5 Issues Endangering Your Family Business

It’s no secret that family businesses have the odds stacked against them. According to research by the Family Business Institute, only about 30% of family businesses continue into the second generation. This figure continues to degrade: less than 3% survive to the fourth generation and beyond. However, an awareness of the unique issues facing family businesses can help keep these businesses stay afloat — and within the family.

1. Failure to Plan

Succession planning is key to the long-term success of any company, but many family businesses don’t have a plan in place. A 2014 PWC survey of over 2,400 family businesses in over 40 countries found that only 16% of businesses “have a discussed and documented succession plan in place.” It’s often difficult for family entrepreneurs to consider their companies without them at the helm, but it’s this fear that leaves the company vulnerable as the family is left in the lurch, scrambling to organize new leadership.

2. Resistance to Change

Family businesses are often steeped in tradition — which isn’t a bad thing, but can sometimes lead to a dangerous aversion to change. “A lot of today’s CEOs are baby boomers who have built their businesses over the course of 20 or 30 years without any technology at all,” says Jordan Spivack, a private companies specialist at Axial who previously worked alongside his brother and father at a family-owned home furnishings importer. “They’ve done well without technology, and that’s made them reluctant to adopt new ways of doing business.”

Resisting change can lead to a stagnation that has family businesses struggling to maintain relevance in a rapidly changing marketplace. Family businesses that beat the odds, like Herr’s Potato Chips, Mars Candy, and, of course, Wal-Mart, are constantly changing to meet the demands of the changing world around them.

3. Guaranteed Employment for Family Members

It can be easy for family businesses to become the default place of employment for family members, but it’s important to remember that family members shouldn’t be guaranteed jobs just by nature of being family. As with any other employee, family members should, first and foremost, be able to perform in the position for which they’ve been hired.

Underperforming employees hurt the profits of the business and can foster resentment between family employees and non-family employees, who may feel that family members get a pass to slack off where others don’t. Lack of experience can also cause tension. Family members may feel like the heir apparent — after all, their name is on the door — and try to exert influence over non-family employees with decades of experience on the job.

4. Lack of Formal Businesses Practices

PWC’s survey found that younger family businesses often fail to have formal business processes in place, something that prevents effective growth as the company moves through successive generations in the family. This informality is acceptable in the early days of a company; indeed, flexibility may even help a young company’s growth. However, as a family business changes hands, structure is deeply important in allowing things to run smoothly. Developing IT best practices, having a structured plan for how to attract and retain talent, and having clear career advancement paths are key for growth.

5. Blurred Lines between the Family and the Business

This relates to number four, in that it pertains to having a clear hierarchy within the business. But the salience of this particular point cannot be over-emphasized.

In order for a family business to survive against the odds, business relationships and family dynamics absolutely must be separate. “It becomes very complicated mixing business with family,” says Spivack. “Having family and business intertwined can definitely put a strain on relationships. Sometimes, your relationships with family members become almost exclusively business relationships — you’re not necessarily talking about what goes on outside your job. You’re just talking about the business.”

Furthermore, blurring professional and personal relationships with family members can cause issues that affect family relationships. Family relationships are based on blood and marriage; professional relationships should always be based on talent, skill, and capability. The head of the family may not be the head of the business, and it’s important that this is recognized and respected in the workplace.