Family businesses tend to be strange things. You would never hear tossed out during a discussion on a topic at most companies, "Oh yeah, well, I changed your diapers when you were a little child or he always got to go first when we were kids." But you might hear it at some family businesses or at least the thought might run across someone’s mind even though they may not have the courage to say it.
Family businesses have been a major driving force behind American enterprise since the country’s beginning. This trend holds true in the sawmill and pallet industries.
Family businesses can be the best work environments or they can become a place where even seasoned employees find it hard to exist. Much of the success of a family business depends on relationships and the skills of the family running the show. If you have serious dysfunction at home, expect for it to impact the business. Even the most professional business people find it hard to separate out years of hurt feelings, fear and regret just because they are at work.
The good news is that the past does not have to be reality in the present or the future. Sick families and poorly managed family businesses can become healthy if everyone will agree to work toward solutions and common goals.
Why Family Businesses Kick Butt in the
First, let’s look at why family businesses work. For the most part, family businesses can be the most nimble and resourceful organizations on the planet because they typically have much less bureaucracy and fewer procedural walls to overcome. There are no financial analysts to please, and most of the key managers know each other very well. Family members have been around each other so long that they can predict what others are thinking. It’s kind of like telepathy management. You know what inspires, threatens, elicits compromise or could be a non-negotiable for others in the family.
Family members bring valuable social capital to the business. There is just something about having your last name on the outside of the building that makes a customer feel respected and valued. They think that if they are dealing with part of the family that owns the place, they will be treated right. Having multiple family members work in the business multiplies this effect, allowing more and more customers to feel like they have direct link with the owners.
Most non-family employees are not willing to sacrifice the way that family members will in hard times. Employees will not take as kindly to cutting back perks or trimming salaries in order to survive a downturn in business. Families are more likely to sacrifice and come together under intense business pressure. This is less likely if the family members believe that they will not have any future ownership stake. Family members may even be willing to provide personal loans or free labor to help keep the business going if necessary.
Family members generally trust each other more than non-relatives do. They are less likely to doubt the motives of the other family members, be inclined to jump ship to a competitor, or steal money from the company. This may lower the cost of operation because the company has to spend less to prevent fraud, monitor employee performance or keep company secrets secure. This sense of trust and job security can create an environment where family members are more willing to be honest about problems or challenges in the company than a typical employee would be. Many children and younger family members are not afraid to confront parents and older relatives about things they feel need to take place to ensure the company’s success. Sometimes senior management need this kind of accountability, perspective and commitment from those underneath them. It is hard to find this in either management or employees outside of family businesses.
Family businesses tend to have greater stability at senior management, which helps make the operation flow better and can enhance the reputation of the company. Customers don’t like to hear that the person managing their account keeps on changing. Turnover disrupts production and can undermine customer relationships. Family businesses tend to have less employee turnover, too.
Now let’s look at why when family businesses go bad, they can be much messier than a typical corporate environment.
Easy Ways to Destroy a Family Business
OK, this is the fun part where you see yourself in the mirror and think, "Oh God, do I really look like that?" Take heart and know that even the worst situation can be corrected. It all starts with knowing what is wrong.
The best place to start is at the beginning – the expectations of family members involved in the company. Our beliefs and expectations shape our perception of reality. The founder or company president must clearly address things like role, potential future ownership, time and job requirements, etc. In the absence of clear information, people will assume whatever they want, which is usually fertile ground for trouble.
Not every family member working in the company may have the possibility of being in management or having some degree of ownership. There may be requirements that have to be met first before either of these can take place. That’s fine as long as expectations are explained and managed from the outset. Some family members are only going to work at the family company for a season. The best thing the family can do in that case is to provide them some assistance to go make it on their own and give the individual their blessing. By trying to give or sell someone a stake of the company, you could be tethering them to something that is not in their best interest. You could be preventing them from their destiny. A job may be temporary, but equity is forever.
One of the biggest pitfalls is the "that will never happen to me or my family" mindset. Yep, denial can cause us to think things that no sane person would ever think. Why do we get in business with someone in our family that we have had a terrible relationship with and think that working with them will somehow magically fix everything? It’s easy to think that you will be different, and they will change. But this doesn’t happen without everyone being intentional about the process. And this process hurts!
Another major problem for family businesses is that they tend to break the rules and then seem surprised when they have to suffer the consequences. The universal laws of running a business do not get suspended just because the managers of a company are all related. Companies must establish policies and procedures and enforce them even for family members. A good leader will be the first one to follow the company policy and get others to tow the line as well. It is generally best for children to work outside a business for a couple of years before returning to work with the family. And if a young family member has not done so and is actively working in the business, it is smart to have them be mentored by a professional from another company in the same industry.
