You Can’t Take the Family Out of Family Business

There is no perfect definition of a family business – especially in today’s world of the “modern family.” The classic definition is a business where a nuclear family has ownership control, management involvement and multi-generational participation. Hybrids are as common in the business world as they are on the road. Blended families, unmarried life partners, and co-habitation situations of all kinds are defined as family systems today. Regardless of the family structure, family dynamics play a critical role within the business environment. To ignore the family dynamic’s impact on the business would be akin to a diet without protein, a novel without a plot, or car without wheels.

In the beginning
family biz Segal iconThere are two ways that families become family businesses. They either start out that way, or they develop into a family enterprise over time.

After WWII, when the boys came home it was very common for siblings, or parent and child or children to form a business. The economic needs were present for the family and the economy was in war recovery. My grandfather, father and uncle started our family construction business that way as did many others. And many of those businesses are still around today 60-70 years old in third and fourth generations.

Families still form businesses together mostly for common economic gain and because they trust each other. But it’s more than that. They have similar values, ethics and common goals. A one for all and all for one, mentality exists. Business decisions are easy because it is survival for the family – period.

On the other hand, some family enterprises form over time. Some individual (or group) has a product or service to market and launches a business. Over time that company grows and needs some human capital. Often the owners look to the family system for that capital – mostly because of trust. Other times the founder wants to share their success with the next generation and they bring their children into the business. Unlike the first scenario, we often have a king or queen and their court.

Family dynamics
Regardless of how your family formed the business, or the family structure, your family’s dynamics are superimposed on the business system. In essence, how your family does business with each other will overflow to the company.

If your household ran as a monarchy, then the business is likely to do the same. If your family prioritized education, then expect your company to hire educated employees. If decisions were made around the dinner table after discussion, then expect lunch meetings for executive process.

Corporate cultures of family firms look very much like the family’s culture. It’s not good or bad – it just is! Identifying the family’s strength’s and turning them into company assets is the mission. Recognizing family liabilities and leaving them at home is also part of the mission.

Assets and liabilities
Determining what assets and liabilities the family brings to the business requires introspection and then action. Sometimes a family trait can be both an asset and a liability. Say, for example, the family believes in hard work and work-before-play. While that sounds like a great business culture, making Thanksgiving dinner a working event might not be in the family’s best interest.

Digging deep into just what the family brings to the business is a key to avoiding conflict. Things that work well in the family setting may not fare well in the business situation and vice versa. Owning a cherished family dog is wonderful, but bringing the dog to the office and expecting everyone there to share in care responsibilities isn’t a good business practice – unless you are in the pet business.

Discussions about family dynamics, culture and traditions need to take place within the family. Then, transferring those discussions into solid decisions about how those things should impact your company will be transformative. Daddy’s little girl probably shouldn’t call her father “Daddy” at the office.

On the other hand, recognizing how the family treats money (savers or spenders), values education, addresses loyalty or views risk are topics that are equally valuable at the board table as the kitchen table. And one of the beautiful things about a family business is that the family gets to merge the family and the business in a positive way! They can truly have the best of both worlds if they can identify the family “personality” and incorporate it into the business assets.

Human capital
How the family populates the business with human capital may be the relationship’s most critical issue. The entire gene pool may not belong as employees of the business. First, some family members may not want that kind of career. Second, some may not have the right stuff for the business. One thing is for sure, the whole family system will have an attitude on this subject. While cherry picking the best fruit for the business sounds like good practice, it may not work well for the individuals or the family at large. Individuals might desire other careers, while others may have always dreamed of running the family enterprise and been excluded. In-laws bring on a whole new dimension that we will save for another time.
In summary, regardless of how your business was formed, or what your family system looks like, the family dynamics, culture, traditions and collective personality will permeate the business. As a family business you should embrace that and make the family and the company better because of the relationship. You will best do that by having the necessary discussions around both the kitchen and board tables to forge the right connection. Having those conversations will eliminate future conflicts and add tremendous good will to your balance sheet.