Bringing family into the business? Some practical principles for success

Bringing family into the business? Some practical principles for success

Many people have a rosetinted view of bringing family into their business. It can work well, but it can also fracture family relationships and have great employees tune-out of the business. Let’s look at some common pitfalls to avoid.

For most working relationships, we say goodnight at the end of the day, and good morning the next business day. In family businesses we might also be together at a birthday dinner that night, and a wedding on the weekend. Not all domestic arrangements survive. Family business relationships can be a source of strength, but they can also suffocate and sour relationships.

So, to the basics. When considering bringing a family member into the business can you answer each of these questions? As a family member considering joining the enterprise, can you also answer these questions?

• Can the business afford the cost? Too many family businesses rely on cheap family labour to prop up businesses that are no longer sustainable. Once in the business it’s hard to leave – I have heard people say, “I can’t leave, or my dad will lose his livelihood.” Ask yourself – “Would I employ someone to do this job?”

• Does the job have prospects? Are you bringing someone into the business to do a job or build a career? People have often joined a family business to fill a temporary need; years pass, and they find that they have added little to their competencies and capabilities. Ask yourself – “Would I take this job, and where would this job take me?”

• Am I creating a job for a family member that has other issues? – When a business owner brought a son into the business with substance abuse issues, staff felt unsafe and started leaving. Ask yourself “Will this issue be solved by working in the business?”

• What will the staff working within the business think? Sometimes there is an expectation that family will join the business; however, ambitious staff may leave, and talent may not consider joining if they see that to get ahead you need to be part of the clan. Ask yourself “Will this increase the talent pool?”

These questions highlight the views of the participants, but let’s look forward at the question from the perspective of building a business that has value, and that a family member will be a strength to join.

Principle One – Have a plan for the business, and stick to it

If your goal is to keep the business in the family, plan for it.

Statistically very few businesses make the transfer to the next generation; but a good plan will improve your odds.

A key to successful transfers between generations is that the business is actually worth transferring. Robust planning and engagement with family shareholders and stakeholders will help. At the core the business needs to be economically sound and growing. A business that supports one family may not be able to support two.

Be prepared to record all commitments, especially regarding shareholding, in writing.

Principle Two – Build the business on merit

Family may be able to do that job, but is it good for them and also good for the business?

Good plans enable clear goals and objectives to be set which can be measured. All staff should be held to account for delivery, including family members. Family businesses often have family members doing tasks of little value or being paid for doing nothing. The former is not good for the individual; the latter will build a corrosive culture. An attitude of entitlement will corrode family relationships.

Be clear about performance expectations, and also expect to be held account for decisions you make about the business.

Principle Three – Engage early with your family, focus on life skills

Talk about the business at home: what it does, why you think it’s successful. Discuss how you make decisions and ask their opinion or how they might approach a decision. Try not to tell; rather, listen and discuss issues with them. All too often children have no idea about what their parents do.

Having them do the most basic of jobs and do them well is a good guide to future performance. In every company, staff do things that are tough but make the organisation function: cleaning floors, packing goods, answering phones, following through on customer orders, keeping the network running, driving trucks. These are all good tests of perseverance, relationship building, and understanding cost and the value of money. Make sure they get some customer-facing experience, to test their people engagement skills.

This will also help a family member get a view of whether they like the industry, the current strategy of the business, and the culture within the firm. Be prepared for answers ranging from “I can do it, but it’s not me” through to “I want to join now”.

Principle Four – Find a way to talk safely about goals and expectations

Talk openly about expectations, not just yours but theirs. You may have always seen them in the business, but is that what they want? From the

business perspective is that what is needed? If they want to join – why? What will they bring to the business?

Work experience helps. Getting a job in another organisation can be transformational. It could be somewhere else in the same industry or in another industry. Working for someone else can build skills, experience, market, and commercial knowledge. Bringing larger corporate experience into a smaller business can facilitate faster growth and development. Advanced education can be very helpful.

Going and working in a pub in the UK on the understanding that there will always be a home in the family business may not be helpful – see Principle Two.

I have met too many people who have felt trapped in a family business. Often overpaid, they are unable to leave without a drop in lifestyle. They may become resentful as well as being an unneeded cost to the business.

Finally, be prepared to talk about your expectations, the most common of which will be how long you intend to stay in the business. Prince Charles has been a heartbeat away from a job for 71 years - but then, he is working for a monopoly.

Principle Five – It doesn’t always work

Have an agreed way to exit if it doesn’t work. Agree a trial period. “Let’s review this in two years,” is a good way to start.

Trusted advisor

A really useful support in these circumstances is an advisor to the family business. Someone who knows the business well and who can be a wise head for family to talk to. This person needs to be a great listener, with excellent people skills, a knowledge of the business, and an understanding of planning. Most of all, they need to be trusted. They rarely tell people what to do; rather they ask questions to enable the players to work things out themselves.