Family Business Pros And Cons

I was recently asked, “what are the pros and cons of working in a family business.” Pausing for a second, I responded, “that it’s a family business.” I added that I did not mean to be ‘flip’ in responding, but meant instead that family businesses are too complex for that question to be answered in a few sentences.

Understanding the context in which such a question is being asked is important. In addressing it I find myself quoting the opening line of Tolstoy’s Anne Karenina, “All happy families are alike; each unhappy family is unhappy in its own way.”

I want to know the experience of the person asking it.

A family business operates on interactions between two systems. The family constitutes one system. The business constitutes the other. Each has its own values. Each demands recognition of its values. Taking goals for example, those of a family are thought about in terms of the development and support of its members. Business goals are thought of in terms of profits, revenues, efficiency and growth. In the family system, evaluation or reward of family members is based on who they are. Effort counts, but there is unconditional love and support. Evaluation within the business is based on performance and results. On these criteria, individuals are likely to be promoted or terminated.

Returning to the question of pros and cons, I have come to believe these depend to a large degree on the happiness of the family. I have seen this reflected in widely differing attitudes—a family-business member telling me that she could not imagine working anywhere else but in the family business; a second-generation family business owner saying that he did not want his children working in the business because “he loved them too much.”


Working On Succession Planning

The term “working on your business” may not be new to you. The idea of working on your business pertains to doing the work of creating a business that is sustainable and functions independently of you. One in which the day-to-day operations are managed by the systems and processes you established, and the people you developed to implement them. A business that runs on systems and processes, rather than on your daily efforts, allows you to focus your time and energy on challenges and opportunities that arise for innovation and growth.

We all have the same 24 hours a day and 7 days a week to accomplish our tasks. Without systems, and people trained to manage those systems, we business owners have basically created a tireless job for ourselves. Without a conscious effort to change this situation, the business will likely remain as it is, without significant growth.

Succession planning can be thought of as analogous to working on one’s business. Family businesses consist of systems within systems; the family, the shareholders, and the business itself. Rather than on processes, these systems thrive on policies.

Similar to how systems and processes help your business grow, policies that effectively govern family members, shareholders and the business itself make it more likely that your family and business will continue to grow into the far future. Unless you work on developing these policies, your chances for a successful succession and multi-generational survival are threatened.

Like the conscious effort required to establish a sustainable firm, for a family-business leader committed to creating multi-generational stability a conscious effort is required.


Family Businesses—Changing the World

Inc. Magazine dedicated its May 2019 issue to businesses tackling big, complex challenges that affect everyone—companies that are pushing fresh approaches and creating the industries of the future. Inc.’s editor noted the mindset of one the companies they profiled—now successful and hardly standing still. One major theme running through this issue is about ‘Helping Entrepreneurs Change The World.’

This got me thinking about family businesses that are making significant impacts on the world.

Family-operated businesses have some advantages over non-family-operated businesses when it comes to initiating innovation in response to market changes. They can make decisions and implement them faster. But innovation and staying relevant in the marketplace are not the same as ‘world-changing.’

There are credible reasons that can interfere with a family business implementing world-changing initiatives. Decision making must coordinate with the interests of family, the business and the ownership. And the heads of family businesses tend to stay in control longer than leaders of non-family businesses. This tendency carries both pros and cons. A long tenure sustains stability and family values. However, long-serving family heads may have blind spots and not recognize the need for change when it’s readily apparent.

Despite these impediments, examples exist of family enterprises that are about changing the world. In his book, Family Champions and Champion Families: Developing Family Leaders to Sustain the Family Enterprise, family-business consultant Joshua Nacht describes how innovation rises from the energy and skills of younger family members who take initiative and introduce new ideas. He calls these youngsters ‘family champions,’ and tells how they are balancing tradition and innovation, values and profits, with both short-term and long-term views.

