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In Part IV of this series, we continue our look at some of the major reasons why many family businesses have failed and may fail yet if such issues are not effectively addressed.

We've Always Done It Like This: Failure to Innovate

Sometimes a family company that has enjoyed decades of success feels quite confident in its formula for success, so much so that it may not recognize when change would benefit it immensely.  While some second or third generation owners can't wait to change the running of the business when it becomes theirs, others refuse to do anything differently which, in time, can result in an operation in dire need of an update.  Social media is a good example where some businesses have rushed to take advantage of its platforms while others have ignored these networks to their peril.  Failing to establish an online presence is a conflict that many family-run businesses now face.  Of course, innovation or change takes many forms, but the family business is often challenged to embrace the business need to innovate.

 No Structure, Little Strategy

For some family businesses, the only structure is the family structure.  Perhaps there is one leader or a leading couple--husband and wife or siblings, for example.  Sometimes a business will thrive without a business-type structure for a generation, but often this will change after succession and with the growth of the family.  Without clearly defined roles, problems tend to arise.  Secondly, a lack of long-term strategy is an obstacle for many family businesses.  Is there a five-year plan?  Is there a plan to operate regionally? Globally?  Designing an effective strategy and working towards its business goals is a tenet of many businesses, but one that is often neglected by family-run businesses.

 Every business faces vulnerabilities.  Often the challenges come from the outside such as the economy.  The family owned and operated business comes with a set of challenges, however, that don't typically apply to other types of businesses.  Family firms that are able to successfully navigate these challenges into their third generation, therefore, have much to be proud of--and possibly much to teach other families struggling to keep their businesses afloat.

In Part III of this series, we continue our look at some of the major reasons why many family businesses have failed and may fail yet if such issues are not effectively addressed.

I Love You, You're Hired

Many family business owners simply can't help but hire those family members they love best and provide them with the best roles.  In their vision, the ideal reality is a child that takes the helm after them.  Sometimes the owner's children or other close relatives aren't the best candidates.  Sometimes an owner is persuaded to hire a family member for a certain role that would suit the talent and skills of another far better.  It is often difficult for family business leaders to effectively assess the skills of another family member because they are blinded by love and their own desires regarding the business.

 Conflict and Emotion

In non-family business a work conflict remains a work conflict.  In a family business, a conflict that erupts at work goes home and vice versa.  There is a decided emotional vulnerability that is connected with the family business platform.  There is no way to get away from the boss or people at work when you may live with them or are in close proximity to them.  Many people find this constant connection to family members stifling.  Others cannot recognize the need for boundaries--for giving other family members their personal space even though that separate time could be therapeutic.  Work conflicts, in short, are personal conflicts and nearly always emotional, always threatening the foundation of the business.

In Part II of this series, we continue our look at some of the major reasons why many family businesses have failed and may fail yet if such issues are not effectively addressed.

 Lack of Grooming, Lack of Succession

When the head of the business neglects training someone as a replacement or does not effectively consider a succession plan, a level of business chaos can ensue when the business lands in the lap of the second generation and quite frequently by the third.  Sometimes an owner will simply 'groom' the wrong person, a family member not equipped to manage the business or staff well.

Other times the leader is simply too busy to mentor the second generation in a meaningful way.  The longevity of a family business depends upon effective management training.  Ignoring this aspect can result in the business falling into a family member's hands with no adequate experience for holding the reins.

Non-Family Need Not Apply

Sometimes a family business fails by failing to recognize when it needs to bring in outside help to fill some pivotal role.  Of course, even when someone from the outside fills a pivotal role there may be considerable unease among the other family members who did not sanction the decision to hire from the outside.  It often happens that family members of an existing business do not have the skills or talent needed to move the business forward.  In such cases the business can stagnate while its competitors roll more effectively with the changing times.

Next week: I Love You, You’re Hired

Family owned and operated businesses have been part of the American fabric and are certainly a tradition alive and well in many parts of the world.  Knowledge of merchandise or the skills associated with a particular craft are passed from one generation to the next as the elder generation fosters the younger to ensure continuity and success. While all businesses face obstacles, the family-run business is associated with some unique challenges.  According to the Family Firm Institute, in fact, only about a third of family businesses will thrive under the management of the second generation.  The challenges outlined here are among some of the major reasons why many family businesses have failed and may fail yet if such issues are not effectively addressed.

