This is a written Transcription for the Leadership Hustle episode about Family Business Blind Spots: Uncovering Hidden Challenges, from Season 1 Episode 51.

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Transcript:

Family Business Blind Spots: Uncovering Hidden Challenges

Andrea Fredrickson: Is the business that you own, a private business or a family business? In this episode of The Leadership Hustle, we're going to discuss the difference between the two and how to make the transition. Hello, and welcome to the Leadership Hustle for executives whose companies are growing fast and need leaders who are ready. So welcome back to this episode of The Leadership Hustle. I'm Andrea Frederickson.

 

Michelle Hill: And I'm Michelle Hill.

 

Andrea Fredrickson: And I am so excited about today. When we were preparing for this episode, we were talking about what topics should we talk about? And incidentally, it was just accidentally, but we were both thinking of the same topic. So Michelle, you brought up this idea of family businesses, and there is probably, I don't know if there's a topic that I have more passionate about than family business. It's so it's one of my favorites. So we're gonna have to shut down this early so I don't keep rambling on today. Yes. But family business is probably one of my favorites.

 

Michelle Hill: So yes, that would, um, that'd be an understatement. So with all that excitement, uh, tell us tell the audience why. What's your why? Is your passion exist? Because it doesn't matter where we're at, what we're doing, if you can, if it veers into that conversation, it's. Woo! Andreas!

 

Andrea Fredrickson: My face lights up. I was like, I just get all jazzed about it. You know, I, I grew up in this little town in Iowa, and my dad started a company when I was in my early elementary years. And so I grew up in a family business, and I'm pretty sure he didn't start it off to be a family business. I'm pretty sure it was, what are we going to do? And we're going to make a living for the family kind of thing. And then through the years, you know, I didn't ever think about coming back to work in the business. That was not everything I was going to. I went to college. I went to work at other places. I never thought about coming back. And eventually there was this discussion about us working together, and in the process, we were discovering our vision for the future was creating a business for our grandchildren's grandchildren. Um, meaning that it was going to be multi-generational in its legacy, but also that if people in the family wanted to come work, that was something that there was going to be an opportunity for. And and how your brain works, like what you start, what you look for, you find. Right? Yes. And so, as we were, as my dad and I were building the business originally it was oh, and they're a family business and oh, the son and the and the daughter are working for their dad. And it's not as often that I see mom being the owner, although that does happen as well. It's it's usually dad and or dad and mom coming to work and bringing in the next generation. And oh, the sister in law or the brother in law or the nieces or nephews and all that stuff. And so it's it's just fun to watch how that all happens and watch the legacy build. And so I get excited about that.

 

Michelle Hill: You get very, very excited. Well, for our audience, because I think sometimes it's where's the line? You know, of a privately held business versus a family business. Oh, yeah. You know, are we are we in a family business or are we just are we just privately held? Give us a little bit of structure in regards to what what the two are and their differences.

 

Andrea Fredrickson: Okay. So all family businesses are private. So a private business is owned by any entity other than the you know, it's not sold on the stock market, right. And so, um, all family businesses are private. Now, the thing that is unique about this is family owned businesses have the majority ownership by a family. And there's probably leadership of the has family members on the leadership team or in higher management in what's going on. A family business doesn't necessarily have to have to have any more than the one owner, but also there's probably not quite ready to have people that are family on the leadership team. They may be dispersed across the organization, but they're not really making decisions about what's going on. But they're involved. Yes. Right. And so we'll find that families, most people not all, but most people, when they start their business, they're starting it because they want to provide something, a livelihood for their family, something that they're excited about, something that they're passionate about. And so they start their business not ever thinking about whether or not it's going to be a family owned business. Right. So I bring this is so interesting. When we were preparing for this, you had just watched a recent episode of Landman.

 

Michelle Hill: Oh, yes. Yes.

 

Andrea Fredrickson: And this is the one that has Jerry Jones where he's talking to this the guy in the in the, um, uh, bad because he just had another heart attack, right? Yes.

 

Speaker3: And so good.

