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The Challenges Of A Family Business

The Challenges of a Family Business

The family business has many benefits, including long-term stability, strong communication, trust, loyalty, and a shared vision. But, like any company or organization, a family business can have some challenges. Here are some of the common challenges and how to fix them.

What is a Family Business?

A family business is an organization with one immediate or extended family running or owning most of the company. Family businesses may also have one or more direct family members on the management team.

According to Conway Center for Family Business, "studies have shown about 35 percent of Fortune 500 companies are family-controlled and represent the full spectrum of American companies from small business to major corporations." Family businesses are very common and continue to grow.

When There is No Outside Perspective

When you grow up within a family business, it's all you've ever known. You don't necessarily know best practices outside of the business. You may not know the best communication styles or even have the best skillset to address particular challenges. It can be common that you default to the way things have always been handled because "you don't know what you don't know." This can cause an organization to become static or worse.

Albert Einstein summed it up nicely when he said, "We can't solve problems by using the same kind of thinking when we created them." So, bringing an outside perspective to get new eyes or a different way of thinking can increase your company's awareness. Sending the family member off to spend time with another company before joining the family business can also make a big difference. Or giving them an opportunity to learn from a third party resource.

When Roles Are Not Clear

Roles and responsibilities can get a little murky in family businesses, especially when an individual is a crucial contributor. If you don't have defined roles, you may not know where they fit. Avoiding difficult conversations with family becomes a roadblock to the overall success that most non-family employees can see. Avoiding difficult conversations sends the wrong message to your entire organization.

When you set clear roles and responsibilities right from the beginning, there is no confusion. Everyone knows what's expected of them within the organization. They know their responsibilities, what they need to accomplish, and how to reach the group's goals.

When a family learns to discuss accountability and responsibilities professionally and objectively, it creates a more positive and professional atmosphere within the business and helps it grow.

When the Process is By-Passed

This can happen within the family business. For example, there may be a meeting where everyone discusses and agrees on a topic but after the meeting, the owner's son calls his parent and explains how he doesn't actually agree with something.

In non-family organizations, chances are you wouldn't call the owner and explain how you don't agree with something. You would voice your opinion during the meeting and come to a different conclusion.

In these situations, owners or CEOs should set the expectations and standards that what is agreed upon and said in a meeting is what moves forward. Setting expectations and allowing open communication lets your employees be more engaged and understanding.

When You Hire Family 

Some family businesses may fall into the trap of nepotism. For example, some organization leaders may promote family members to senior management roles even when the individual doesn't have the proper education, experience, or skills to embrace these responsibilities fully.

In these situations, the organization would be far more successful if the leader placed more qualified non-family members in this position. You'll want to hire the best talent so your organization can grow.

Special Treatment for Family Members 

Sometimes, individuals may get away with things simply because of their last name. However, when you are the owner's daughter, son, cousin, brother, etc., you could push the envelope on what you can get away with, whether that’s doing the bare minimum or spending resources on things without following the correct chain of command.

This can cause a toxic environment, especially if there's a manager in between the CEO and their family member. This can cause the manager to lose trust in their actions or avoid addressing challenges, fearing that the respected family member will go above them.

The CEO or owner should support their leaders and allow them to manage their team the way they think is best – even if that includes their family member.

Succession Planning and Assuming

When developing a succession plan, CEOs of family businesses often want to keep the company within the family for many reasons, like maintaining a brand name, trusting that the person knows the company or product well, knowing they are a great culture fit, etc. But that can be a problem when the family member doesn't want to take over the company, especially if you have no contingency plan.

Succession planning is an essential process for any organization, big or small. By developing a succession plan, you can ensure that your company is prepared for anything. First, plan out who will be your next successor, document it, and then share the plan with all parties involved.

In The End

Family businesses are a vital part of the economy, accounting for nearly two-thirds of all businesses in the United States. Yet these businesses often face unique challenges that can threaten their long-term success. Lack of outside perspectives, unclear roles, and hiring family members without proper qualifications are just a few examples.

Fortunately, there are solutions to these common problems, many having to do with communication and setting expectations. In addition, it's important to remember that family businesses should be treated like any other business regarding performance reviews and expectations. By addressing these challenges head-on, family businesses can thrive for generations. Do you have experience with running or working in a family business? What solutions worked best for you?

If you're struggling with any of these common problems in your family business, don't hesitate to reach out for help. As a business founded by two brothers, we understand. Our team is experienced in helping family businesses overcome these hurdles and successfully transition into the next generation.

About Gary Braun

Gary is a founder and co-owner of Pivotal Advisors. He has worked for 20+ years as a salesperson and sales leader. Gary has been a guest speaker for many groups such as Vistage, Allied Executives, CEO Roundtable, Sales Management Association, and more. If you want to find out more about Gary check out his profile here.
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