Family businesses start with the highest of hopes and the best of intentions. But family can be a little complicated, to say the least. It takes planning and preparation to make sure that no business destroys the family at its heart.
Family businesses form a significant number of American businesses, of all sizes, and tend to promote socially beneficial business practices. According to statistics compiled by the Conway Center for Family Business, family businesses comprise 35% of Fortune 500 companies, and account for 64% of all U.S. gross domestic product and 62% of the country’s employment. They also have a higher percentage of women in executive roles and tend to embrace social responsibility, put customers and employees first, and focus on the next generation rather than just the next quarter.
With the stakes being high—conflict and problems tainting not just a business relationship, but a family system—it’s critically important to infuse every family business with careful consideration and best practices. We interviewed RISBDC Growth Hub Director Paul Harden, whose father succeeded his grandfather in a family business, and Gerbs Allergy Friendly Foods CFO Sennen Conte, who co-owns the business with his brother, for their advice on smooth operations and seamless transitions.
With Harden’s caveat that “It’s a complicated issue,” here are eight tips for harmony in a family business.
1. Don’t expect children to follow in your footsteps.
“Obligation” is a poor long-term motivator. It ensures low career satisfaction and can’t help but bleed into a parent-child relationship. Also, Harden reminds, “Just because [kids] work there for a summer in high school doesn’t mean that they want to be there for the rest of their lives.”
Encourage children to work at different jobs, even in different fields. Harden also suggests having children work for a competitor first—this can give them broader exposure to the industry outside of the watchful eye of a parent, and if they return to the family business they will have a much broader knowledge of the industry and new ideas that can enrich it.
In the end, support and encourage them in whatever field or endeavor they choose.
2. Define and honor shared values.
The most solid foundation for any business co-ownership is to identify and codify the shared values that underpin the venture. This is important at every level: from the problems a business is created to solve, to the way employees and customers are treated.
“One thing [my brother] and I believe in is treating our guys the best we can,” reports Conte. “My brother and I… have arguments, but we have a building block of love, trust, and understanding. Most of all we love what we do; we love our guys and our customers. We accept the hard work involved.” They share a passion for providing a niche product that relieves stress in their customers’ lives. “During our darkest of days, it’s what drives us and keeps us moving forward.”
Keeping shared values at the forefront of all business decisions can help pave a way forward through disagreements and difficult choices.
3. Manage different management styles.
Whether in a succession or co-ownership, differing management styles can thwart the best business plans.
Harden recalls stories of his father having to mediate the effects of his grandfather’s shoot-from-the-hip management style—including multiple instances of having to rehire employees that his father fired impulsively. The stress of trying to bring a deliberate, considered management style into an unpredictable environment originally caused his father to walk away from the business entirely for years.
Undertake an honest, nonjudgmental appraisal of each stakeholder’s style and its pros and cons. Consider whether an appropriate division of labor and management can be realistically achieved, and make sure each family member gets to perform in a role where their natural tendencies shine.
4. Define clear roles and responsibilities.
Setting clear expectations for what falls under each member’s purview is critical. Job titles and descriptions should explicitly spell out what tasks, operations, and departments each family member is responsible for. Especially in the case where multiple family members will be working directly with employees, says Conte, “There can only be one supervisor, or it gets way too complicated for [employees].”
Negotiate a contract that clearly outlines how family members will divide labor and be compensated. Harden’s father eventually negotiated his return as president of the business during a succession phase, outlining everything from the grandfather’s role in the business, to his use of an office at the company, to voting rights on the stock, and conceding that the grandfather would be allowed to use company profits to fund a farm (that was losing money) for the remainder of his life.
Once those roles and responsibilities are set, avoid micromanaging. Let children have their own failures—and successes.
5. Don’t hold children to different standards.
Particularly in the case of a child working in a parent’s business, ensure that children of the boss are held to the same standards as all other employees. This works in both directions. While many bosses expect far more from their progeny, in terms of longer hours and increased productivity, there are anecdotal tales of bosses who allow their children to get away with doing little more than filling an office, or who promote their children more readily than outside employees who have earned the next step. These practices can cause rifts not only within families, but between family employees and their coworkers.
6. Compensate and bestow fairly—not equally.
It’s tempting, in a family business, to divide compensation equally among family members, or to leave a business equally to children upon succession. But this arrangement doesn’t take into account the very real probability that effort, talent, interest, and dedication are not naturally equally distributed.
Harden recalls two cousins in England to whom his uncle, their father, left equal shares of a commercial roofing contracting business. One cousin became president, while the other does nothing more than attend board meetings—yet still takes half of the profits every year, constraining how much the business can grow. While the uncle was striving to be “fair,” he set his children up for a situation that feels anything but.
Tying compensation and ownership to business involvement is more complicated to set up in the short term, but pays dividends in family harmony for the long run, and teaches valuable lessons to children.
7. Map out a clear plan of succession.
“Hoping that it all works out” is not a spectacular succession plan. After years spent building a successful business, make sure to plan clearly, carefully, and far in advance, for a realistic plan of succession. Is there a family member who wants to succeed, and is capable of doing so? Transfer the responsibility in a defined way over an extended period of time. Are multiple family members angling for the business? Have hard, honest conversations, focused on the overarching values of the business, about what roles are possible and what decisions will be made.
According to the Family Business Alliance, only 30% of all family-owned businesses make the transition into the second generation. 12% will transfer into the third generation, and only 3% of businesses continue to the fourth generation or beyond. The ones that survive in the family don’t happen by accident—they take strong planning and intentional leadership with the future in mind.
8. Remember that you’re family.
This may be the hardest thing: finding time to just be a family. Time when work talk, office gossip, and sales numbers don’t dominate conversation. When delight can be found in making new memories and reminiscing about old ones. When business can wait.
For many small business owners, “setting business aside” is challenge enough. When social life includes work partners, it’s even harder—but the stakes are even higher.
Conte reminds family business owners of the importance of keeping an eye on the forest instead of the trees. At the end of the day, no family relationship is worth throwing away for the sake of business. Whether in a business of two, or thousands, keep coming back to the shared values—and the sense of connection and identity—that inspired the business in the first place.