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The Myths of Family Business

Given the fascination – and headlines – devoted to family shenanigans at companies like Adelphia, Imclone, and Martha Stewart Inc., it is no wonder that myths of family business continue to grow. Family businesses have been around as long as business itself. In fact, the world’s oldest continuously operated business, Japanese temple-builder Kongo Gumi, began in 578.

After all that time, a few myths about family business are bound to crop up. In fact, family business is probably dogged with more than its share of Loch Ness monsters, crop circles, Bigfoots and similar stories. In this series of blogs, we’re going to debunk several of these “tall tales” about family business.

Myth #1: Family businesses are all kitchen-table, mom-and-pop operations.

Fact: Ford, Campbell’s Soup, Cargill, Siemens and Mars are all essentially family businesses. They are multi-billion dollar enterprises, among the largest on Earth. Wal-Mart, more than 30 percent owned by heirs of Sam Walton and with a Walton as chairman of the board, is the world’s largest company, period. Clearly, family businesses can, in at least some instances, be as big and sophisticated as any non-family firm. Not all are, but neither are all of them crudely managed and poorly led. Family businesses are as diverse as business itself. They come in all kinds and generally defy useful categorization.

Myth #2: Family firms don’t impact the economy.

Fact: Family businesses dominate the economy. Research indicates more than 75 percent of all enterprises in the U.S. are family-owned and controlled. Family owned businesses contribute half the gross domestic product. And the U.S. is actually less dominated by family businesses than many other countries. Especially in more traditional cultures and less-developed economies, family businesses may account for 95 percent of a national economy.

Myth #3: Once a family a business, always a family business.

Fact: Family businesses are, in fact, rather fragile. Roughly two-thirds of family-owned and -controlled businesses do not survive the founders’ generation. What happens to them? They sell out, they merge, they close their doors, they quietly disappear. Sometimes their ownership simply becomes dispersed so far beyond the original family group that they become, in effect, public enterprises. The point is that, family businesses aren’t forever.

Myth #4: Family business heirs are bumbling, privileged knuckleheads.

Fact: In the interest of full disclosure, it must be conceded that some scions of family enterprises do seem to be less than stellar examples of humanity. But so what? My experience is that family business heirs are at least as likely to be capable, hard working, and well-intentioned as the next person. Don’t look down at people for working in their family’s business. Although their will always be some people that want to make it look like a bad thing when a business is run by members of the family that owns it, the truth is, when they have advantages professionally, that’s not a bad thing.

Myth #5: Succession in a family business can be dealt with when it’s time to pass control.

Fact: Deciding who will follow the CEO’s may be the single most significant act of any reigning family business leader. This crucial decision needs to be planned for in advance, preferably involving a team of experts, and should include provisions for identifying, qualifying, recruiting (if necessary), training and retaining the next-generation leaders. Unfortunately, many family business leaders subscribe to this particular myth. As a result, they are without a plan and unprepared when it’s time to move on.

Myth #6: The professionals who give you business advice – your lawyer, your accountant, your insurance agent – can help with critical family business issues like conflict resolution, management development and succession planning.

Fact: Most professional advisors are adequately competent in their area of specialization to deal with general business issues. But problems that are specifically related to family businesses require additional skills that few professional service providers possess. Maybe this is a good time to point out that growing up in a family doesn’t make one an expert on solving family problems, especially problems in your own family. In reality, family members and outside general-purpose professionals are quite poorly suited for dealing with family-specific business issues. On the one hand they’re too close to the problem, and on the other they’re too far.

Myth#7: The goal of a good family business manager is to avoid conflict at all costs.

Fact: Conflict is inevitable in business, family or non-family. Conflict is a way of life. It’s not a bad thing. The goal of a competent family business manager is not absence of conflict. Conflict can be a good thing when it helps to chase out all possible solutions to a problem, and force business leaders to think through their options care in an effort to deal with objections and reservations. Rather, the goal is being able to solve conflict using a respectful manner and a professional process.

Myth#8: People that work in a family business have more fun.

Fact: OK – guilty. People that work in a family business (generally speaking) do have more fun and professional satisfaction.