Excerpts from Family Business Survival

Chapter I

Key Task One: Understand the Complexity of Family Businesses

What you dont know can hurt you

The Task

     The entrepreneur who dreams of becoming the leader of a family business needs to realize that in order to succeed at this task he must first aim to understand the intricacies of a family business.

The Challenges

     The daily practice of running a business often presents a series of operational fires that need to be put out. Typical business leaders are so busy dealing with these crises that they have little time to think, reflect, and look at the larger picture. A family business leader is under the same business pressures that leave him with little room for contemplation and strategizing. In addition, the family business leader must realize that a business run within a context of a family is vastly more complex. Family tensions and unresolved conflicts that are not understood and attended can spring up and ravage a business almost as quickly as a real fire.

     The founder of a family business becomes used to wearing many hats. Early on, he is essentially in charge of marketing, sales, operations, finances, and human resources. As the business grows, however, it requires more formalization of its systems and procedures. Many decisions that were made solely by the owner now require more information, deliberation, and the input of others. A founder may have difficulty accepting this transition and letting go of control. He may believe that the success of the business has been on his shoulders all this time. Even though that is most likely true, a growing business necessitates timely decisions that must involve others.

     During this period where the business is growing and evolving, family involvement in the business is likely increasing as well. Blood relatives, as well as in-laws, may have joined the company. As we shall see, this sets in motion very complicated and powerful family dynamics that must be understood in order to preserve the business. A family business leader who is overwhelmed by the running of the company may overlook the family component of the business with resulting negative consequences.

The Resources

     The past couple of decades have seen a significant increase in interest and involvement by attorneys, accountants, psychologists, and business theorists in the world of family businesses. Business families no longer have to be alone when it comes to resolving the unique problems generated by a family business. Published research and writings, individual consultants and advisors, as well as family study centers are usually within easy reach.

     Very often, however, many professional consultants deal with components of a family business enterprise in isolation. For instance, lawyers, accountants, financial and estate planners treat issues that involve the ownership/governance component. They generally don't deal with business operations or family dynamics. Business and organizational consultants, on the other hand, will address problems with the business structure and operations of the business but won't get involved with family dynamics or with shareholder and ownership conflicts. If there is a therapist involved with anyone in the family, he is usually missing a sense of the business processes or issues of ownership.

     Gradually, in recent years, it has become more apparent that there exists a clear need for a family business consultant who has an overall perspective of the family business system.

The Family Business System

     These days business competition is intense and interconnected on all levels - local, regional, and global. The local American auto dealer is affected by the price of iron ore used to make steel needed to manufacture automobiles. Brazilian mines can raise what they charge (a 79% bump in 2006) for iron ore because of the extreme demand coming from an ever-expanding China. Automakers in Detroit have to pay more for steel and are either forced to raise car prices or continue to show losses. The salesman at the local Ford dealership would likely not include the facts about iron ore and steel in his sales pitch. But, he does have to compete against foreign car dealers whose manufacturers may not pass these higher costs on to consumers thanks to their much lower labor costs.

     If the local auto dealership is owned by a family, they may be able to circle the wagons and tighten their belts by drawing less on their profits. But, if it gets bad enough they may have to let go of a couple of sales people. What if the choice is between laying off Larry, the owner's nephew, or Michael, a young salesman who was hired just before Larry?

The Story of John

     John is the dealership owner. His sister Gloria, who is 10 years older, has a 23 year old son, Larry. Larry dropped out of college a few months ago and needed a job. Responding to his sister's request, John hired him.

     Larry hasn't shown much potential, in fact, he is known for his lateness and for being hard to find when something needs to be done. There are days when he just doesnt show up. There are rumors about his drinking during lunch hour. Michael, on the other hand is reliable, eager to learn, and was just named salesman of the month.

     The owner, John, does not want to displease his older sister, Gloria. She stepped in and took care of him when their mother died and John was just a 12 year old boy. Their father had left the family and wanted no part of them. John owes his sister. On the other hand, what message will firing Michael, who deserves the job, send to his staff, especially his sales force? Should he keep Larry solely because he is a family member?

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