Top Three Challenges In A Family Business

Ask any family business advisors to identify the top three family business challenges and odds are good the reply will come instantly: Succession, succession and succession. Next will come a broad smile as the point sinks in. This well-worn quip is true, as far as it goes. But if you look behind succession, you see three more key challenges that play major roles not only in succession but in other areas of the business. Those are:

  • Interpersonal relationships within the ownership and management group
  • Business performance
  • Establishing appropriate governance

Interpersonal relationships are critical in any business, but they are super-critical in family businesses. Owners and managers of family businesses are far more tightly connected than those of other businesses. In addition to business connections, they have family connections.

Family relationships are typically the first, longest-lasting, strongest and most complex of personal relationships. They can be an exceptionally powerful force for good or ill in the context of family business ownership and management.

Family ties can strongly connect owners and managers, and they can push them apart with equal force. That is why ensuring healthy and productive interpersonal relationships among owners and managers is a vital challenge in family business. Fortunately, while we can’t choose our family members, we can choose to create healthy and happy interpersonal relationships. It’s a skill that can be taught and learned.

Business performance is just as important to a family enterprise as to other commercial organizations, but it can sometimes be lost among other concerns that are special to family businesses. For instance, a fundamental value such as profitability may, in a family business, be seen as secondary to another goal, such as providing employment to family members.

While family employment can be a valid objective, unless critical business performance goals are met, the family business is not likely to survive and be able to meet those other objectives. Maximizing business performance while also meeting other family goals is often very challenging for family businesses. The key to meeting this challenge is elevating business performance to be the equal of special family business goals. Only profitable, healthy businesses can satisfy the unique needs of family enterprises.

Family businesses are particularly susceptible to problems with governance. This is in large part due to the conflicting and competing effects of the first two challenges, interpersonal relationships and business performance. Simply put, it is difficult for family business leaders to achieve the enterprise’s goals without appropriate governance.

Coupled with the fact that family businesses are likely to be led primarily if not exclusively by a dynamic and decisive founder, the likelihood of governance errors becomes sizable. A typical problem is running the business in a way that fails to address or even acknowledge concerns of other family members.

Many family businesses recognize this challenge, but the way they address it is typically not effective. Far too often, they set up a board of directors and consider the problem solved. However, in many cases family business boards are not composed of the right sort of people, or given the right authority, to get the job done. Setting up appropriate corporate governance is central to generating family business success.

Next time you hear “succession, succession, succession” presented as the three key challenges of family business, smile. Then ask: What else? There is more to family business than can fit on a bumper sticker.

If you are wondering if your business might benefit from the help of a family business consultant review our checklist.

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