Reviewing Nacht’s book In his Forbes Magazine article “How Champions Of Change From The Rising Generation Transform Their Family Businesses,” long-time family-business consultant Dennis Jaffe comments that, importantly, these young champions have the ear of the family leadership in a way that does not exist in non-family companies. But, unfortunately, many families do not facilitate exchange of ideas between generations; a necessity for developing champions. https://www.forbes.com/sites/dennisjaffe/2018/10/03/how-champions-of-change-from-the-rising-generation-transform-their-family-businesses/#b4b45b05a55f


Impermanence And Continuity

Construction on the Cathedral of Notre Dame was begun in 1163 and completed in 1345. Today, 856 years later, it stands in its home city the awesome result of 182 years of hard work, dedicated intent, inspiration, innovation and Gothic artistry of the finest quality. Last Monday, April 15, 2019, this center of devotion and indescribable beauty caught fire and underwent millions of dollars In damages.

It’s a tribute to its unquestionable and continued value that those millions of dollars for repairs have been pouring in. Albeit among controversy as to just how to accomplish the task, the cathedral will be restored.

Family businesses too can have long histories. They too have been built, over centuries, by devotion and dedication, innovation, inspiration, hard work, high standards and pride.

Japan’s Hotel Hoshi Ryokan is the world’s oldest family business. It was founded in 718 and is now, more than 1300 years later, under the management of its 46th generation of family members. The family’s watchwords: diligence, humility and resolve. https://www.ho-shi.co.jp/en

But is it permanent? Arguably nothing is. Paris’ historic cathedral will never again be exactly as it was on that day, centuries ago, when it was completed. Hoshi Ryokan has unquestionably undergone many changes to ensure continuity over the centuries—to keep up with the times; to add value that attracts today’s visitors. Change, whether accidental or intended, is perhaps the only constant.

Most family businesses are far from permanent. It’s an accepted fact that most do not last beyond their third generation. For them, that which built a monumental cathedral and a 46-generation business is missing.

Contemplating all this, I stopped to read Seth Godin’s blog entitled Impermanence. https://seths.blog/2019/04/impermanence/. With regard to whether the future will or will not turn out the way we hope it will, he offers the following:

“We have much less direct control over the future than we hope, and that it will always surprise us.”

“We can’t control the future, but we can bend it. And we can’t freeze the world as it is, but we can figure out how to be a part of it.”

To build a family business with a basis for continuity, one can take inspiration from those long-ago builders who intended a great cathedral; saw it standing complete after nearly two centuries of continued work; inspiration also from the Hoshi Ryokan family, whose values transcend time. Accept surprise, and intend your business to be part of the future, both permanent and impermanent.


Time For Letting Go

Sitting at my desk considering what to write for this newsletter I thumbed through the folder of clippings and notes I collect just for this purpose.

I came upon an op-ed piece that’s close to home for me in more ways than one. It was published in the August 5, 2012 edition of the Scranton Sunday Times; written by its publisher, Scott Lynett. I grew up in Scranton and went to school with the Lynetts. And while I’ve lived most of my life elsewhere, a strong family connection to Scranton continues.

What’s the second way this article’s close to home? It’s there in its title: Letting go vital to passing on bright torch. For me, as a professional family-business consultant, this op-ed piece presents a lexicon on how best to pass the business on to the next generation.

The Scranton Times is a family business that was founded in 1895 by Scott Lynett’s great-grandfather. The piece he wrote tells the story of the day his father followed his brothers into semi-retirement, stepping down from leadership and into part-time positions in the firm.

That day was fifteen years in the planning.

Most family-business leaders simply cannot let go, a factor that often leads to the demise of the business within three generations. The Scranton Times family is exceptional. Fifteen years in advance of their retirement, Scott’s father and his brothers hired a family-business consulting firm that specialized in intergenerational transition. They provided guidance for the road ahead.

Over the years many challenges were uncovered, many family meetings held; many difficult conversations. There were issues of management, ownership and governance structure to deal with. Rules and requirements for employment of future generations in the family business were collectively agreed to.

When the day came for Scott’s father to retire, the family was ready. They were all ready, and so was the business. And Scott’s generation is already deep in discussions about how to bring the fifth generation into the family business.

