Family Business: It’s Different

The Point Where Family and Business Collide

I recently presented a workshop on succession planning. One of the attendees commented they had not realised how different or how emotional the family business space really is compared to non-family SME’s. Working with family businesses, I am constantly surprised by how many owners don’t appreciate this in their own set up.

When running a family business, you are often trying to balance the space between the hard science of running a business and the soft art of running a family. 

Not acknowledging the differences that make up a family business could literally cost you millions. For some leaders, the awakening is game-changing.

One huge difference is the role the business plays in the social fabric of the family and vice versa. Often there is no clear separation of the business and family. The business is the “safe space” where dad, mum, and the children go every day to work together. They mentor each other, support each other, achieve together and celebrate success together as a family.

These dynamics are a competitive advantage, but they are also a double-edged sword. With great business dynamics comes enormous emotional ownership and expectations.

Family Business –  Case Study

In a family business, there is no such thing as “it’s not personal it is just business” because everything is personal.

The following is a snippet of a family timeline:

John and Jean run a highly profitable business and have decided to retire. They discuss succession with three children, all of who have worked in the business for over twenty years.

After these discussions, they decide that none of their children are capable of running the business. They recruit and hire an external CEO. However, this is at odds with the expectations of the children – albeit unspoken – which has always been that the business will be theirs on their parent’s retirement.  The oldest son Eric would take John’s place as CEO and everyone else would carry on as usual.

This single decision was taken in isolation eventually led to two of the children leaving the business. While the eldest son, Eric set up in competition. In the process taking 40% of their clients, reducing the profits in the parent’s business to zero, jeopardising their retirement planning and continuity of ownership.

Legal action from both sides was initiated and the next family Christmas dinner was “prickly” to say the least.

The Solution for Family Businesses

Communication is critical to ensure that profitable work happens. All businesses are encouraged to work on as well as in your business. In a family business, this is not enough!

There is always the view that the business will remain in family ownership. To generate wealth and opportunities for family members, all whilst providing a safe encouraging space. The example in this blog shows how all parties involved need to work on their family dynamics and expectations.

You need to have excellent formal communication processes to open discussion and drive resolutions for difficult conversations.

The Point Where Family and Business Collide

It’s just a fact that family businesses are different. And no matter how small or large, managing family dynamics and family member expectations is difficult without formal mechanisms in place.

Through contracts, businesses often document expectations for suppliers, terms and conditions for customers, shareholder agreement for owners and work contracts for employees.

Responsible leadership in this case also includes having appropriate family governance. This manages the expectations and obligations – and therefore ensuring family harmony, continuity and family ownership.

You cannot run a business effectively without business governance, and you can’t run a family in business effectively without family governance.

The Outcome

You can run a profitable business, employ your family members and keep your family Christmas dinner amicable. And it can be done while building intergenerational wealth. Just change your mindset. If this means you need to seek the assistance of an independent family specialist like Woodhouse, then do it.

You can also check out our video on this topic.

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