How do you run a business with family? When starting a business, hiring your wife, siblings and/or children is usually the most affordable and reliable option. However, as a business grows, and more family members are brought on board, problems often arise. How those conflicts are dealt with will determine whether your business will survive to the next generation or fail in this one.
According to the Family Firm Institute, 70 percent of all family-owned businesses will not survive into the second generation. That percentage drops to less than half for the third, with only 3 percent making it to the fourth generation and beyond. Despite the grim statistics, there are steps you can take to ensure the viability of your business in this lifetime and the next.
While it may be a family business, it’s still a business and should be run as such. “Families tend to have unspoken assumptions coming into a family business,” explains Jane B. Zalman, principal of Zalman Family Solutions, a New York-based consulting firm dedicated to resolving disputes within family businesses. “Expectations are not made clear when it comes to what a job is, what’s expected, payscale, etc. There needs to be some formality to your business.”
Laying the ground rules is a critical first step. And it’s important to put them in writing. Drafting a mission statement, establishing an organizational structure, creating job descriptions, formalizing compensation, writing an employee handbook, as well as conducting annual performance reviews: These steps will help ensure your employees know what’s expected of them, how they’re measuring up, and ways they can improve their performance—no matter what their relationship to you, the owner.
Treat all employees fairly—no favorites, no grudges
Having a defined structure and set of procedures creates an environment of fair play, as all employees—family or not—will know the rules and the consequences for not following them. Also, there is less perception of favoritism if criteria for hiring and promotions are performance based. Widen the circle of trust by hiring a manager or key executive from the outside the family. But as Zalman points out, “you need to be explicit about career path limits when hiring nonfamily members.”
“Family tends to have an inward focus,” says Zalman. “But business needs to focus outward.” A business preoccupied with internal strife often fails to recognize changes in the economic environment or encroaching competition.
Put family drama aside and listen
Management style is also a determining factor in the success or failure of any business. Ruling with an iron fist breeds resentment among family members and leads to high turnover, particular among non-family employees not wanting to get caught up in family feuds. A better technique is to listen.
“When other people feel you’re interested in them, it creates a reflex in them to want to listen to you,” explains Dr. Mark Goulston, psychiatrist, consultant, business coach, and author of “Just Listen.” “If you’re perceived as controlling, one of the best things you can say is that ‘I need your help.’ This will disarm them rather than making them defensive. You will get more motivational follow-through making a request versus a demand. ”
Learning to listen will also help you communicate more clearly and decisively to your employees. “What can seem clear and second nature to the founder, can be confusing to others,” says Dr. Goulston. “Without clarity of expectations of results, people tend to often work hard doing the wrong things. You need to be clear and specific and ask employees what they understand about what you're asking of them and why it’s important.”
As long as members can put ego aside for the greater good, then a family business can thrive. Family businesses tend to be more forward looking in their investments and less laden with debt than their nonfamily counterparts. There are also tax benefits to hiring certain family members. “People inside a business often have a better understanding of the business than outsiders,” Goulston notes. “There are many parts of a business that can’t be put into words or metrics, but are critical to its success.”
New generation, new horizons
One example of a well-run family business is Frank Pepe Pizzeria Napoletana, established in 1925 on Wooster Street in New Haven, Connecticut by Frank Pepe, an Italian immigrant who used his skills as a baker to create a business that provided for his immediate and extended family.
In the late 1970s, Frank’s daughters Elizabeth and Serafina, purchased the original bakery and re-opened Frank Pepe’s the Spot as an annex to the main building In the 1990s, they passed the business to their children (ownership was split evenly among the eight grandchildren).
About eight years ago, the grandchildren, now all in their 40s and 50s, decided they wanted to expand the scope of their grandfather’s legacy. “It was not an easy decision,” says third-generation owner Jennifer Kelly. “There were a lot of unknowns.” To do it, they established an LLC-structured development company thanks to the help of a frequent customer and local businessman. Since then, they’ve opened five different locations, including one at Mohegan Sun Casino in southeastern Connecticut.
“The team at the development company helped us bring my grandfather’s vision to a whole new set of customers,” notes Kelly. Each restaurant contains replicas of the menu as well as the coal-fired ovens at the Wooster Street locations and the recipes have not changed. The new locations are also within driving distance in case problems arise.
“Certain family members can dig in their heels, and others see different ways of doing things, but we always listen to each other and treat one another with respect,” Kelly points out. “You have to learn to overcome ego or your business will die.” In a family business, there will always be disagreements. The key is not to let family dynamics get in the way of running the business.
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