Family-owned companies make up between 80 to 90 percent of businesses in the United States. But only 30 percent of new family businesses survive into the second generation. Here are some tips to help make sure yours is one of the those that survives to the second generation and beyond.
- Have clearly defined roles
Family businesses should be like others with job descriptions, goals and regular reviews. As the article “6 Steps for Maintaining a Thriving Family Business” points out, “Family firms tend to be more informal than other companies, and that can lead to misunderstandings about expectations.”
With clearly defined roles, each family member can act independently, without feeling the need to fight for territory or worry about stepping on someone else’s toes. A business can be much more nimble and responsive if everyone knows what their role is.
This can be one of the hardest things to do. It’s natural when any co-workers gather to discuss business. But when it’s a family business, that talk can tend to dominate.
Some families have rules and set boundaries. No business talk at the dinner table or at family gatherings. This can be especially important for couples who work together.
Francis and Susana V. Ptak co-own Gascoyne Laboratories, an environmental testing lab. In the article For Couples Working Together, Setting Ground Rules is a Must, she says, “Two things have helped us not kill each other. One is that we don’t do the same thing (Francis is a chemist and handles the analytic end of the company; Susana takes care of the business side), and the other is that we don’t talk business at home. In the car, yes, but once we’re actually at home, we just talk family stuff.”
- Make sure each family member is trained and suited to the position
Working at a family business shouldn’t be seen as an entitlement. Any family member should face the same screening and testing as any other applicant. They should also receive any training necessary to excel at their job. I’ve seen family members hired and promoted to senior positions despite their lack of necessary skills or suitability for the job.
This article, “Avoid the Traps That Can Destroy Family Businesses,” addresses the issue of family members working for a business as a last resort.
“We’ve encountered many companies that are populated by next-generation members who failed in other businesses or spent their 20s (and sometimes their 30s) as aspiring athletes, artists or musicians before signing on to the firm as unprepared 40-somethings. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”
- Encourage innovation by having several generations involved
Research has shown that family firms are actually more innovative despite a reputation for sometimes relying on old, traditional ways of doing business. One way to encourage continued innovation is by involving members of the younger generation as soon as possible.
Identify younger members of the family who have an interest in the business and get them involved early with internships and entry-level positions. Let them rotate among different departments to see where their interests and talents are. Encourage them to work for other companies for a few years if they’d like and bring that experience and knowledge back to yours.
- Have a clear succession plan
Having an updated succession plan is crucial for any business. It is even more vital for a family business as family feuds may erupt upon the death of a business founder. In one memorable case in my career, the one I refer to as Crazy Charlie, a business owner died and his daughter became CEO as there was no board-approved succession plan in place. Son Charlie was unhappy about this, primarily because he had been stealing money from the company and we confronted him about it. He expressed his unhappiness by threatening his mother, who controlled the board of directors, with a kitchen knife.
The greatest threat to a family business is the failure to plan and manage succession well. Read more about creating a succession plan in my post Don’t Miss the Exit: Make a Succession Plan.