Many family businesses fail because they do not involve outsiders or have a council of advisers that can help the family see things that they are too close to notice. Outsiders can be more impartial and are more likely to suggest radical changes because they don’t have to live with the results of their advice. Having a key team of advisers can help a family identify new business opportunities and ways to do things better.
The lack of a common vision can shipwreck even a once successful enterprise. As business climates change and new family members join a company, it is not odd for differing dreams and priorities to cause clashes. Or even worse, two strong leaders may be pulling the company in two different directions at the same time, which tends to doom either mission. Strong central leadership must be in place. This leader should have a common vision that has buy-in from all the key family members. While they may not all agree on every point, they should know where the company is headed and feel as if they have had a say in the process.
A Healthy Family Leads to a Successful Family Business
It all starts with communication. The concept may seem so simple, but it can be very hard to do. Healthy families will foster the unique identity of each member while providing a common set of principles and a sense of community. Healthy families cherish the differences and encourage each person to be honest about how he or she feels.
Every individual adds something to the whole enterprise. And it is important to help each family member find his/her place. In a family business, you will want to divide the responsibilities and make sure to put family members in roles where they can flourish and feel like they contribute. It can be good to divide sections of the company up among siblings and give them autonomy from each other. While they will likely have to consult with each other, they would report to a parent or older family member and not each other. This is especially true while the parent or some older relative is still running the company.
Parents must be very careful how they communicate approval and affection to siblings working in the same company. Too much praise for one child and not enough for the other can lead to envy and strife. This is even true if the children are adults. Smart family leaders will regularly communicate both positive and negative things to family members working in the company through private interaction, not public outbursts.
Negative communication patterns infect everything without much planning. But effective, constructive communication takes practice and purpose. Leaders of healthy families must intentionally build trust, which can be hard to do because we don’t tend to share information with those we mistrust. The natural tendency is to withhold information. Effective family leaders will build trust by going the extra mile to communicate and even be vulnerable at times. These leaders will solicit family input and give them a say in various issues while carefully taking back any rights that may not belong to the other family members.
Healthy families need time together to build relationships. Your family should get together beyond just normal holidays to fellowship and leave the shop talk at the office. If you like each other, it is a whole lot easier to work with each other even when you disagree on something.
Then there will need to be times when business issues are on the table and personal family matters get left at home. Regular family business management meetings can help foster a sense of ownership and communication among the various family members. Many companies have a family-only executive group that meets at a regular time once a month. Or you could take annual retreats to revisit the company mission and discuss any major changes that should take place.
If you want to be heard, it is important that you return the favor. Family leaders should foster a sense of mutual respect where family members will strive to listen to each other and patiently receive input from others. You may even want to solicit the perspective of another family member who is not involved in the situation to help you understand what is really going on.
In the end, keeping a level head and remembering what is most important can keep the family business from becoming a burden or relationship killer. Husbands and wives need to communicate about work loads, stresses caused by the kids and how the company is impacting family relationships. If you believe that family is more important than work, you have to do more than just say it. Your life should reflect this value.
The Successful Succession
One of the most stressful issues for family businesses to deal with is the question of who will take over after the family patriarch steps down from the helm of the company. Sometimes the power struggle can get nasty. This is especially true if the owner does not select a successor or tries to split power among a number of people. Most business experts agree that one primary leader should be selected. And while it may be the oldest child or person in the family, it may not be too. You could bring in an outside CEO or transitional CEO to direct the company while the next generation is groomed for the top post. The age, skill and relationships within the family will largely dictate who runs the company. You want to make sure that whoever the successor is, he/she is ready for the job, because an ill-prepared successor could jeopardize the company’s future.
The current company leader must define his or her role after succession. Some people return to a role that was his or her original passion, such as
When it comes to ownership of the company, some separate the management and ownership. This may be a good idea if there is no good successor candidate or the kids are not actively involved in the business. The company owner could set up a voting trust, where the kids or other family own the company but all voting rights are passed onto professional trust managers.
Transfer of ownership can take many forms. The most popular method is for the owners to sell the company to the next generation. The buyer pays the owner through company profits over an extended period of time. As the one holding the debt note, you can impose protections to restrict the salary of heirs or other actions that might lead to a default on the agreement. Others choose to gift the company to heirs. Each parent can give $10,000 in tax free assets each year to children.
Less common and more complex methods include family limited partnerships and charitable remainder trusts. These methods allow the parent to retain control but reduce the value of the company in their estate. Be warned, these methods are likely to attract attention from the Internal Revenue Service.
Whatever option you decide, it is wise to consult an experienced financial adviser and/or family business consultant. A few thousand in consultation fees could save the family thousands in taxes or even more importantly could keep the family from overwhelming emotional heartache caused by having to learn important lessons the hard way.
