How to navigate the challenges of a family business

The competitive advantage of a family-owned business

Many of the world’s highest-grossing companies are owned by families. You could probably name some of them—Walmart and Ford are two obvious examples. Others might surprise you, like Nike and Comcast. 

Family-owned businesses make up a massive proportion of the new businesses launched every year, and for good reason. When you run a family business, you get to work with people you know and care about. And your reach as a company is deep and broad—you can serve as a pillar for your local community, while also building a financial legacy for retirement and future generations. These factors all work together to promote a positive business identity and a reputation of trust that the public gravitates toward, giving you a leg up on the competition. 

Where's the challenge in a family business?

What sets a family business apart—its relationships—is the very thing that can drag it down. Relationships are messy, and whatever tensions you experience at home—with your spouse, sibling, parents or kids—tend to be magnified at work unless you take steps to mitigate the crossover. And when financial and medical crises hit your family, the blow is often felt in the business, and vice versa. 

It’s also common for family businesses to lack a unified vision and organizational structure. Without directed communication and strategy, your business will experience a lack of alignment, structure and boundaries that can cut into your profitability and make the workplace uncomfortable for you and your employees—and they may eventually cause your business to fail altogether. Here are three ways to start creating clarity and agreement with your family partners.

1. Create a unified picture of the business you want

Picture your business 50 years down the road. Are you still steering the ship? Is Cousin Mary still running HR? If retirement is part of your plan, but you can’t imagine your business functioning without you—or without any other specific members of your team—chances are your company will fizzle out as soon as you lose the steam it takes to run it.

To create a legacy business that will last for generations, you and your family partners need to develop a common picture of the business you want—and a clear understanding of the business you already have. Getting a firm grasp on what separates your current reality from your ideal future will help you start building a bridge between the two, together.

This is an exercise that should both excite and challenge you. Let yourself daydream—and then put pen to paper. Imagine what your business could look like for future generations, and then work with your family partners to create the actionable steps it’ll take to get there.

2. Develop a strong organizational structure

Much of the conflict we see in family-run businesses comes from a lack of healthy work boundaries. But as with the vision you’ve drawn out for the future, you can fix this through careful planning and documentation.

One of the most effective tools for promoting boundaries and productive work relationships is an organization chart, which maps out the relationship between each position in your company—including the ones that you and your family partners hold—as well as each position’s roles and responsibilities.

Every company should have an org chart. But they’re especially crucial for family-run businesses, where titles are often handed out without considering someone’s relevant experience—or sometimes overlooked altogether. And because org charts are designed to document positions instead of the people who hold them, this process may open your eyes to inefficiencies in your existing structure. 

This was the case for a client of ours, a husband and wife who’d struggled for years with the division of duties and roles they each felt obligated to fulfill in their business. During coaching, it became clear that the wife was perfectly suited for the role of CEO, while her husband, the actual CEO, was more interested in managing business development. Seeing this, they restructured their org chart and their own positions to match their individual strengths, skill sets and personal desires. The result? A flourishing business and a happier, more fulfilled couple.

These conversations can be difficult, and egos sometimes get in the way. In the case of another client, a father-son partnership, the son served as CEO and his father held the title of sales manager—but it was obvious to everyone that the father called all the shots. This created a lot of friction within a promising business. A large part of the issue was that communication between the two was not as open and frank as it needed to be.

We see this often in family-run companies, and the business inevitably suffers as a result. But when you step back and examine your company’s roles and reporting structure objectively, you can place less emphasis on fixing personal issues and more on improving efficiency for the business. Framed in the context of creating the best company possible—a goal your entire team should share—you can drive realignment by logic, not ego, which will help reduce any resentment and confusion that may be standing in the way of success.

3. Agree to a compensation plan that satisfies everyone

Money’s often tight for young businesses, and we frequently see owners subsisting on whatever’s left over after expenses are paid out. This problem gets even more complicated when family is thrown into the mix. Transparent discussions surrounding the compensation of each member of the joint-owned company are rare—especially in those early stages. 

The key to avoiding conflict here is conversation. Don’t make assumptions about who should be paid what—and don’t assume everyone has the same expectations. If you want to keep money from becoming a flashpoint within your family, you need to have a specific conversation regarding compensation with every family member who’s involved with and paid by the business. With a shared picture of the business you want, plan for who’s going to do what work and how much they’ll earn—now and as you hit new revenue milestones—and work back from there so that everyone has clear expectations.

By unifying your family around the company you want to design, who handles what work and how everyone is compensated, you’ll build stronger relationships while also growing a company that runs your way—now and into the future.

If you need help addressing some of the unique challenges within your family business, reach out to us.