In many family businesses, some relatives will expect a position, a raise, or a corner office simply because of their last name. This sense of greed in family business can significantly lower morale, especially when harder-working family members or long-time non-family employees watch someone else get promoted without putting in the work.
Worse, family politics might make refusing these requests feel impossible. Family business coach Pete Walsh states, “Many family businesses avoid clearly outlining roles and responsibilities because they somehow feel greater clarity and responsibilities might lead to greater accountability, which could lead to difficult conversations about performance.”
As soon as possible, ensure that you have clear, written criteria for every role at the company, including the skills and experience required. You can also create a performance rubric to determine what kind of effort deserves a merit-based raise. Then, be sure to apply those standards to family and non-family alike.
I have learned over the many years of running businesses that one of the biggest catalysts of team unrest is when someone perceives that someone else is being favored over them. Avoid this perception by carefully and fairly managing access and time with leadership.
One of the major family-owned business problems is that fewer than a third of family businesses survive the transition to a second generation, and even fewer make it to a third. The primary reason is a lack of documented succession planning.
Founders often delay naming a successor because they lack organization, put the task off, avoid difficult conversations, or think doing so feels like admitting their time is running out. A younger business owner might not think a succession plan is necessary until they’re older, not realizing there are reasons to clarify succession beyond natural death.
You should start succession planning years, not months, before a transition needs to happen. Identify potential successors early, give them real responsibility and mentorship, and document the plan so everyone in the business knows what to expect. An outside advisor can help guide these conversations to keep emotion from derailing what should be purely a business decision.
Founder’s syndrome shows up when the person who built the business struggles to loosen their grip, even as the company outgrows their ability to manage every decision personally. This is a common issue among all companies, not just family businesses. Business owners often have a hard time learning to relinquish control and delegate.
When every process, new hire, or strategy decision must go through the CEO, bottlenecks occur. This can stunt growth in family businesses and leave operations dangerously dependent on just one person.
When managing a family business, you must learn to delegate real authority, not just tasks, to other leaders in the business. Build documented systems and processes so the company’s knowledge doesn’t live solely in your head. A third party such as a business coach can help you see where your hands-on involvement is holding your business back.
One of the most common family-owned business issues is a lack of precise planning, which can be toxic to the business’s growth and prosperity. Regardless of who the leader is, that person needs to communicate often and clearly with the family members involved in helping make decisions and those who are “on the ground” about enacting the changes that are decided upon.
According to Dr. John A. Davis, a leading family wealth and business expert and respected Harvard University lecturer, it’s vital for family businesses to be well governed:
“Governance provides a broad sense of purpose or mission for the group and gives the group a sense of stability.”
Without stability, we cannot plan long-term. Family business systems have an enduring advantage over all other kinds of enterprise in large part because of their long-term goals, plans, and commitments. Without stability, you lose your built-in advantage. Without adequate governance, you don’t have adequate stability.
The family business system absolutely must be governed, and governed well, for success.
The business may not be a municipality, but it should be run like one. Proper business governance ensures that issues in family business are identified and solved, plans are made for the future, and that unity prevails. With governance, trust grows, and discipline is inherent. It means that everyone has a voice and an opportunity to participate in the business.
Whether due to disagreements about the company’s future, significant changes to internal policies or external product and service offerings, or difficulty influencing a family member, things can get sticky, and fights can break out. It’s almost inevitable that you’ll eventually have to deal with family business feuds.
Just as “drama” is wont to creep into close-knit business relationships, family businesses seem much more prone to this kind of trouble. Ensuring that everyone stays happy and that things don’t get ugly can be a job all on its own.
Family business fighting can come from several different sources, requiring a different kind of finesse. Longtime entrepreneur and business consultant George Isaac suggests establishing a governing arm and including a board of directors or advisors (one or a few, depending on the business size) composed of non-family members.
Isaac also suggests having specific policies and processes for dealing with challenges in family business inside and outside work. Often, home disputes don’t get left at the door and can wedge their way into the workday. It’s important to acknowledge this and approach each issue with an understanding of this fact.
Another of the most common pitfalls of family business occurs when technological changes or additions are met with disagreement. Changes suggested by younger family members can be met with opposition from mature incumbent generational leaders.
