Top traits of a successful family business

April 4, 2014

 

When the topic of family business comes up, people often ask, “Why should I care about family businesses?” The common assumption is that family businesses are small “mom and pop” operations run out of a spare bedroom. The reality is much different.

The Family Firm Institute reports that more than 80 percent of all businesses are family owned or controlled. That number does include many small businesses. However, the largest corporation in the world is a family business (Wal-Mart).

Most of America’s wealth lies in family businesses. A third of the S&P 500 are family owned or controlled businesses. Family businesses dominate in almost every industry. More than likely, most of your customers have a connection to a family business.

For those of you who are part of a family business, let’s hope the following traits will look familiar and you have already made them part of your strategy. If you are not part of a family business, this is a great opportunity to see how family firms (which last an average of 78 years) remain successful from one generation to the next. In the process you might also better understand one of your largest client segments.

In working with family companies for 20 years, I’ve identified 10 traits that I have consistently seen in successful family (and non-family) businesses. These companies don’t just provide lip service to these values but actually make them an intrinsic part of their culture, thus ensuring continued success. This month we’ll examine the first five:

Clear vision
Successful businesses have a clear and shared vision of where they are going. The family knows where it wants to be in five or 10 years. It is important that everyone in the family understands this vision and the direction of the company.

Family constitution
A constitution clearly outlines what is important to the family, the rules of how it will operate, and how it will be successful for generations to come. This document outlines values, policies and aspirations. It is created by everyone in the family and recognizes that the family and business are intertwined. Finally, the family constitution describes the process and product that the family desires.

Clear communication
The No. 1 cause for disharmony in a business (family or not) is poor communication. Successful family businesses understand that clear communication is critical to their success but they also realize that open communication (encouraging family and management to get issues on the table and not let them simmer) is also important.

Develop the next generation
Every organization should continually work on developing its next generation of leadership, and with family businesses it is literally the next generation. Successful families are always looking for the diamonds in the rough: individuals who are passionate, willing to work hard, and show a sense of focus and direction. The job is to engage them and help them develop a career path built on their own passions.

If a daughter or nephew is interested in the law, maybe a future family attorney is in the cards. The important thing is that the skills and aptitude that are a necessity to the business are identified within the next generation and the family is committed to the success of these future leaders within the business.

Employment policy
Employment in the family business is not a right but a privilege. Many relatives enter the family business because it is available, flexible, and easy (to get hired and stay employed). Successful family firms have employment policies that state who can enter the business, what education and experience they must have, at what level of the business they will enter and what their compensation will be based on industry comparisons rather than position in the family.

An example would be: to enter our business, family members will apply for an existing open position and must have a college degree with three years of experience within the industry at another firm. During employment elsewhere they will have received at least two promotions. Where feasible family members report to non-family members.

Family businesses are the lifeblood of our economy. When they are doing well, the economy is doing well. Likewise, working with the ones you love on a daily basis to build financial security and leave a legacy in your community is one of life’s greatest joys.

Unfortunately, when things are not going well in a family business there is so much more at stake than quitting a job or firing an employee. I have seen brothers who were incredibly close sever their relationship because of business disagreements. I have also seen families withhold the grandchildren as a form of punishment to the senior generation.

Healthy family firms create a clear vision, have a strategy in how they are going to operate and then openly communicate that plan throughout the family and business.

Join me next month when we discuss traits 6-10. Until next time, make it a great day towards your best year ever!

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