Family Business Mistakes #3, #4 and #5

In my recent blogs we’ve explored some reasons that family owned and operated businesses have problems and how it’s generally related to the inability to separate the FAMILY from the BUSINESS. We also looked at some of the ways this shows up in specific mistakes many businesses make.

Mistake #1:  The absence of clearly defined rules, roles and responsibilities.
Mistake #2:  The failure to treat adult children like grown adults.

Today we will move on to the other three mistakes that a lot of family businesses make and talk about how to fix them.

Mistake #3:  Assuming every family member is a good fit for the family business

Business success depends heavily on hiring the right people and placing them in the right position that allows them to use their greatest strengths for the company’s benefit. Clearly, if a particular family member is not the best candidate for a position, the business owner sabotages their potential success if they hire them– regardless of whose child they are. Even when a family member asks to join the business it doesn’t mean they are qualified. While I support giving a relative a chance, in some cases even providing ample training will not qualify the individual for a specific position. When employees are not qualified it not only compromises productivity, but it sets a poor example for other workers, both family and non-family. A poorly-placed family member who impedes productivity can devastate morale.

Secondly, from the individual’s point of view, remember that a person will do their best work and be more successful if they are in a position that suits their unique skills, interests, aptitudes and preferences. A “square peg” employee trying to fit into a “round hole” job just because it’s a sure thing may never reach their personal potential and could spend a lifetime in unhappy employment. While I can completely understand a parent being disappointed if their child isn’t interested in the family business, it’s critical they realize that not every family member will want to join the family business and the last thing you want to do is put pressure on them to do so.

Assuming that every family member is cut out for the family business can cause problems in several ways. It may result in rushing a child into the job without allowing time for them to “distance” themselves by gaining outside experience, discovering their own desires, and disrupting longstanding family dynamics (like being seen as the “screw-up” or the “baby” or the “princess”). It can create pressure, guilt and resentment and foster a mentality that “the family will take care of me because I am entitled to this position no matter what I do.” And it may result in an under-qualified family member being promoted over highly-qualified “outsider” employees, which virtually guarantees resentment company-wide.

How do you avoid Mistake #3?

Establish clear guidelines governing family members entering the family business early on.

Encourage your children to work outside of the family business first.

Know your children’s strengths, interests and passions – and respect them.

Let your children communicate interest in joining the family business.

Find a position in the company where the family member can thrive, even if it’s low in the pecking order. This way, the individual can rack up successes, gaining the respect of nonfamily coworkers before advancing. This can be an effective solution to avoiding resentment that comes from promoting a family member over a non-family member who is more qualified for a position.

Mistake #4: An unwillingness to acknowledge and effectively deal with problems – especially “people problems”

I see this common mistake in all types of businesses and organizations, not just family-owned businesses. However, within family-owned businesses the relationships are more complex and the stakes are higher. This mistake happens when there is no objective standard (values & rules) for performance and behavior. Fear of confrontation or conflict can keep owners and employees in denial about problems, and sometimes this stems from the owner/parent’s feelings of guilt that they allowed a problem to go on too long or made parenting mistakes that cause them to feel that an employee problem is their fault so they have to live with it.

Another sensitive issue is the “Sacred Cow” in the business. “Grandpa founded the company and Great Uncle Joe is his brother, so we have to work around him.”  Businesses will not survive if energy and resources are spent on protecting non-productive people, especially in key positions. Here I caution that communication must be handled with respect, but the best interest of the business is the bottom line.

One father shared a story about his son who was always late for work and provided a bad example for other employees. He called him aside one day and said, “Son, as your boss, I have to tell you you’re fired, and as your father, I am sorry to learn you have just been fired.”

It’s worthwhile to invest resources into learning how to effectively confront and resolve difficult problems. Create a family council as a way to consistently and openly identify and address important issues and establish formal written guidelines for resolving conflict. If you don’t know where to start, hire a coach or a mediator to serve as an objective facilitator for this process.

Mistake #5:  An absence of open and effective communication

Of the 70% of businesses that fail to transition successfully to the second generation, 60% fail due to problems with communication and trust. 25% fail due to a lack of preparation from the next generation. 15% fail from all other issues (e.g. poor tax or financial planning, legal advice, etc.)

Therefore, roughly 85 percent of business transitions fail due to a lack of communication, trust or next generation competency. Source: Williams and Preisser, 2003

These statistics boil down to one essential truth that applies to every family owned business and every other business as well: Most problems can be solved when people are willing to honestly and objectively express concerns and respectfully work together to solve the problem. When a work group or a family set aside jealousy, subjectivity and defensiveness, great things can happen in the business and at home.

Live, Work and Relate Well!

Dr. Todd