Three Keys to Ensuring Your Family Business Succeeds

by Tom Koulopoulos

Three Keys to Ensuring Your Family Business Succeeds

Keeping it all in the family sounds great as long as you do this as well

Amazingly, 90% of American businesses are either family owned or controlled. Allot is riding on the success of these businesses, in terms of both your fortune and your family relationships. Yet fewer than 15% of family-owned businesses are successful enough to make it to a third generation. So, why do they fail?

According to a new book, Business is Business: Reality Checks for Family-Owned Companies, by stepmother/stepdaughter author team Kathy Kolbe and Amy Bruske, They don’t follow some simple rules and establish boundaries between family and business.

I asked Kathy and Amy to give me the top three lessons that they’ve learned about handling the challenges of a family owned business. Here’s what they told me.

1. Setting clear home/work boundaries in a family business is as important as putting a fence around your swimming pool.

I love the metaphor of a fence, it’s a vivid visual of the risks in not setting clear boundaries between work and family. According to the authors, “Without work-related boundaries, family members can easily get in over their heads without even knowing they’ve fallen into the deep end.” What you need are some very simple Dos and Don’ts that everyone agrees to before hand. Don’t discount how obvious these may be. In my own experience I’ve seen how ignoring them can lead to catastrophic unintended consequences for a family business.

  • Don’t discuss business problems at home
  • Do drop family nouns at work. Such as: Dad, Sis, Junior, Honey
  • Do avoid common rivalries, for instance – don’t put siblings in competitive situations
  • Don’t alienate non family members by turning them into “babysitters” for next generation family members.

Ignore these basic boundaries and things get ugly fast! The authors give a specific example that’s probably all too familiar to anyone who has been in a family business involving a spouse or partner.

Susan was so furious with her business partner/husband for “dropping the ball” with a potentially profitable client. That night she fumed about it over dinner with their kids. It got much worse when she then further mixed business a family by using the loss of the client’s business as a reason for taking a less expensive vacation. The icing on the cake was when she decided to “teach” him how to change his approach to selling during their weekend date-night.

In interviewing Susan and her husband he admitted, “I was wrong, but it was a business issue. Susan made it into a very personal/relationship problem. I can’t continue to work with her if it’s going to impact our family dinners and romantic evenings. It’ll destroy our marriage.”

It’s easy to try to cast blame on Susan for bringing this home. However the key in a family business is for all family members to accept that they have an obligation to each other to keep business and family separate. It’s much harder than it sounds because you naturally want to celebrate with family when things go well, but you cannot allow that to spill over into chastising and criticizing each other when things don’t go well.

The solution is to make sure everyone agrees to keep business as business and family as family, and to remind each other of the agreement whenever boundaries are crossed.

2. Ditch gender stereotypes and birth-order myths that can cripple the potential of a family business.

This was one of the most insightful parts of the book for me.

The authors claim to have been researching Conation – the way people instinctively take action – for more than 40 years. And their data, which they say includes more than one million cases, disproves some pretty firmly held stereotypes.

First, their data shows that women are not better organizers than men, and men are not naturally better business strategist than women. If you’ve bought into that stereotype and you’re in business with a spouse or partner of the opposite sex then you’re limiting your potential from the outset by not leveraging the actual core skills versus the stereotypical skills of each person.

second, the data also shows that there are no differences by birth order in the ways people naturally perform, lead, or problem solve. Family businesses that simply accept birth order as the determinant of ability often suffer from both the loss of the natural person for that role and instead operate under the assumption that the oldest is the natural leader. You’re not a royal family bound by the laws of succession to the throne!

3. Exit gracefully; getting out of the family business is harder than getting it started.

This last point is one I’ve seen up close in even the largest and most successful family owned businesses when contemplating the transfer of power from the first generation founders to the second generation in line. Simply put, lots of people start businesses, but few exit gracefully. The authors shared a short story from an interview with a founder that drove the point home.

Authors: “What’s the hardest thing you’ve ever had to do as a business owner.”

Founder: “I haven’t done it yet. It will happen when I can no longer run the business – or raise it as my own baby.”

Authors: “When do you expect that to happen?”

Founder: “Others are doing a great job managing parts of it. But, even in my 80’s, I’m still teaching them tricks of the trade, I may die in this job.”

Authors: “So you think there may never be a time when “your baby” is ready to go off on it’s own?”

Founder: “Well, when you put it that way – sure. I need to get it there before I die.”

Authors: “Can you do that by staying there?”

Founder: “Hmmm………I suppose not. Shall I pretend to die and see what happens?”

It’s important for the founder of any business, but especially a family owned business, to know when to leave the party and to exit with a plan of succession. The challenge of walking away as the founder of a family owned business is pretty obvious. The distinction between family and business is again blurred, as might be the long-term economic ties the founder still has to the business. Which is why a plan that has been well though out well ahead of time is crucial.

I recently encountered this while talking to a son whose father had started and built a very successful printing and advertising business. As we began to talk I natural assumed that he was now leading the business. Then he handed me his business card; his title was VP of sales. He must have seen the apparently puzzled look on my face as I read the card.

“No, I’m not the CEO.” He said, sensing my surprise. I wanted to know more so I asked him if he’d share why. He was very direct and not at all shy about sharing. “When the time came for my dad to step down he and I had already talked at length about the fact that I loved sales and that it was where I could add the most value to the business. So we decided that it was where I should stay. He promoted someone else to the role of CEO and I couldn’t be happier.”

I’ll admit, that sort of candor and dedication to putting the business first is not something I run across very often, but my respect for the integrity and thoughtfulness of both father and son left a deep impression on me.

There are many reasons to build a family business and just as many to keep it in the family. Despite the potential stressor and the self-awareness it takes to pull it off, I’d never discourage anyone from going that route. But I would strongly encourage you to put in place the ground rules that Kathy and Amy point out in their book,

Is there a magic formula to making a family owned business work? To quote Tolstoy’s opening line in his book Anna Karenina,: “Happy families are all alike; every unhappy family is unhappy in its own way.” The same could be said for family owned businesses. Those that work do so because they all follow these basic and simple truths. Those that don’t survive fall into myriad more traps that undermine both the business and the family.

Working with family complicates the already daunting task of owning a business, and it’s tough not to take work problems home with you. In the end, the best approach is to realize that family is family and business is business.

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This article was originally published on Inc.

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Thomas KoulopoulosTom Koulopoulos is the author of 10 books and founder of the Delphi Group, a 25-year-old Boston-based think tank and a past Inc. 500 company that focuses on innovation and the future of business. He tweets from @tkspeaks.

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