THE CHALLENGES FACING FAMILY BUSINESSES
Updated: Apr 28, 2021
All business, family-owned or otherwise, find it difficult to continue long term. There are many reasons for this change: businesses mature; markets and technology change, eliminating the need for various products and services; suppliers and customers alter the rules of the game or competitors quickly copy successful strategies.
Any of these changes can take a company by surprise, decreasing its sales and profits. Sometimes industry consolidation makes a strategic buyer willing to pay more to acquire the company than it is worth on a stand-alone basis. The senior generation facing retirement or other life events is unable to resist the premium and often decides to sell.
More often family businesses discover the family is the stumbling block. This can occur for many different reasons: unresolved personal conflicts, lack of trust, difficult family relationships or family demands on the business. Conflict is a natural element of human relationships. Unfortunately, in some families, conflict becomes the regular pattern of interaction.
Working together intensifies family interactions and can exacerbate family problems such as sibling rivalry or competition between the generations. When a family allows unresolved or recurring conflicts to diminish communication and trust in the family, it becomes difficult for family members to share ideas, discuss issues or make decisions effectively.
The friction between loved ones and business interests is what makes family business unique. The family has a deeply personal stake rooted in generations of family and business history. The family businesses have a dilemma that needs to balance evenly family demands with the requirements of the business.
To accomplish this balance, business families need to identify plans and policies to address five pivotal variables:
Establishing, in a fair way, how the family will address decision-making in the family, in management and in ownership of the business.
Making it possible for various family members to pursue rewarding careers or other roles in the business with advancement and rewards based on performance.
Creating systems and agreements so that family members can reinvest and, if necessary, harvest or sell their investment without damage to other family members’ interests.
Addressing the conflicts that business families face because their work and personal lives interact so closely.
Using family values in developing plans and actions. Family business culture represents enacted family values.
BALANCING FAMILY & BUSINESS DEMANDS
Freud observed that the intensity of family and work relationships is created by the conflicts between ‘lieben und arbeiten’ (love and work). He suggested that love and work are the main sources of self-esteem and pleasure in life and only when both are balanced do we achieve satisfaction.
Families and businesses are concerned about different goals. The figure below depicts the conflicting goals within a family business system. Families are concerned about emotions, they focus inward and generally they resist change. Business systems must take the opposite approach if they are to survive - accomplishing tasks, focusing outward on the environment and looking for ways to exploit change are key success factors fir business systems.
Family members can be either a great strength or a potential weakness for the family business. ignoring them, whatever their agenda, inevitably weakens the business. Family businesses that overemphasis the business system, and consequently diminish attention to the family system, often end up with families that do not relate to each other and psychologically compete with the business.
Families who equalize family and business systems create a positive environment where the family thrives and the business performs. This type of thinking is particularly important as family businesses grow. The balanced approach to addressing these two subsystems becomes the foundation for healthy family business relationships and for the creation of a family business legacy.
Family Legacies www.family-legacies.com is a multidisciplinary family business consulting company. Our consultants are leaders in their respective fields including; Family Business Consulting, Strategic Planning, Financial Planning, Wealth & Risk Management, Corporate Finance, Business Transitions & Exit Planning - Buy, Improve, Grow & Sell Businesses, Commercial & Family Law, Executive Coaching, Leadership Development & Facilitation, providing our clients with a professional and integrated multi-disciplinary service.