Understanding Family Business Dynamics!

Understanding Family Business Dynamics!

What do you picture when someone says “family business”? For some, the only image they see is their friendly neighborhood mom-and-pop store, but, in reality, “family business” is far more than that. Yes, mom-and-pops would certainly be included in the family business category, but so would the millions of small and midsize companies that underpin our economy, not to mention corporate giants like BMW, Samsung, Wal-Mart, and Porsche.

No matter the size of the company, each struggles with issues surrounding family business dynamics. Family businesses are different that way. Unique challenges present themselves within family businesses that we just don’t see in companies with more dispersed ownership structures: younger generations wanting to run the company when they are not suited for the job, younger generations suited for the job but not wanting the company, generational clashes, family shareholders increasing in number with each generation with few actually working in the business, just to name a few. These challenges can be too tough to bear. Only about 30% of family-owned businesses survive into the second generation, and only 13% make it to the third. Those are sobering numbers. So, how can we make them better?

Succession planning, establishing foundations, possibly even restructuring…those are the big pieces of the family business puzzle (among others). But, in our work with family businesses, we’ve also found the recognizing family business dynamics, the truly unique characteristics that set closely-held businesses apart, is imperative. By recognizing and dealing with the challenges, family business owners are able to fully enjoy the advantages and succeed where others fail.

What sets family businesses apart? Here are 5 family business dynamics we see most often at work in our clients’ organizations:

  1. Differences in perspective.
    Some members of the family business think like family members; others as managers; others as owners. Multiple generations are often working under one roof. Differences in perspective, not personality, are the source of most conflicts.
  2. A need for multi-faceted continuity planning.
    In a family business, the business must be integrated with leadership and ownership succession plans, and both must be integrated with the owning family’s estate and personal financial plans — all of which work best in the context of the family’s shared and articulated goals and values.
  3. Leading change is difficult.
    Family systems are powerful, and the dynamics within the family often spill into the business. Leading change is difficult in a family business because many family members depend on the status quo for psychological comfort — even if the status quo is unhealthy.
  4. Consideration of non-employee family members.
    Often forgotten, non-employee family owners want, need and, deserve a role in the business’s strategy, culture, and governance system. They have a large financial and emotional stake in the business even though they’re not part of daily operations.
  5. Conflicts of interest are prevalent.
    It’s hard to make the tough decisions when they’ll negatively impact your paycheck or your family member’s paycheck. Owners and leaders of family businesses run the risk of making decisions that benefit them personally. 

These characteristics are, of course, generalizations, and there are far more challenges we could address. That being said, the possibility for success for the family-run business is tremendous. Our goal here isn’t to be negative. Our goal is to recognize and face the challenges to better position you for success.

We invite you to learn more about, “Family Business Dynamics”, here.

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