Family businesses have been in existence for ages the world over. Do you know that some of the biggest companies in the world such as Wal-Mart, BMW, Tyson, and Ford are family-owned?
However, they come with their pros and cons depending on how it is managed as they can struggle with governance, leadership transitions, survival, and longevity.
While family businesses may be a major economic driver by creating jobs, improving Gross Domestic Products, GDP, and improving the standard of living or reducing the poverty level, only a mere 30% endure into a second generation, 12% last into a third generation, and just 3% make it to the fourth generation.
The failure rate of family businesses, especially in Nigeria, is high. According to data, 95 percent of family-owned businesses in Nigeria do not survive the third generation of ownership.
Infrastructure, taxation, government policies among others have over the years played a huge role in preventing the growth of family business in Nigeria.
A successful family business can turn out to be a priceless opportunity to build something remarkable, passing down shared values to upcoming generations. But if not managed properly, it can become a source of family feuds, internal conflicts and wounded egos within a short period of time.
So what are the secrets to a successful family-run business? Here are 7 of them.
1. Establish clear and regular methods of communication
Communication is essential for any relationship, whether it’s family or business. When entering into business with family, it’s never safe to assume that just because you are family, you can read each other’s minds. You might assume that your family members know you so well that you don’t need to discuss your expectations from them. But if you want your business to work, it’s vital that you stop assuming anything and start communicating clearly and openly, just as you would with someone who is not family.
It’s better to over-communicate and know exactly where you stand, rather than keep matters to yourself and assume the message is clear.
2. Set healthy boundaries
The most common hazard in a family business is emphasizing too much on “family” and not enough on “business.”
Setting healthy boundaries is however crucial to establishing and maintaining success. The best way to go about it is to institute and uphold a clear separation between family and business. In other words, keep family issues out of the boardroom, and keep work at the office.
Successfully separating personal and professional relations is one of the keys to success. Never let family disharmony tempt you into making unjust professional decisions.
3. Keep everything formal
Make sure every agreement or contract is formalized in a documented form. Disagreements are bound to happen in a business no matter how much you love each other.
Formalized contracts, share issuances, job descriptions, and operating procedures are actually more critical in family businesses, and relying only on voiced agreements opens doors for disasters and conflicts.
Entrepreneurs in a family business usually hesitate to take this step because it might appear as a lack of trust. But a formalized documented agreement for a business partnership is simply good business that will protect all involved parties.
To avoid any potential family conflicts, make sure that everything is in writing before you sign up for any project. These documents will navigate you through good and bad outcomes.
4. Practise good governance
Setting boundaries also extends to the governance of family-run companies. Good governance requires the involvement of leaders outside the family. This oversight—employed by leading family businesses worldwide—typically takes the shape of a professional, advisory, or supervisory board comprised of non-family members with a limited number of family representatives.
5. Treat family and staff equally
This is absolutely crucial to running a harmonious workplace, and ensuring work culture remains positive, for both staff and customers. Irrespective of whether they are family or not, all staff should be treated equally and with the same benefits ie. fair hours and rostering, holidays, etc.
6. Recruit from the outside
Just as it is crucial to establish governance with non-family members at the helm, it is essential to recruit outside your family for both staff and leadership positions. There is a world of talent out there. Successful family companies tap into this talent pool for skills and expertise family members don’t have. Resist the urge to provide “sympathy” jobs for family members.
7. Create a succession plan
Successful family businesses don’t just let the chips fall where they may. They plan for the future by creating family business succession plans long before they actually need them. They also identify talent in employees, both within and outside of the family, investing in them early on to ensure excellent leadership in the future.