The question of how to run a family business has been contemplated by countless entrepreneurs. Family business success comes down to a number of critical factors including the leader, the family and the values that prevail in the family. I have identified four critical factors that must be taken into consideration.
The primary difficulty of family-owned businesses may begin with the founder. Typically in families where there are multiple generations, there will be competing visions for the family business. Research indicates that the most successful entrepreneur in one family often fails in another. Often the first generation to set the goals that the family-owned business may strive to achieve are not immune to conflict within the family unit.
Conflict with other family members can also occur when new members are encouraged to join family businesses. In one family I worked with, two young cousins were promoted to high positions without the approval or blessing of their parents. The promotion caused intense conflicts in which one of the cousins sought refuge while the other refused to accept an offer. The two parties refused to cooperate with each other and ended up in a financial crisis.
How to run a family business requires a sense of brotherhood amongst the entrepreneur family members. When one son thinks that the father is not supportive of his ventures, he has to fight to convince him that his father’s position is incorrect. If the father is not careful, this brotherly warfare can result in an expensive power struggle that will end with one of the sons quitting and starting his own company. This scenario was averted by learning early on the importance of having the father agree with his son’s vision for the company.
The second most difficult element for family-run enterprises is their lack of practical skills for running a business. These entrepreneurs must possess interpersonal skills like delegation, negotiation, delegating tasks, and marketing to make their ventures successful. There are even times when the entrepreneur will need to learn a new skill set because of changes at work or sudden developments in their families. However, family members must have the ability to identify the areas of their businesses that require improvement in order to make their venture a success. Having a common interest is often the key to improving interpersonal skills.
The final element that makes a family run a successful entrepreneur is their ability to take risks. Family members are accustomed to taking risks and have developed a sense of how to handle uncertainty. Family members also understand that being conservative is not always a good strategy. When an idea doesn’t work out, a family member should take the chance to try another idea or move on to the next area of the market. A successful entrepreneur understands that a good plan will only be successful if it is adapted to changing circumstances.
Understanding the importance of succession planning for family business leaders is important. In today’s business environment, succession planning helps to assure that a business won’t be left in the hands of an elderly or disabled owner. It also provides leadership for the company in case the current leader is no longer able to lead the company or is incapacitated. Proper succession planning ensures that a business won’t be left with an inexperienced or uneducated owner who doesn’t know how to run the company.
All aspects of a business need to be strong if the enterprise is going to be successful. Family members must realize that they are not the only people with interpersonal skills and ideas that can bring success to a company. Even if there are people with superior skills and ideas, a business needs to have effective succession planning in place in order to ensure a company is headed in the right direction. A business that is headed in the wrong direction has a much higher failure rate than one that is headed in the right direction.