June 18, 2014

The Successful Family Business


In a family business, members of the same family manage and own the business. This family relationship can provide a management framework to help the business compete in the marketplace. On the other hand, the blending of family and commercial considerations into a healthy, productive and longstanding business is not easy. The inevitable conflicts between the two must be managed carefully if the business is to thrive.

A strong family relationship provides a building block for a strong management team. The trust between family members that comes from a shared history, identity and values is something non-family businesses pay millions of dollars to consultants to instill in their employees   and can provide a major competitive advantage.

More than that, the family name on the door creates a strong sense of pride in the products and services that go out that door. Taking advantage of this attention to quality and customer service is an important part of the strategy of any successful family business.

The family business creates a culture of loyalty, and this loyalty generally extends to employees, vendors, and customers. Family businesses are less likely to lay off employees during temporary business slowdowns. While this may hurt short-term earnings, in the long run it builds a committed workforce, which will result in superior customer service — and more sales.

In addition, the family has a long-term focus that is measured in generations, not fiscal quarters. To become an ongoing legacy for future generations, the business must look to long-term profitability. This gives the family business added flexibility in its investment strategies.

On the other hand, family attributes alone are not enough to insure the long-term health of a business, though. In order to be successful, the members must manage the conflicts and stresses that are sure to develop between the family and the business. Decisions surrounding the employment of family members are good places for this type of conflict to arise. In non-family businesses, employment decisions are based on merit; employees are paid differently and have different responsibilities. When the employees are also family members, conflicts can arise between the needs of the business and the values of the family the business was created to serve.

One way to defuse this problem is for the business to establish a written policy setting out objective qualifications for employment, along with objective measures of performance. This will give notice to all members that the family value of equality does not apply to employment decisions. A family member who knows this policy from the outset is less likely to become upset if he is not paid the same as a more qualified (as defined in the policy) sibling or cousin. Along with this, the family needs a process to teach new members how to become a part of the business.

The success of the family business depends, in part, on the family having shared goals on what it wants from the business. But, as members from different generations join the business, these goals may change. The family should create a mechanism to make sure the goals stay in line with their needs. A forum for family members to participate in decisions on what they want from the business is a good place to start. All family members, not just owners or employees, should participate since they are all affected.

The family business has many built-in advantages. If properly channeled, the strengths of the family can provide a foundation to create and grow a strong business. And, because it is a family business, it can be run for reasons other than just for profit. No matter how it is run, though, family members must recognize and deal with the tensions that are sure to arise between the business and the family.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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