Family Businesses: Nightmare or best kept business secret!

By Dave Busse

The Bias Against Family-Run Businesses…

During my MBA program a few years back (ok quite a few years ago) I remember various times that the topic of the family-run business coming up. It was pretty much unanimously described as a nightmare waiting to happen and something to be avoided at all costs. The underlying opinion I built up was that family business was a recipe for disaster.

The Reality…

This contrasts diametrically with many of the “best practices case studies” we studied later in the MBA program. At that point we began to read about unusually successful family businesses (Walmart, Volkswagen, Samsung etc.) that appeared to defy the odds if you accepted the earlier wisdom of the inevitable demise and futility of family businesses.

These case studies weren’t selected because they were family businesses they were selected because of their successes. There just happened to be a number of them that were family-run. Hmmm…was this just happenstance?

My Awakening…

In my naiveté, I simply accepted that it was an anomaly and continued on until years later as I started developing my practice as a leadership coach. Again the apparent anomaly of the family business emerged. I was running into more of them than I thought was statistically probable (ROGERS, Earls and JOEY Restaurants, Shane Homes, Solid Rock Steel to name a few)…and they were all very successful businesses. How likely was it that I had just accidentally run across them?

A little further research at this point seemed worth while and some interesting statistics started to emerge. Stats on small business are all over the place, but just as a starting point in reflecting on the issues of family business, I pulled these stats.

Life expectancy of small businesses was dramatically different, from 10 years for businesses in general to 24 years for family-run businesses.

The difference was even bigger when it came to the the ability of the company to successfully plan and execute on succession strategies. Small businesses, in general, have a successful transition somewhere around 15% of the time. Family-run businesses pass on to other family members 40% of the time, according to one site I visited.

The Family Disaster Myth Is Alive and Well, Even Inside the Family Business…

Almost universally, the non-family people involved in these family companies lament the “family issues” they have to “work around” or deal with. What has been interesting to me, is the “family issues” often appear in non-family-run companies, except there it’s just called dysfunctional or conflict.

The difference I’ve experienced (whether it is family run or not) is the ability to have the tough conversation effectively with someone that isn’t performing (or behaving) in the way the company needs. It is the most common issue I run into in any company! The only difference in family-run businesses is that the parties involved in the problem often assume it would have been resolved if the two parties involved weren’t family. Interesting assumption!

The Secrets to Success for family-run businesses

I began wondering what the secrets of family-run businesses were that led to these above average results. After thinking and researching, there are three factors that I identified.

Secret Benefit #1 – Generational Benefits

The typical articles on the strengths of family business talk about the generational knowledge management and stronger corporate cultures. One report by KPMG related the potential differences between generations as being a key to family successes.

Founders tend to be risk takers and over 50% of the next generation tend to be defenders (systems people who bring in strong business systems). When handled well that transition can be profoundly timely for a company.

Secret Benefit #2 – Extreme Mentoring

What I have witnessed as a coach is the amount of mentoring (intentional or unintentional) that occurs from a very young age with children of business founders. Children in a family business are often exposed to business thinking very early in their lives. They are frequently at the dinner table when business discussion occurs between their parents or with business friends that are visiting.

They learn the language of business and the values and attitudes that are required for success in business. They have lived the culture of the business and have perhaps been the reason for why some business practices have been developed.

Even if a business founder isn’t trained in learning and development, it is easier to understand the importance of developing people as a business strategy when it is your family you are responsible for. For some business leaders allowing for mistakes and learning from them is easier to accept when it is their children making the mistakes.

I didn’t grow up in a business family so my early learning in the business world was far more costly. The opportunities to have a business discussion were hard earned in the early days of our business and then became much more frequent as our business grew. With that came more opportunities to expose our now adult children to what we were learning and to business discussions and as importantly the people in those discussions.

Secret Benefit #3 – Tough Conversations

Tough conversations may be happening more often in family-run businesses than in non-family businesses. It might be ugly and it might be more public than we are comfortable with, but my sense is they happen, and often more urgently than if it is a staff member.

In a recent discussion with Ryan Konoff, the CEO of Clearbridge, he mentioned that he has occasionally wondered what it would be like to go into business with his brother. His first thought was, “wow we could never let an issue go until the problem had been completely torn apart.” He paused and then continued, “that could be a nightmare or the biggest competitive advantage ever!”

The last part of this statement appeared to scare Ryan a bit. My thought was, “wow…how exciting would that be and I agree the intensity might be a little daunting!”

One final challenge to the myth of family businesses being disastrous has been how much I have enjoyed being in business with my wife. I have also come to value the opportunity to share that experience with my children. I hope it sets them up to succeed in whatever direction they live their lives!

What has been your experience of coaching or working within a family-run business?

About the Author
Dave Busse Dave Busse is a partner at Essential Impact, an award winning leadership coaching company.  Along with his EI team, Dave has helped hundreds of companies in a wide variety of industries implement coaching for specific changes in organizational culture.

He holds an MBA from Royal Roads University and is an Associate Faculty in the Certified Executive Coaching program, also at RRU.
2018-02-08T07:42:11-08:00February 13th, 2018|