According to the U.S. Census Bureau, family firms account for 90% of all business enterprises in North America, with 55 million in the United States alone. Family business contribute 57% of our GDP and employ 63% of our workforce, a whopping 98 million people in all.
Unfortunately, statistics for the longevity of these family-run businesses are not positive. Thirty percent of all family-owned businesses make the transition into the second generation, while only 12% are still around in the third, and a mere 3% of all family businesses survive into the fourth and beyond, despite family owners wanting them to.
Data on family business suggests that 8 out of 10 family businesses have no succession planning, which suggests that although families are eager for their business to continue, family owners are not willing or able to plan for it. This fact has continually intrigued me, so I have spent years talking to clients about it, trying to make sense of it. What I have concluded is that a family business evolving from one generation to another is often a thorny process, one that highlights differences. Differences that arise when the opinions and interests of the family system intersect with that of the business system, often blurring the boundaries between the two.
When these personal and professional interests collide, family leaders tend to focus on the differences with a preference for avoiding emotional conflict. Their concern is not unfounded. Disturbed relationships are difficult and emotionally costly to manage.
On the family side, relationships that have inevitable tensions are made more acute in the business setting -parent/offspring; siblings; spouses; gender;
second marriages and blended families; cousins; loyalty to past generations; and concerns of fairness.
On the business side, the usual challenges can be sharper and more difficult in the family context – leadership, advancement, compensation, growth, acquisitions, sale, and especially succession and planning for change. In spite of these inherent differences and, with this potential for conflict in family business, there are structured ways to think about and approach it. Differences can be a starting point for exploration and discussion, rather than conflict.
A willingness to address and deal with these differences is essential to the evolution of the enterprise, not to mention the well-being of the family. There are opportunities for synergy to emerge out of conflict, allowing for family and
business interests to blend productively.
After almost 30 years of working with family enterprises both large and small, I have seen examples of how when one person in a family is willing to set the stage for planning with the conviction that differences and conflict are predictable
processes in all human relationships, they can find ways to highlight the differences so that they can be addressed openly and successfully.
Below is a list of topics I have found helpful as a way to move forward in planning for the future of the family business and as a way to help reduce one’s anxiety when thinking about it.
From this list, number the issues you believe need to be discussed, starting with the easiest to talk about through to the most difficult. The geography of issues in family business is quite predictable, but the variations from family to family are unique and complex.
Take your time and think through each one. Take notes, being sure to capture facts as well as assumptions. These notes will serve as a point for structured/timed discussions and will serve as an outline for the approach to the challenge. When you have defined your thinking the next step would be to
approach family members/leaders who have defined their thinking. This is the beginning of a thoughtful dialogue and will begin the process for turning difference into opportunity. However, this is the start and perseverance and
thoughtfulness are required for a successful outcome.
• Employment in the business, including compensation, criteria for performance, compensation and governance.
• Intergenerational problems over leadership succession, advancement in the business, inheritance, power, and compensation.
• Sibling competition and rivalries over differential advancement, compensation, appreciation.
• Legacy and history, as both benefit and burden.
• Business development – the balance between directing profits into growth, reserves or dividends.
• Liquidity needs of family members at different stages of life — home purchases, health needs, funds for retirement.
• Information sharing – is there full access to information about the business? Is it easy or difficult? Do some branches of the family feel excluded?
• In-laws and extended family – Do spouses become owners and/or employees? How to deal with cousins (generally in the third generation)? What happens to shares of ownership stock and employment arrangements in the event of divorce, second marriages and blended families?