plus range. These businesses share the same challenges as most businesses, yet they also experience a different level of complexity that can result in failure.
No matter the size of your family-owned business, here’s some things you need to know.
Your Family System, Past and Present, Will Impact the Success of the Business
Each and every day I meet business owners who validate this fact. It’s important to remember that the family is our first system. All that we learn and experience in that system dramatically impacts how we lead and do business. Compound this reality with the fact that a family-owned business is, well, you guessed it, run by multiple family members, and what you’ll quickly discover is a recipe for disaster unless . . .
Individual family members have a shared understanding of how the family system is to interface with the business and how each member, given their roles, are to contribute to the day-to-day operation, to include, growth and sustainability.
Here’s something else to think about.
How is the ancestry of the family showing up in the here and now? For example, I recently interviewed a CEO who was atypically aware of how his leadership style was formed by his parents. He shared how his business acumen came from his father whereas the relational side of who he is came from his mother’s robust capacity for people.
This is a positive example of how our ancestry impacts our ability to be successful in business, but there are negative examples that play out as well.
When key players in a family business don’t know their place in the family system, they often don’t know their place in the family business. The result is displaced family members who unwittingly undermine the overall success of the company.
Failure to acknowledge this reality can result in both systems breaking down to the point of failure.
Common Challenges of Running a Family-Owned Business
We’re keenly aware of the most obvious challenges before family-owned businesses: lack of vision (particularly between different generations), lack of trusted advisors, poor financial/succession planning. These are common challenges that any business must recognize and face.
For the family-owned business, however, future generations can pose an even bigger challenge. The most obvious factors are: children coming up through the ranks with a sense of entitlement or little acumen for business, a fact which often results in poor stewardship of resources, or little to no interest in the business (Forbes, November, 2017).
These issues become even more complex when we look to family-owned businesses who have scaled to ranges of significant wealth. Wealth and success don’t necessarily make things easier for a family-owned business. Truth is, wealth can complicate things even further.
Additionally, the founding father of the business may fail to ensure that their children have proper financial education. Forbes goes on to state:
“Many families fail to nurture a sense of responsibility, history, and family values in the next generation, thereby neglecting family capital of the family business.”
Nepotism is another factor in that some family members may be given positions of power without justification simply because they are directly connected to the original founding family.
Think about the demise of the aristocracy in years past. Yes, there were many historical factors that contributed to this shift of power and wealth, yet, one that can’t be denied is generations of entitlement, many ill-equipped to earn, that lead to stagnation and failure.
If you’ve ever sat across the dinner table with a wolf-pack of family members as they sharpened their knives, you know that family systems are complex. This complexity compounds the complexity of business.
The Power of Building Generation(s) of Sustainability
Stay tuned to my upcoming podcast interview with Founder Keith Vellequette on December 4th to learn exactly how he intentionally positioned his two children to take over the family business. The result is a valued-based, sustainable company that continues to expand and meet the needs of his community and his family.
Whether your a start-up, a company well into maturity, or a leader who’s ready to pass on the business, it’s important to have clear values in place that drive how you will structure the company moving forward.
This structure should include clear Vision and Values that define your culture, a succession plan, solid financial advice, and, first and foremost, the willingness and ability to inoculate future generations with the history and storyline of the business, to include how the DNA of both the business and the family should be stewarded for growth and sustainability moving forward.
Failure to do so could result in disaster for both your business and your family.