3 Common Challenges Faced By Family Businesses, and How to Rise Above
Throughout history, family has proven to be the foundation for some of the world’s most successful businesses. Household names like Wal-Mart, Ford, Phillips 66, Nike, Samsung, and countless others got their start as family businesses, and many remain family-owned to this day. But for every successful business built on familial love and trust, there are also cautionary tales of families torn apart by the very businesses they started.
The truth of the matter is, the same qualities that give family businesses such high potential are the very ones that make its success — and the success of the family — challenging.
When family ties are on the line, leaders need to recognize that it’s not just business as usual. Here are three common challenges faced by family businesses, and how your organization can deal with them head-on.
One of the biggest concerns faced by families going into business is, “how will the business impact our family dynamic?” This is a valid and multi-faceted concern, particularly if some family members will have more involvement in the business than others, or if the family includes multiple siblings or other extended (and complicated) family involvements.
For families going into business together for the first time, and also for veterans dealing with this issue after years of struggle, a solid family mission statement can help.
In his acclaimed book, 7 Habits of Highly Effective Families, Stephen Covey says, “A family mission statement is a combined, unified expression from all family members of what your family is all about, what it is you really want to do and be, and the principles you choose to govern your family life.”
A family mission statement can help articulate the nature and direction of your family relationships in the context of running the family business. It also establishes a set of common, realistic, and shared goals, which if pursued and achieved, will promote and maintain family harmony. The mission statement can also help to establish family values, family ground rules, and family pledges, all of which work towards maintaining family harmony.
A family may form the heart of an organization, but more often than not, there will also be non-family members involved, often in equally vital roles. When it comes to non-family employees or leaders, family businesses sometimes struggle to find their footing. Even if there are no accusations of flat-out nepotism, employees without family ties to the company can be demotivated if they believe there are limited opportunities for growth and promotion for non-family members.
It’s important for your organizational culture to reassure your employees that you are operating not just as a family business, but as a family in business. This can be established through solid governance — bringing together the right people to discuss the important issues facing your business, and your family. A sound governance model includes:
- An advisory board made up of respected community members or business people who provide objective views and opinions.
- A family council, where family issues can be discussed and resolved, with a focus on maintaining harmony.
- A compensation committee to advise fair and equitable practices for family compensation.
Once these governance pillars are in place, your employees will have an objective framework for understanding why business and compensation decisions are made, beyond blood relations.
This is an issue so big, so synonymous with family businesses, they even made a TV show about it. And while Succession might be an entertaining solution to the question of what show to watch next, your real-life business can avoid the drama by creating an in-depth succession plan.
While any and all organizations can benefit from succession planning, family businesses are often placed in unique situations when it comes to selecting future leaders. Perhaps the founder’s only daughter has shown no interest in learning the business, or the third generation has grown to include so many invested and talented family members that the question of succession is not as clear as it was in the past.
Regardless of your situation, succession planning enables businesses to look towards the future when it comes to developing their current stable of talent, putting processes into place for the expected (or unexpected) departure of key roles, and ensuring the stability and continuation of company culture and values.
A Bright Future Ahead
Whether your family business is facing one or all of these common challenges, you are far from alone. By arming yourself with the right tools, from a well-crafted family mission and vision statement to a solid succession plan, you’ll position your family business for success — for generations to come.