Family Business Matters
3 Minute Read
The family business is as American as apple pie and the Fourth of July parade. Companies such as Ford, Marriott and Wal-Mart are only a handful of family-owned, corporate giants that come to mind. And although there are more than 100 million family businesses in the United States, only about 30% of family businesses survive to the 2nd generation, and 12% to the third.
“There are more than 100 million family businesses in the United States. Only about 30% of companies in family business survive to the 2nd generation, and 12% to the third.”
Being a family member in a Family-Owned Business (FOB) has its share of pros and cons. Children sometimes get the feeling (or are actually told) that they are expected to work in the family business. This can be viewed either as a curse or a blessing – or both!
Here are a few things to consider inside a family business:
Work somewhere else first.
Make it a rule that the heirs-apparent must first work at least five years with another business. And preferably a large corporation in a similar industry. It’s important they first achieve some notable successes on the job before joining the family business. Upon coming on board, they are then recognized to be a competent and valued player in the industry, not just “the boss’ kid.”
Make sure they can do the job.
Family members will be entitled to a job in the family business only if their performance is equal to, and preferably superior to, the unrelated employee in a parallel position. The family must hold itself to the highest standards of performance; they must be mentors to all other employees. Lazy and mediocre relatives are resented by non-family employees at all levels within the organization.
Create key non-family positions.
The family business must make a conscious effort to place a number of non-family members in key management positions. While it is clear that the CEO position is unlikely to be available to them, they must be given real responsibility, authority, and power. And they have to be able to command the respect of the family.
Plan for succession.
Succession is one of the touchiest problems in most family businesses. Plan early…and in an orderly and open way. This vital decision should never be deferred until after the death or unanticipated disability of the founder or CEO; only bitterness and misunderstanding are likely to ensue. Seek an outside perspective from a trusted advisor, or someone who knows the business well. Then, make your decision and start planning.
The family business is unlike all other forms of business ownership. It has remarkable strengths and advantages, but it can also unleash turmoil within the family. These guidelines offer basic weapons to protect the prosperity of the carefully nurtured family enterprise from some of the most common downfalls.
For more on the challenges of a family-owned business, click here.
For more in-depth information to create a succession plan, download our Step-by-Step Guide for Succession Planning.