Family-owned businesses are simply different from other businesses. Up to 90% of a family’s net worth can be tied up there. Family businesses also have two primary and often conflicting priorities – (a) the growth and survival of the business and family assets and (b) the maintenance and survival of family relationships. These conflicts often exacerbate when the economy is tough. This is because it is natural for people to become more conservative and other factors, such as individual short term and generational interests or individual responses to stress, become more salient. Thus, family businesses require even more effective management of both the business (the “head”) and the emotional (the “heart”) issues during such times.
It is typical and understandable for any investor, families included, to focus more on short term financials than on long term opportunities or preferences during tough times. However, absence of full consideration of the “heart” issues tied to a sale or liquidation event almost always involves an emotional loss of some sort and can disrupt family ties, even when there is a true “burning platform” (imminent failure of the entity, death of a significant owner, etc). In my opinion, it is more than likely the full problem is broader than the financial situation. Here are a few guidelines to help you get to the best solution for your investment.

1. Consider where your business is in its life cycle and whether family member/owners have the resources (talent, motivation, financial) and are prepared to go to the next step.

All businesses go through predictable life stages from birth (startup) to maturity to revival or decline. Each stage places different demands on leadership, systems, structure, etc., which family owners must agree to manage and invest in for the business to survive and grow. At each inflection point, the organization becomes inherently less familial as size increases.

For example, leader vision, creativity and drive are core to the start up stage. As growth occurs, leader ability to provide clear direction and control, to begin development of strong internal systems and to delegate responsibilities are musts . These require quite different leader attributes and, if they are not held in the family, others must be brought in and given authority and support to lead. When this occurs, family owners must be prepared to let go of personal control.

2. Consider where your family is in its generational ownership life cycle and how open/ready it is for change

While continuity of family ownership into future generations can be key to building significant family wealth, family businesses that go beyond the second or third generation are rare. This is because the dynamics among owners become exponentially more complex with the number of owners and the talent, motivation and commitment to the business and stakeholders may simply no longer exist in the same way.

The ability to gain and act on consensus about what to do next is a big “if” especially when economic times are tough and there are no clear answers to the problem. What people say they want and what they’re actually ready for are two very different states of being. For each individual, there is an inherent push against change if his/her perceived risk from change is greater than the dissatisfaction that is experienced from the current situation. As generations are added and the numbers of owners get larger, factions often appear or those that existed become more extreme and entrenched. And, as one perspective becomes more in or out of favor, the entire system shifts to maintain balance among relationships. How these shifts are handled can determine whether and how effectively the family business can be managed.

3. Understand what you want to accomplish and why

Each individual is likely to want to accomplish something beyond the financials through its ownership in the business. Common needs include a strong identity with the founder or the industry to influence inside the family to community influence to securing assets for children to ensuring a certain current lifestyle to being afraid of what might not be there if it ended to simple (or not so simple) sibling rivalry.

There may be some wrong choices in determining actions to take in family businesses to meet these multiple needs but there is rarely one right choice. As in life, it is usually about tradeoffs rather than absolutes. Understanding what family members want to do with their assets, whether or not some want to maintain a role in ownership or management, speed of transition and a host of other factors along with forces for or against tradeoffs are critical for a positive outcome.

4. Identify and honor the multiple “hats” and perspectives of owners

Each family member or investor plays multiple roles – those of owner, father, daughter, cousin, brother, manager, aunt, grandparent, neighbor, local citizen, etc. The lens through which each person filters information has much to do with his or her perspective at the time. Acknowledge your own hat and consider what you would be thinking or saying if you were wearing another hat.

5. Trust the process

Finally, take the necessary time to make the right choice for the family. While it is true that inaction is the same as action, it is not unusual for decisions, which might occur in a few months in another type of company, to take many months or years in a family business.

Seek outside assistance. It is common for family businesses to try to “do it on their own.” Yet, just as you wouldn’t try selling your business without the guidance of an investment banker, attorneys and accountants, other professionals can help you get to common ground. A well balanced board or advisory board containing some non family members who have expertise in important areas to provide feedback or working with a trained and objective facilitator who has expertise in organization and interpersonal dynamics and systems before committing to drastic moves can help you through the rough patches.

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