As the market continues to grow and change and as technology soars to new heights, it’s becoming more apparent that most family businesses unwilling to adapt are doomed to close their doors. While this isn’t always the case—take, for instance, companies that continue to operate on a cash-only basis and do not accept credit card payments—it rings true for most.
There’s certainly a time and a place for “early adopters,” but that doesn’t always need to be your business. Give new business technology time to mature and grow before adding it to your company. This will lead to more open feedback from other adopters, fewer “kinks” that need to be ironed out, and a smoother transition for your business from the start of the implementation.
If opposition leaders play a significant role in company decisions, talk extensively about the pros and cons of using new programs or hardware. Use all the information at your disposal to debate. If you’ve waited for innovations to mature, you’ll likely have more data and sound reasoning to support your side.
Often, the personality roles within family businesses follow the personality traits within the family. Outspoken individuals remain the most vocal in the enterprise and frequently hold more prominent roles regardless of how much they actively contribute or how well-suited they are for the position.
This can create an environment that is subconsciously hostile toward those individuals or one that operates in a constant cloud of negativity.
It’s challenging to separate business problems in family business from regular family problems, or to avoid using familial relationships to dictate how things happen within the company. Family relationships must be checked at the door despite these difficulties.
“Business as usual” shouldn’t revolve around anything but what is in the company’s best interest. Ensure that you strictly prohibit discussions about family matters during working hours and avoid discussing business topics outside the office. This will help keep things separated appropriately and maintain peace during tough times.
From the vantage point of non-family workers, there may be perceived favoritism among and between family members. When it seems like decisions are made at the dinner table, a non-family member might feel that there’s little chance for them to advance, especially if it means being promoted over a family member.
Outsiders may also feel like they need a stronger reason for company leaders to cut them slack or grant them favors. If it seems like family member workers are constantly let “off the hook” while non-family workers are not, it can spell trouble for family businesses.
Generate open lines of communication with all your team members—family and non-family—and be clear about expectations and goals for both the short and long term. Be fair and impartial in your treatment of all employees, and avoid invoking inside jokes or family history that would make other employees feel ostracised.
Paying family members in business can be an incredibly sticky situation. Some family members expect to be paid the same as higher-ups regardless of the role they actually fill, while others work long hours out of a sense of duty but feel underpaid. Left unaddressed, these feelings of resentment can do more damage than any external threat to family businesses.
Plan your compensation based on market rates for each role, not on standing within the family. Apply the same criteria to every hire and don’t let personal preference sway you away from sticking to the structure. Clear, consistent pay policies go a long way toward quashing the appearance of preference in family businesses.
Why do so many family businesses experience failure when the time comes to pass things on to the next generation of leaders?
Founders in family businesses often see their creation as their “baby.” Watching someone else come in and make changes – regardless of how minimal those changes may be or the fact that the person implementing said changes is a family member – can be like seeing their life’s work fall into ruin and take an entirely unrelated path.
Also, releasing complete control over business dealings may be difficult for these retiring leaders. Suppose they are concerned with what will happen to the company after they step down (as the vast majority will be) and how their legacy will play out.
In that case, it may be difficult or nearly impossible for them to psychologically separate their previous responsibilities from their new role as a mentor (or, in some cases, ultimately retreat from the business).
Talk openly and honestly about plans for the future. Who will move into new roles? Why are they qualified for those responsibilities? How and when will the founder step down? What role, if any, will they play as the business continues under the new direction of someone else? These are all questions that should have definitive answers.
Be clear about everyone’s role in the company and set specific guidelines on what abilities and strengths are necessary for each job so you can avoid ever needing to discuss controversial appointments or concerns about showing favoritism. Don’t be afraid to broach this subject and to discuss it often.
Family businesses are a great way to bring your loved ones closer and create a lasting legacy. By communicating effectively, being open to discussion, being upfront about roles and responsibilities, and actively managing family business pitfalls on and off the clock, you can lead a winning venture that you can pass on to future generations.
Are you dealing with challenging family business dynamics in your organization? A business coach can help. Fill out my contact form if you’d like to learn how to resolve your family business problems. For more great tips on leadership and navigating business ownership, sign up for my email newsletter.
Coach Dave
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