 

Andrea Fredrickson: So you brought this up. You know why? Why did you bring this, this, that episode up? Like what? What hit you? Because you're like, oh, my gosh, we should talk about this.

 

Michelle Hill: Well, with the Dallas Cowboys, it similar to what you were talking about right. It's he he talks about it obviously unintentional, but, um, every day is such a joy because he gets to not only go to work and do the things he loves, but while at the same time he gets to do it with his family and he gets to see his, his, his children and grandchildren, them actually grow. And they, they get to together, you know, work towards and work on something and collaborate, which you don't get to spend every day normally. Right.

 

Andrea Fredrickson: He's he's probably the exception of in this category in that he intentionally bought property, bought bought land so he could build a business so he could work with his family thinking he was going to be doing the favor for his kids when he was the one that was the beneficiary of getting to watch and getting to be a part of and and not having to wish at the end of his life or toward the end of his life, that he's not getting to be with his family. Yes. Right. Yes. And so I think it's really important to for people to recognize most businesses don't necessarily start off being a family owned business. It's a livelihood. It's a passion. It's an interest. It's a way to build wealth if done correctly. Right. And so I think it's important to recognize there typically is a transition either by, you know, if there's partners that you're bringing in family members into the business or, you know, and what does that what does that mean.

 

Michelle Hill: Yes. Well, so when you because you've said a couple things here, you've you've talked about family businesses often more often than not or unintentional. And then we also there's the There's the transition right. So I think we've we've probably hit a little bit on, you know, them being unintentional. Why. Because we start for that livelihood and so forth. Um but what are the things if, if I own my own business or I'm a partner in a group of individuals that own a business collectively, and we're privately held, um, what are some of those signs? What are those things that as we're we're we're not intentionally trying to be a family business, but what are the signs that maybe we're starting to drift in that direction?

 

Andrea Fredrickson: So most often what I notice is there's a teenager coming up into the family, you know, whether it's your teenager, whether it's your niece or nephew, whether it's your partner's kids, but they need a summer job. Yes. Whatever the summer job is, whether it's sweeping the floor, being the custodian, whether it's, um, organizing documents, whether it's doing something technology wise, but there's something that that teenager Major is doing to earn money. Earn cash. Right? And this is a way that it can be done through the business. It's not coming out of Mom and Dad's pocket specifically, and they're gaining experience in the business. So if you start noticing the kid, right, that's usually someone's kid. Somebody's kid related to the ownership is in the business. That's usually a sign. The second is, um, often there's a spouse or an in-law that's been brought in to do something that the owner either doesn't have time to do or doesn't know how to do bookkeeping.

 

Michelle Hill: It maybe marketing.

 

Andrea Fredrickson: Maybe marketing, or, you know, social media kinds of things that they're being brought in because they know somebody. Now, true. Sometimes it happens where they're not related, but oftentimes like, oh, my sister in law does this for so and so, so she said she'd do this. Or my spouse, my significant other. My wife is, um, uh, is going to do the books for me, right? Those are the kinds of things where they start off doing those kinds of things. Eventually they may grow out of that position, but maybe they hang on to it. Even though they brought in a professional, they just don't want somebody else involved. And so they become the quote unquote CFO, or they become the person who's in charge of all the accounting and all the banking relationships and things like that. So you start seeing those kinds of things where this isn't a family owned business. Mhm. Yes it is.

 

Speaker4: It might be.

 

Andrea Fredrickson: It's at least a family business if not a family owned business.

 

Michelle Hill: Yes, yes. Well, and you know, when we're not intentional about designing the business to move in the direction of a family owned, what are some of the challenges or I like to think of as consequences, but what.

 

Andrea Fredrickson: Consequences are good and bad?

 

Michelle Hill: Right. Correct. Yes. But what what are some of those those challenges? If we're not pulling back and noticing or recognizing what might be some things that we're going to bump into that can create some serious friction down the road. Possibly. And some of it might be good, but some of it could be friction too, right?

