Your Business

The Biggest Mistakes Family Business Owners Make—and How To Avoid Them

By Rieva Lesonsky

Most small businesses in the United States are family-owned. In fact, according to the Conway Center for Family Business, between 80 and 90 percent of all American businesses are family-owned, including approximately 35 percent of Fortune 500 companies (Walmart, for instance). The good news is family businesses account for 60 percent of U.S. employment and create 78 percent of new jobs. The bad news? Only about 30 percent of family-owned businesses survive into the second generation, 12 percent make it to the third and a mere 3 percent are still owned by the fourth generation.

How can you assure your family-owned business won’t be a “sad statistic”? Try to avoid these all-too-common mistakes:

Conflicts
Is the communication style at your family-owned business based on family (not business) dynamics? Too often, issues are ignored or exaggerated, depending on what family member has them, leading to resentment—and eventual confrontation. The key is to address family business conflicts openly and immediately, and not in front of non-family employees. Call a family meeting or hold a one-on-one with the individuals involved to hash out the problem.

Emotions run high at family businesses, and it’s essential to keep them in check. Business arguments should be confined to business issues. In other words, the conflict should be treated as an issue among coworkers and not among brothers or sisters.

An outside advisor, such as a family business consultant, your board of advisors or even a family therapist, can be helpful in mediating family business issues impartially. (It’s important, though, to make sure all family business members agree on who the outside advisor/s should be—ideally before any problems arise.)

Non-Family Employees
In family-owned businesses hiring, managing and motivating non-family employees can be a challenge. Employees may think there’s no room for advancement or that their hard word and input aren’t valued. How do you solve these challenges? First, compensate them fairly. Since family employees are likely to have ownership or stock in the business, non-family employees who do similar work often consider themselves underpaid. Consider offering bonuses or setting up a profit-sharing plan so employees feel they are sharing in the success of the business.

Next, offer opportunities for advancement. It is critical that your company culture be based on merit and not nepotism or entitlement. Non-family employees will leave if unqualified family members get promoted over them or are perceived as not working hard. It’s important to show non-family employees that working hard, getting results and being loyal to the business pays off.

Finally, empower them. Non-family employees often become disgruntled if they have a management position, but no authority to go with it. This includes being able to discipline family members who aren’t doing the job.

Keep Business and Personal Life Separate
This is especially important for co-working spouses. Make sure business disagreements stay at the office and home issues stay at home.

Entrepreneurs are generally consumed by their businesses, making it easy to talk business 24/7. Don’t. Make time for your personal lives. I recently interviewed a married entrepreneurial couple who have a strict “no shoptalk after 9 pm rule.”

Succession Planning
According to the latest PwC US Family Business Survey, 73 percent of family businesses don’t have formal succession plans in place, despite the fact that 76 percent of family business owners want to keep their companies in the family after they retire. Compounding the problem, 40 percent of family business leaders say they’ll “find it difficult to hand over control fully to their successors, and 56 percent believe they will stay involved in their companies longer than is optimum to ensure a smooth transition.”

This creates a problem for the next generation of family managers who not only face skepticism from their own families about their competencies, but have to deal with company founders who have “retired”, but keep getting involved in day-to-day decisions.

Succession planning is not an option. If you’re in charge and you truly believe no one in your family is ready to take over, then start educating and training them immediately. And create an alternate plan, just in case. Bring in an outside neutral party to access skills, strengths and weaknesses. And appoint a trusted non-family employee to take over in the interim if needed.

 

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