Family Businesses Can Avoid the Triple Threat

Date: June 28, 2013

In my experience working with small businesses for a decade, three common challenges emerge that prevent family-run enterprises from achieving long-term success: professionalism, succession and communication.

An overhwelming majority of U.S. businesses are family-run, but unfortunately about 66 percent of them fail to survive into the next generation. These are bad odds by anyone’s measurement. However, there are proven steps to increasing a family business’ chance of survival by addressing these three common ailments.

1. Professionalism. Family businesses are inherently conflicted: While families are programmed to provide unconditional love and support, businesses exist to make a profit. Many family members believe their business exists to support the family—this is true, but only to the extent that the business operates effectively.

For instance, a first-generation family business runs a little loosely by definition—it’s a startup, and all the operating rules are in mom or dad’s head. But to ensure the longevity of the business, it needs to begin operating more professionally. That means hiring and promoting employees (family members or not) on merit, paying market-based salaries, disallowing special financial, vacation or other benefits, holding regular meetings, producing accurate and transparent financials, and having some sort of outside advisory element. This can range from hiring an independent board to attending business education seminars.

2. Succession planning. Many family businesses fail simply because they have not spent time preparing for three, five and 10 years down the road. Much of this procrastination comes from the current generation. They’ve spent years pouring their blood, sweat and tears into the business, and now that they’re on top, they might not be particularly excited about passing it on. But the interest and ability of the next generation needs to be determined, and then they need to be prepared. Another obstacle is that families just don’t know how to get the conversation started. Regardless of the difficulty, it’s important to understand that when it comes to family business survival, history and research show that time spent succession planning equals success.

3. Communication. Combining family and business can make communication difficult. We’ve all heard stories about famous family businesses that imploded, with everyone ending up suing each other. I contend that drama like this can be averted with healthy communication practices. At a minimum, every family business needs to hold regular family business meetings, practice active listening and develop its own family code of conduct. As third-generation family business member Steve Forbes said, “Communication is the most important element to family business success.”

Working with the ones you love can be a joy, but it can also be a challenge. Fortunately, we can learn from those who succeeded and those who failed. And for those who do manage to succeed, they are often looked upon as some of the best-run companies in the world.

Henry Hutcheson is a nationally recognized family business speaker, author, consultant and the president of Family Business USA.

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