 

Andrea Fredrickson: So when people make the decision to oh yeah, let's son daughter come in and do work, that's fine. Hey, by the way, I'm going to pay you this and I'm going to give you this many hours or here's what's going on. They one of the things that that might be a negative consequence is how do the non-family member employees treat the family member. Like, can I correct them? Can I tell them that's not how we do it here? Can I, um, coach them? Can I say anything? Or is this, you know, that only conversation happens between parent and and child? Or what if it's an in-law? And can I push back if I'm a non-family member? Employee? Maybe. I've been around the business for ten plus years.

 

Michelle Hill: On the leadership team. Even maybe.

 

Andrea Fredrickson: Maybe on the leadership team. And it's like, do I have the authority to do that without there being the drama that's created, which is a whole nother episode we'll talk about.

 

Michelle Hill: But yeah. Yes, very unintentional. But woo, that drama can come in.

 

Andrea Fredrickson: Right. And so with uh, how do we treat brand new employees that are family members, are they brought in at the same pay scale that everybody else would be getting, or is this. Nope. This is a special thing, and I'm just hiding their wages in this way so that I can give them money without it coming out through. I'm not paying taxes on it. Me, I'm. It's a different thing. Or, um, it's usually not intentional. Consequences are how do non-family members see the family members? How do they treat them? How do I work with them? Can I correct them? Can I not correct them? The other is as a parent or as a and like, do you hold them to the same level of expectation that you do for everybody else? So if everybody else has to be to be there on time. That means two minutes before time. It doesn't mean an hour after. It doesn't mean 15 minutes late. It means on time. You know, I have a friend who tells me he he went to work for his dad, and his dad was working, actually, at a different company. Right? His dad was working in a company, and so he was working for his dad, and he came five minutes late. He clocked in five minutes late, and his dad said, go home. He's like, why you're late. I'm only five minutes late. Five minutes late is late here. You're going home. And so, you know, treating, you know, setting the standard that day, that moment. It's like, that's how it is here. You don't get special dispensation. You don't get special privileges.

 

Michelle Hill: And so but that could also swing to the other though too. Right. Like where there's higher expectations. So maybe people aren't sent home, but the son or daughter is.

 

Andrea Fredrickson: Or has to stay after it has to work extra hours or their expectations are higher. So there's there's two sides to this, right. There are two sides of you know, maybe we're lenient. Oh it's only five minutes. Like yeah. But you wouldn't let Joe be late, right?

 

Michelle Hill: Non-family.

 

Andrea Fredrickson: Exactly. Or there's an expectation of higher standards. And, you know, to some degree, I'm not going to disagree with. And I might not be popular on this podcast because. But as a family member, we may recognize we've gotten the job or the opportunity because of who we are. Um, but at the same time, we have to keep it. We have to prove ourselves that we have we we have the right not only to have it, but we've earned the respect of other people. But so we sometimes have to work harder. We have to do a little bit extra to prove that it isn't just the blood that's flowing through me that got me the job. I have to prove myself that I can keep it.

 

Michelle Hill: Yeah, well, and not only is it that we maybe tell her, they tell themselves that, but also sometimes the non-family members think or believe that about them as well. And so then that creates, I would imagine that friction between employees with that family member.

 

Speaker4: Yeah.

 

Andrea Fredrickson: Yeah. So, you know, when we go in, when people, you know, this episode is about one, are you a family member, a family business or a family owned business? If you're listening to this, majority of companies in the United States are privately held. So those privately held companies are there people within families that are working in the business of the ownership? Right. Do they even recognize that, and have they put some things into place, which is.

 

Michelle Hill: Kind of gets into the boundaries, right.

 

Andrea Fredrickson: Yeah.

 

Michelle Hill: So structure, boundaries, expectations. But yes. So if we've let one individual let's say there's a couple partners we've we let allow and we don't think anything of it. We're like oh yeah, your son can work here this summer. And the son works there and then proceeds to maybe continue working while going to school, whatever that may be. Right. Right. Now the other person.

 

Andrea Fredrickson: Oh, and I'm going to have I'm just going to buy the truck out of the company or rent the truck, or we're going to do that. And it's like, the kid's going to drive the truck. It's like, you know, that's going to be your insurance. That's a whole nother story.

 

Speaker4: Right.