What was it that led Scott’s father and uncles to retire, and let go? In Scott’s words: “Ironically…dedication to the future of the business.”

Successful succession takes planning… optimally many years of planning. It takes that dedication to the future that Scott Lynett, The Scranton Times’ fourth-generation publisher, wrote about in his op-ed for circulation in his family’s own multigenerational publication.


Toward Entering The Family Business

I recently did a presentation on the principles of family-business-best-management practices to an industry group of 2nd and 3rd -generation leaders. One participant commented that she loves the family business and that it would be unfathomable for her not to be part of it.

Her statement reflects some of the important qualities of next-generation leadership in successful family businesses. Those of us who work as advisors to family businesses recognize several characteristic attitudes held by next-generation leaders:

  • I know and love the business
  • Working in the family business is considered my best option
  • I have no other option
  • I am expected to work the family business

Each of these attitudes has consequences for the individual, the current head of the family, and the future of the family business. Knowing and loving the business promotes multi-generational sustainability more than the others.


Give Failure A Chance

In my last newsletter I referenced a Wall Street Journal article* that highlighted two issues not uncommon in family businesses: the value of experience and the rewards of failure. I addressed the first in that newsletter, pointing out the advantages of having next-generation family members gain experience by working outside the family business. In this writing I address the second issue: failure. The article connects failure and experience, saying that that the main reason veteran leaders (those I interpret as having experience) rarely fail dramatically is that they’ve failed before.

The value of learning from failure is incontrovertible. An internet search on “learning from failure” yields upwards of 500,000,000 results in a split second. Not all contain reasons and/or solutions that apply to family enterprises. Not all approaches to learning from and mitigating failure in family businesses apply to non-family businesses.

In family businesses, which may be risk averse, fear of failure can be a significant point of contention. They are often inured to tried-and-true methods of operation. So it’s not uncommon for a next-generation family member to hear from their elders:“ “Do as I told you. When you ‘re in charge you can do it your way.”

The psychological source of contention might be adolescent rebellion being acted out in the business. It might involve a parent not recognizing that the child has grown up. The child also might not realize they now need to build an adult relationship with their parent. It can also be an expression of a parent’s uncertainty of their continued relevancy. Or it may simply be that a first-generation parent has forgotten how they learned from their own mistakes.

Whatever the source it’s important to uncover and deal with it. If not, the future of the family and the business can be compromised; opportunities lost.

Giving a rising-generation family member authority to implement and run small or dear-to-the-heart innovative initiatives—risking their possible failure—allows growth and instills accountability. If they do fail—even dramatically—they will learn what doesn’t work; what not to do again. It’s a first step to becoming a veteran leader; a gain for the young person and the family as a whole.

* https://www.wsj.com/articles/the-truth-about-failing-spectacularly-11550293225?mod=hp_lead_pos9



Leaving The Family Business—A Best-Management Practice

A recent Wall Street Journal article, The Truth About Failing Spectacularly* highlighted two issues I find not uncommon in family businesses: the value of experience and the rewards of failure. In today’s article I am addressing the first of these.

The experience connection for family businesses relates to the best-management practice that requires next-generation leaders to gain work experience outside of the family business. This practice adds value by ultimately bringing in skills and knowledge beyond that which had been fueling the family business up to that time. It provides third-party recognition of leadership abilities. It alleviates the concerns of non-family leadership about the value that then next generation can bring into the business. And it reassures them that they won’t be reporting to someone who doesn’t have enough experience to lead.

These advantages are absent when this best-practice is omitted. Working only within the family business can be insular and perhaps even incestuous. The door is closed to new knowledge and fresh ideas.

Attitudes differ widely with regard to these two practices.

I recently had a conversation with a young man who is second generation in his family’s business. His father is adamant that he should not work elsewhere. Respecting his father’s wishes, he doesn’t push the issue, though he would gladly accept an offer of outside employment.