The Unshared Dream

So often the main issue that a family business faces is that the business is not the family's dream at all but, instead, belongs to just one family member.  For that one member, the business is a dream, a lifelong pursuit, and even a passion.  Yet to other family members, the business may merely be a job--and one they may not especially like.  When the founder relies upon others to share a vision and work ethic they do not have, this tends to erupt into problems.  Sometimes this dilemma can be warded off when the main owner allows other family members authentic ownership of their roles.  People tend to care more about their jobs when they feel safe to emotionally invest in their work.  A tendency to micromanage is almost always a surefire way to alienate other family members, to prevent them from feeling like true stakeholders.

 

Next week: Lack of Grooming, Lack of Succession

The transition from one generation to another can be very seamless and smooth. However it takes education, planning, openness and humility.

  •  Education. Learning the business requires its own education process. That education is often not found in the halls of schools, but in the halls of the business, working with customers, walking hand in hand with employees. Learning what it means to make payroll, pay taxes, the impacts of discounting and generating new revenue. This education is the foundation of value for transitioning to a new generation. The education involves the next generation proving themselves, showing vision, seizing opportunities and learning the business from top to bottom. It involves at a minimum a season, and the length of a season greatly depends on the business and can span multiple years. Economic seasons can be 7 to 10 year cycles (winter—harsh economic conditions, spring—times of new growth opportunities, summer—high growth, fall retrenching of the business and the direction it is heading). The season will allow a full level of education which can be the difference between success and failure of the future business.
  •  Planning. The best way to ensure a smooth transition is to create a detailed plan of action. Talk about everything. Yes, I mean everything. I know—someone won’t want to deal with the touchy subjects. Talk about them anyway. Create a plan that allows you to roll out of the company. Here is the reality; one of these days you will leave the company. It might be tomorrow, a year from now or a decade from now. It still doesn’t change reality. Don’t leave your next generation a mess and have them not know what to do. Make your business legacy live on—and not live on in chaos. If you want help in how to do that planning, call your team of advisors. The next generation will love you for it.
  • Openness. Be willing to accept new ways of doing business, new products, new management styles. Not all new is good, yet not all old is perfect. The next generation of leadership must make their own mistakes, but be there to guide them and keep them from falling off the cliff.

As much as possible, do away with the prejudices you have of this next generation about what they can and cannot do. Get rid of family politics. Stop protecting Junior and doing things for him. Let Junior stand on his own two feet or leave the business. There is no shame in not being in the family business. Life is too short to not follow your passion. A message to Junior: Understand that you will change. You may not want to join the business now, but your passions, needs, desires and interests will change as you age. Mom and Dad, Grandpa, and Auntie may start getting smarter and have a better perspective as you get out in the world, work a job and learn the realities of life. Don’t burn your bridges and be unable/unwilling to come back and see the value of that family business. Also, following your passion doesn’t mean sitting on the beach strumming a guitar (nothing against beaches and guitars). It does mean that if you have a passion for medicine and the family business is a fur­niture store, follow that passion for medicine. Just because your passion was the business doesn’t mean you have to force your passion on every­one else.

  •  Humility. If someone lacks humility, they need to start a family business. If they still lack humility after running a business, try transitioning a business to another generation of leadership. It takes patience and the art of learning how to step back and let others accomplish the tasks in new ways. The second-generation owners of a family business whom I interviewed told the following story about their dad.

“Dad had started to transition out of the business. He was very organized and had a place for everything. The son, the new business owner and leader, had not inherited Dad’s particular gift of organization. He had piles on his desk and on the table. Dad on a few occasions during the transition went through and “cleaned up” the piles and threw out what he believed was unnecessary papers. As you can imagine, that created tension and frustration—on both sides. New rules had to be set up. There were new ways of doing things. It wasn’t better—just different—and Dad had to step back. He needed to be humble, understand new ways and allow the new regime to succeed or make mistakes on their own. It was a reality check for Dad who needed to realize he was no longer in control.”