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Is Your Family Business Too Much Family and Not Enough Business?

A large majority of small business is in fact family business. The classic “Mom & Pop” structure. Mom or Dad get an idea and start a business. As the need for extra help grows, the easy answer is to hire other family members to help you get it going.

Often the thinking behind this involves the sense that you know these people, you can trust them and can rely on their help. But too often that logic fails. Your brother-in-law or nephew might be great guys to go have a beer with, but having them on the payroll can be a disaster.

Pretty soon you are facing too much family and not enough business.

Various Scenarios

I am familiar with several typical situations that introduce family ties to business. Let’s talk about those first, then we can discuss ways to avoid the traps or fix the problems these situations create.

The Husband and Wife Duo

Husbands and wives working together can be tricky at best. With the national divorce statistics telling us 50% of marriages fail, it is not hard to see why at least 50% of businesses started by husbands and wives would fail too.

Even if you are blessed with a ‘good’ marriage, compounding your relationship with the burdens of running a business can be dangerous. If you must partner at work, you have to establish strong role definitions. One needs to defer to the other depending on the areas you’ve declared as responsibility.

My wife and I actually ran such a business at one stage of our career. We did have a great marriage going in. And even though that business is long gone, we still have a great marriage.

When we owned the company we had clearly defined roles. She willingly deferred all executive decisions to me. She on the other hand, ran employee relations, logistics, and basic support functions for the company. While we discussed choices we needed to make, each one knew which area belonged to the other and we never varied from that.

Sibling Rivalries

Too often the family connections are strained when siblings inherit something from Mom or Dad. Multi-generational businesses subject to estate splits can be trouble.

There are also the situations where Dad expects Junior to take over the business, but junior has other plans. If the junior agrees and starts trying to take over the business, Dad can get in the way.

Generational cascades of influence and ownership can muddy the waters.

The Real Rub

Ultimately, there are three key factors to consider when looking at running a business with the family involved. First, there is the business itself. Look at the size and scope of things. What is happening, what’s the purpose?

Then there is the family unit. Who is participating and at what level? Define it then set the boundaries.

Lastly, there is the question of ownership; who owns what? Do you have investors and other outside entities involved? Or are you allowing employees to buy in?

Here’s a diagram to explain.

Every overlapping section should be explored and evaluated. If some of the areas do not apply, ok. But whenever you see an overlap, you have potential for unique and special circumstances that require careful handling.

The Owner’s Mindset

Notable family businesses that have stood the test of time have one thing in common. There is an “Owner’s Mindset.” The ownership frame of reference takes precedence.

In his Harvard Business Review article “What Makes Family Business Last“, writer John A. Davis says “What distinguishes these long-term adapters is their strong Owner’s Mindset among the owners and in their top boards. An Owner’s Mindset recognizes the importance of operational excellence, but insists on being in activities that create value (financial, social, relational, and reputational) according to the key values of the owners.”

You can see how having this mindset above all other competing matters helps guide and direct the business to operate on its own, unencumbered by petty disputes among family members.

Business coach and long-time family business guru, Rich Hall writes this about the pitfalls:

Let’s be honest, many times, family members are hired because they need the job and may not be the most qualified. If it happens too much, the business becomes burdened to the point that it struggles to survive.

Even worse, family issues can and do spread into the daily operations.

  • A child wants to do things their way and the parent (owner) refuses. 
  • Preferential treatment is shown toward family members and their close allies.
  • Special “bonuses” or gifts are provided to family creating financial stress.
  • Cliques are formed.
  • Non-family members are afraid to speak up due to the “Sunday dinner effect”.

Eventually, something must be done.

The Fix

If you must hire family, here are some simple things to consider.

First, define clear job roles, duties and responsibilities. Set clear expectations. In the company I referenced above that my wife and I owned, I did hire my 18 year old son for a time. I told him at work, I was boss and he was an employee. No special treatment. Within a few weeks he showed up late.

I put him on notice. He did it again, I put him on probation. He had 30 days to get it exactly right or he was gone. We never talked about it at home.

He did what he needed to do. He got serious and learned the business. Today, he is an AVP at a Dallas area bank, doing the core things we taught him at our company 13 years ago.

Next, don’t be afraid to let them go. I realize this is a tough one. But if a family member cannot carry their weight, it’s not fair to others who are not related. Some of the most serious employee relation matters you can ever face have to do with nepotism. Don’t lose a great employee because you are tolerating a mediocre family member’s performance.

Then, stay impartial. Make it known there are no favorites at work. If a family member lets other employees think they are getting special treatment, nip that in the bud.

Lastly, think long and hard before hiring a family member in the first place. Let work be work and home be home. Why would you want to spend Thanksgiving or Christmas with your worst employee?

If you’ve already dug yourself a big hole here, an outside agent might be the solution. Hiring and interim COO or CEO can help resolve the difficult discussions you might need to have happen. Or hire an advisor to sit on an advisory board to consult on the whole picture. Let them be the reason you want to make some changes.

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