Statistically, more family businesses fail than succeed. Why? There are several theories and even more opinions on why families, in particular, confront challenges with long-term success, but there is some good news. There’s a method to the madness when it comes to running a family business that can help create an organization that’s not only functional but also highly successful.
External Advisors Are KeyWith tough economic times, affordability is an obstacle for many family-run businesses and a barrier to getting the help they need. However, if there is room in the budget, employing outside advisers is a smart strategy for learning how to navigate some of the more challenging and inevitable family-business dynamics. Advisory boards are a great way to keep the focus on priorities without being swayed or absorbed by family matters. While most boards are comprised of outsiders, there’s no reason why family members couldn’t be involved as well. Or, councils comprised of the only family can be created with a designated representative to address the board and keep the family voice heard.
Strong Governance Ensures EquityThere’s no doubt, family businesses that have grown and stayed vibrant from one generation to the next rely on outside assistance to deal with social issues that occur. External help ensures the business is run on sound foundational principles with governance in place to deal with difficulties as they arise. Governance is essential for addressing issues in a fair, consistent manner. For example, compensation is one concern that has to be confronted appropriately, as people need to be paid accordingly for the responsibilities, the market, and results they achieve.
Role Separation: The Importance of Ownership Versus ManagementOwners and managers are often in conflicting roles, making it difficult to pursue organizational objectives. Here’s the tip. Separate management and ownership decisions completely so that the goals of family members are met, while at the same time, the business is moving forward in a constructive way. It’s critical that advisory teams and management work together to ensure that family members as employees are not given preferential treatment over others. While not fair, family members within an organization have to exceed the standards expected by most employees to ensure that they are not viewed as in the roles due to favoritism or nepotism, but because of experience and performance. It’s an easy thing to overlook and unfortunately, an even easier way to undermine culture, making it nearly impossible to build a team of loyal employees.
Moving beyond the first generation in a family run business is not without challenges. However, with the right external expertise, governance and a few solid tips on managing goals and expectations, businesses can harness the power of family ownership and professional leadership to grow and thrive into the next generation and beyond.