Mindful of fostering sustainability in the family as well as the business, some families not only require ‘working somewhere else,’ they also require that a candidate son or daughter have the necessary experience for the position, within the family business, that they are applying for. This places the child on the same playing field as a potential non-family candidate. For other families providing opportunities for all family members is a priority, and this practice would be unacceptable. The more successful family businesses have found ways to balance these two approaches to next-generation employment.

In striving to achieve this balance, the axiom a strong business supports a healthy family is not to be overlooked.

In my next article I will go into the rewards of failure.

* https://www.wsj.com/articles/the-truth-about-failing-spectacularly-11550293225?mod=hp_lead_pos9



Hiring Professional Expertise For Your Family Business

I’ve always been careful about using my blog and newsletter to support the engagement of family-business advisors, because, while in the many situations the outside expert will provide tremendous benefit, I’ve been concerned that doing so would be perceived as self-promotion rather than honest advice.

Putting that aside, in my experience most successful family businesses, large or small, work with family-business advisors to align goals for the family, the shareholders and the business and future-proof the business against challenges that will be faced by emerging generations.

In looking for professional advisors for your family business it’s important to recognize that family businesses are complex and the expertise needed for a well-run family business is multi-disciplinary. Each area of expertise addresses one of the business’ three primary subsystems: ownership, management and the family itself.

As humans we have a tendency to seek advice from those we know and trust. But as I wouldn’t have my CPA do a root canal for me, I should not ask my business attorney to draw-up my will, or ‘have a talk’ with my children who are playing out their rivalries in the office. Equally, I would be wary of the advisor who does not recognize the multiple disciplines that make up a family enterprise or see a need for expertise beyond their own.

Unfortunately, it’s not uncommon to encounter resistance within a family against hiring outside expertise. In her January 29, 2019, Next Avenue article, Hiring an Outside Expert for Your Family Business*, entrepreneurship and personal finance expert Kerry Hannon brings up the psychological or ego issues around hiring professional expertise for a family business. She suggests that when a family believes they are smarter than an outside person or that they don’t need outside perspective, it’s a sign that they do need to bring in outside people.

There’s a reason 125-year-old family businesses are 125 years old. These families have been studied, and it’s not accidental. Hiring outside professional expertise to teach and implement best practices is vital to the multi-generational success of every family enterprise.

* https://www.nextavenue.org/hiring-outside-expert-for-your-family-business/?hide_newsletter=true&utm_source=Next+Avenue+Email+Newsletter&utm_campaign=1ca7a1cd48-02.05.2019_Tuesday_Newsletter&utm_medium=email&utm_term=0_056a405b5a-1ca7a1cd48-164957277&mc_cid=1ca7a1cd48&mc_eid=6bb3a49c82



Competition—It’s Not All Win-Lose

Competition between siblings can be one of the fiercest dynamics in a family business. Unbridled competition between parents and children can be one of most devastating. But seen from a constructive point of view, inter-family competition can be one of the greatest advantages of family business.

I have been bewildered by stories of cultures that play games in which no one wins. I am equally perplexed by the attitudes of those who see winning or losing as a measure of their prowess and superiority over others.

I like to compete as much as anyone else, and thus found myself in a self-imposed paradox until I considered a perspective of competition that supports winning by all the parties involved. Consider tennis players who appreciate playing against skilled opponents. Both players win by testing themselves and by learning from each other’s game. Don’t get me wrong, I’m not opposed to sports events declaring a winner, rather I recede from intentions of proving inherent superiority by winning.

In family business, I imagine a scenario similar to a sporting activity involving an older and younger sibling. The older, more skilled and stronger, can easily beat the younger in a way that demonstrates superiority, and plays to win accordingly. In a win-win scenario the older sibling derives gratification when the younger achieves increased ability and skill, even to the point where the younger often comes out the victor. Inside the family, strength has been added to strength. By the same token, when a child becomes able to perform a task better than their parent, the parent recognizes a job well done. The family wins too, because new capability has been added.

Family businesses can benefit by understanding that internal competition is not all win-lose. They can learn much by watching its outcomes, becoming aware of the growing strengths within the family that competition showcases.