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Keeping the family, and the business, together

Family businessBig or small, multinational corporation or corner grocery, when we say business, we really mean family business.

According to the Arthur Andersen/Massachusetts Mutual 1997 American Family Business Survey, an estimated 90 percent of all businesses in North America are family owned, including nearly 35 percent of the Fortune 500. Family enterprises make Campbell's soups, SC Johnson home cleaning products, Mars candies and Coors beer.

In addition to producing the products we use, family businesses also account for 78 percent of new-job creation, 60 percent of the nation's employment and 50 percent of America's gross domestic product.

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Now, these big family firms are getting smaller company. Since the last round of corporate downsizing a decade ago, family-owned small businesses have flourished, some of them launched with buyouts and severance packages from corporate giants that were themselves the gleam in some entrepreneur's eye just a couple generations ago.

Where business is concerned, statistically most of us either work in someone else's family business or have one of our own. Drawing on the relative strengths of a family many times can help sustain a venture.

But surviving as a family business takes more than common blood. Generally speaking, fewer than a third of all family businesses survive to the second generation. Those that do often falter there.

Family ties vs. business needs
The current economic downturn highlights the strengths and potential weaknesses of the family-run business.

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"If you're working for a company and you see that you're going to be laid off, you might seek to go elsewhere to work," says Laurie Pickard, psychotherapist and author of Family Business: United We Stand, Divided We Fall. "If you're part of a family-run business, there's loyalty there that might prevent you from looking outside."

But according to family business counselor Ruth Hayden, author of For Richer, Not Poorer: The Money Book for Couples, retaining Cousin Johnny might be more the problem than the solution.

"When the economy is roaring, there can be a lot of dysfunction within a company and they're still fine," she says. "But the tighter it gets, the more the dysfunction starts to glare.

"There are a lot of family-run companies that are struggling right now with internal dynamics because the market is less forgiving," she notes. "Now we have to be more efficient, and if Johnny is doing a horrible job of managing that branch, we can't tolerate it anymore because our family is not going to allow it, and if we're a publicly held company, our shareholders are not going to accept it.

"Now we have to do something about Johnny."

Can you prune the family tree?
What to do about Johnny cuts to the core of the family business challenge.

Can you sufficiently separate your family life -- the complex relationships, emotions, expectations and conflicts -- to make the clear-headed decisions it takes to succeed as a business? Can you make the tough decisions, such as pruning the family tree when Johnny isn't making the grade?

That's a tall order for anyone.

That dilemma could help account for the associated proliferation of family business counselors over the past decade. There are an estimated 120 family business institutes in the United States, many of them affiliated with major universities. They pull together professionals from law, finance, management and the social sciences to help families cope with the many challenges of leading dual lives.

"Family-run businesses tend to be pretty dysfunctional," says Hayden. "They bring the personal into the business, and it gets all muddled up together."

Strong families, stronger businesses
Jane Hilbert Davis, executive director of the Cambridge Center for Creative Enterprise, says her clients often have difficulty maintaining a healthy boundary between home and work. Agreeing not to talk business at the dinner table or family problems at work is a necessity for long-term success.

But Davis says some selective borrowing from across the work-home border can be healthy.

"There needs to be communications between those two parts," she says. "There's a lot of strength in the family that needs to be transferred to the business, and a lot of times the family can benefit from taking tools from the business, such as strategic planning. You should try to capitalize from one to the other."

For example, during a downturn, a family business may draw strength from the family side to pull through on the job.

"You may have people in the family who are willing to work longer hours, harder, for a lot less and pitch in," says Davis. "That's not necessarily good, but you have this supply of, if you will, cheap labor.

"It's tough on the family, but it may get them through a tough time."

Using disputes to improve the firm
Families also must learn to benefit from their disagreements.

"One of the things that we know about healthy families and healthy businesses is that they have a history of resolved and managed conflict," Davis says. "It's a bad sign if they have no conflict, or if they have a lot of conflict that they've never really managed or resolved.

"Good fights that are resolved in some way make for very good businesses and good families."

Davis says families should also have a shared vision, both for the business and for the family, and a strategic plan that addresses the three Ws:

  • What do we want to accomplish?
  • Who does it?
  • By when?

"Visioning is great, but if you cannot translate that into an action plan, you're not going to get anywhere," she says.

Different families, same problems
And while there are many types of families, they tend to encounter similar family business problems.

Succession is often stressful. The next generation feels the old guard won't let go; the old guard feels the next generation isn't ready to lead.

Sometimes children have become too dependent on the family business.

Often entrepreneurs have given their life to the business and view retirement as a loss of identity.

And bringing in a spouse or a child for the first time can be delicate.

Breaking the code of silence
It's also common for family businesses to gloss over or ignore these issues until they reach the breaking point.

"Normally, a family won't talk about what's going on inside of a family business outside of the family unit," says Pickard. "In that respect, a family can be very isolated because they feel a sense of shame, that they've failed as an entire unit."

The experts agree, you can hear it now or hear it later. Treat your family business as a business first. Hammer out your business plan in writing. Hold regular business meetings and encourage open, honest input.

Define job roles and responsibilities just as you would for any employee, and make sure the compensation for each is based on fair market value, neither higher nor lower. Structure your organization properly, and where possible, avoid having family members reporting to other family members.

Above all, make sure the lines of communication remain open and at-work interaction remains professional at all times.

Davis says it's not a bad idea to get to know a local family-business counselor before you open the doors. Such an adviser can get you off on a good foot, both as a family and a business.

"When family businesses are working well, there's nothing quite as good or fulfilling," says Davis, "because you not only have that successful company, but you have a family that is working together and cares about each other and is able to do things together.

"When it is working well, there is nothing like it."

Jay MacDonald is a contributing editor based in Florida.

-- Posted: June 29, 2001


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See Also
It takes more than love for a married couple to successfully run a business
SmallBiz Adviser: complications of buying a business from family members
Tips for feud-free family financing
Picking the perfect business partner
Choosing a business structure for your small company

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