 

Andrea Fredrickson: Um, or the spouse is going to have a vehicle. Yes. Even though they don't work in the business. Well, that's part of the ownership family business tax that comes along.

 

Speaker4: With things, right? Yes.

 

Andrea Fredrickson: But I think that the sooner you put in the place what many families call a family constitution or a code of conduct, where even before you even think about bringing on any family members that does the family have to work someplace place else.

 

Speaker4: Some rules. Boundaries? Yeah.

 

Andrea Fredrickson: It's just rules and boundaries that say, if you're going to be family and you're going to work here, you can work here part time while you're going through school. But when you once you leave school, you have to go work someplace else to gain experience, to gain credibility, to gain perspective. Because you might only know this business.

 

Speaker4: Correct?

 

Andrea Fredrickson: Right. Um, I think that understanding, um, what what are the what's the process for, um, job descriptions and pay and meeting goal expectations? Are they the same or are they different than somebody else? Sometimes it's just having the conversation that is helpful, but documenting and saying this is the rules. Now, you may eventually decide to create some kind of a family council where you as a family, decide that these are different for the next generation. But before you bring on any family members, I would go through and say, here's some standards that we're going to put into place. They're written, they're understood. And then as a family member considers it, it's like, oh, by the way, you have another set of rules that you're following because you're family.

 

Speaker4: Yes. Yes.

 

Andrea Fredrickson: And how do we put those, those things there that I think they're super important.

 

Michelle Hill: Well, you know, and I'm hearing and also just from listening and being a part of as well, um, that setting up the for shared expectations and understanding as you move forward. So there's not frustration between let's just say it's two siblings.

 

Speaker4: Start a.

 

Michelle Hill: Business. Right. And now the two siblings are on the same page. So as they're both kind of identifying if they're going to embrace having kids work there or, you know, even future, um, they already have a kind of a set of ground rules that they both agreed to before, before they're in the middle of it. Because what's the consequences if what if what if it ripples? Where? Okay. The first, let's just, you know, the one person's already brought in two of their family members, and now you've got another one's going to start, but it's starting to get a little wonky. And, you know, they're starting to get to get some friction. And maybe the individuals have been elevated and now they want their child elevated. But there's not a position like what are some of these things.

 

Andrea Fredrickson: So it's so interesting. You know, the founding the founding generation again, probably doesn't realize they've got a family business until they realize their family.

 

Speaker4: They're in it. Right.

 

Andrea Fredrickson: And so having some some boundaries, having some rules in place that is in conjunction with the organization's policies, procedures and systems. Right. So that's for Gen two. If you don't have them for Gen two, you have to have them before Gen three starts working in the business. Because, um, a lot of times Gen two is coming in because we're still trying to build the business.

 

Speaker4: Yes.

 

Andrea Fredrickson: By the time you get to Gen two and they are in their 30s or more, the business may be much more mature. You've got a lot of people who are non-family members working, but now you're talking about Gen two wanting to consider bringing in their kids and now their cousins. And so now how am I treating my cousins? Because now my brothers and my sisters aren't raising their children exactly the same.

 

Speaker4: Way I am. Oh, I'm sure not. Right. Yeah.

 

Andrea Fredrickson: And so we have to recognize that, yes, you are a private business, and you have policies and procedures and systems to create an understanding about how we do things around here. Having a family constitution or having some rules or a code of conduct about how we work as how family members are incorporated into the business. And are there rules a little bit separate from everything else I think is super important. But if you don't have them, by the time you get through Gen two, Gen three has to have them.

 

Speaker4: Yeah.

 

Michelle Hill: Well, and I'm thinking back on previous years working in a family business where I was not family. Talk to us a little bit about some of the consequences with behaviors. So as you're talking about family rules and um, behaviors, I mean I had just experienced the first gen, the second gen, and um, there was not it was not recognized when I was there, um, that their behavior at work was the same behavior at home. So you had siblings, a couple siblings and parents and the way they were communicating with each other. And we'll just say yelling and having tantrums was present in the business, which is totally expected. I mean.

 

Speaker4: That at home.

 

Andrea Fredrickson: That can.

 

Speaker4: Happen.

 

Michelle Hill: Yes. But there were no boundaries set. And from your experiences, I mean, I know I have my one on this in this particular situation, but what's the consequences for the non-family because your non-family is, is also.

 

Speaker4: Especially.

 

Michelle Hill: As you grow. It's it's it's important right.

 

Andrea Fredrickson: So so let's let's flip that because you worked in the family business but were not family. But you witnessed all that. Like what happened to your the rest of your leadership team. What happened to the people. Like what were the things that were they were talking about that, you know, besides the morale killers. Right. What were some of the things.

 

Michelle Hill: That the morale. Well, it became Same people didn't feel that they could approach or disagree with any of them. Right. So it was people really? Well, I guess if we go to our words, the psychological safety didn't exist. It was awkward. It was uncomfortable, especially once we started knowing, you know, like one's yelling at the other one down the hall. Um, and actually referring to him as dad versus dad's name, you know, because that's that's one thing I know when I started with you all. Um, people don't pick up on or did not pick up on back then that Wayne was your dad because it was always Wayne. So at work, you.

 

Andrea Fredrickson: Know, the fact that we didn't have the same last name?

 

Michelle Hill: Yeah.

 

Andrea Fredrickson: If that same last name, that would have been like, clue number one.

 

Michelle Hill: Yeah, that would have been a little bit of a red flag for someone coming out.

 

Andrea Fredrickson: Of a dysfunctional, completely disrespectful. They're the Italian group that groups that I've worked with, they can't call their father by their first name. It is completely disrespectful in that family. In that family, it's got to be Papa. Papa? Yeah, dad. And that's the name. But just, you know, recognizing there have to be rules there.

 

Michelle Hill: Yes. Because it's not even. It's not just for the family either. And for to reduce that chaos, but it's to reduce the chaos from rippling out to everyone else. I mean, it came to a point where I had to sit the family down and say, we need some rules, right?

 

Andrea Fredrickson: Because exactly.

 

Michelle Hill: You know, I can't you want me to accomplish X by operating, you know, operating and managing this location. And I can't do that when I have all four of you randomly.

 

Andrea Fredrickson: And you had to have the guts to do that.

 

Michelle Hill: Yes.

 

Andrea Fredrickson: Right.

 

Michelle Hill: Yes. Very true.

 

Andrea Fredrickson: But I believe that there are times that family members don't realize the impact that they're having on non-family members and their ability to perform the job. Now, do I do we recognize that in private businesses, there are still people who are not don't feel psychological safety? Oh goodness. People who have authority and things like that. Yes. You add to this that, you know, we've taken what is personal and outside of work and we incorporate it into work. And, you know, do people recognize that that is having an impact on others? Yes. You know, when I look back at that, that's, you know, one of the things that I love about Ravella is that all of our folks have either owned their own business, have worked for a family business as either as a family member or as a non-family member. But what witnessed it or have been part of the family even though they weren't working in the family business yet, you know, it's different generations and stuff like that. So, you know, let's tie this, this episode up a little bit in a bow by saying, I can't believe I just said, tie this up in a bow. I never say that.

 

Michelle Hill: If you would have, just like when you said that my I was thinking, I won't even say what I was thinking, but.

 

Andrea Fredrickson: I just I think people have to recognize that in a private business, the likelihood of them going to be a family business is pretty high. And so the sooner you recognize that that's the path you could or have gone down, put into place some rules about how family members will be treated, the expectations that you have of them, they don't. It can be something that you revisit every year and say, is this the right rule? Do we need to add to this rule? Do we need to change the rule?

 

Michelle Hill: And what was that called again.

 

Andrea Fredrickson: The family constitution or code of conduct? Any of those those kinds of you can call it whatever you want. But that's basically.

 

Michelle Hill: Yes, that's common.

 

Andrea Fredrickson: That those are the common language that we talk about. And so, um, we're going to do a couple of episodes on family business. So if this is the first one you're hearing about family business, we've got a couple more coming. And so thanks for listening to this first episode of The Leadership Hustle as it relates to family business. Um, please subscribe so you never miss another episode.