Most Family Businesses are a Total Mess

Here are some things you can do to manage, or completely avoid, the most common, and often toxic, family business challenges.

I have dealt with hundreds of companies over the 15 years that Jack Mencini and I have been coaching owners of small businesses.

Our experience has been that over 80 percent of family businesses are a total mess. By mess, I mean that family dynamics and those relationships are taking precedence over the needs of the business. When a family business is running well it is usually based on the philosophy of a meritocracy where people are rewarded based on their performance and abilities vs. their family name or relationship to the owners.

Many family businesses achieve a relatively high level of success almost in spite of themselves and these dynamics. Countless small business owners start out hiring for trust and likability and not necessarily for skills and experience. There is not a lot of objectivity when you are dealing with relatives and friends. The few outsiders who are hired also often evolve into relationships to the point where they become almost like family. It then becomes tough to manage the company objectively.

A big factor for why so many small businesses fail within the first five years is that they listen to well-intentioned friends and family who really don’t have the skills and perspective to give sound business advice. New owners don’t know what they don’t know and often feel very comfortable hiring and consulting with relatives and close friends. But when objectivity and decision-making are clouded by nepotism and friendship, the business usually gets muddled up.

Few things are more toxic and limiting for a business and its growth than being saddled with a bunch of family members and friends who don’t have what it takes to help the business go where the owner would like to take it. As business coaches, we have advised several clients to simply pay the ill-fitted family member not to come to work. In the long run (and often the short-run), it is better for the company and for the others involved with working at the business for the owner to pay these relatives a salary to simply stay away!

On the flip side, these family members and friends are not necessarily in an enviable position. It is assumed that the only reason this family member or friend works for the company is because of their relationship with the owner. I mean let’s face it, if you’re having beers after work or eating Thanksgiving dinner with the boss you have access to the owner that other employees don’t enjoy! It can cause some internal strife and stress. It is nearly impossible for you as the owner to be truly objective and make the hard decisions when the relationships are all tangled together within family and friends.

Heading Off Family Business Challenges

Here are some things you can do whether you’re thinking about bringing some family or friends into your business or if they are already there:

Let them get experience working for someone else, ideally that means they will have experience working for a different company. If not, be sure that they don’t report directly to you as the owner, but instead to a different manager. And don’t let them go around the manager to you if they are having an issue. Respect the chain of command in your company and treat that relative or friend like you would any other employee.

Institute and follow a hiring process. If the only candidate you interview or consider for a job is your friend or family member, then your team will assume that the only reason they were hired is because of that relationship. If the friend or family member was one of the many people considered and interviewed for a specific role, then your team will see that they were the best choice for the job and have the required skills and experience and not just the right name or relationship with you.

If you have multiple kids in the business, make sure you’ve spoken with them together so they each know their respective roles and your intentions for the future. If you are grooming one or more of them to take over the business some day, let them know that up front. Let the rest of your team know that as well so that everyone is on the same page vs. having them guess or assume things that most likely aren’t true. The worst thing for the business is to have kids who feel “entitled” to take over the business when they have no idea what it takes to run the business well. This is a guaranteed recipe for chasing away your best employees.

Always do what’s best for the business. As simple as this might sound, we find many business owners doing what is the path of least resistance or what is best for them in the short term. For instance, they may avoid a difficult discussion with their spouse about a child who isn’t performing in order to avoid having to sleep on the couch for the next week. Our advice would be to make sure you get a comfortable pillow and some blankets!

Few things can be more satisfying than a well-run family business that includes a successful transition to the next generation. I’ve seen this first-hand with my brother taking over for my parents. In addition to my brother getting a decade of experience elsewhere, one of the keys with their successful transition was that they had many of these difficult conversations up front and they had help along the way from a couple of pretty good business coaches. The coaching helped my brother understand what it takes to be the one running the business vs. simply working for the business and also helped my parents know how to transition the day-to-day responsibilities in a way that was digestible for my brother.

In short, he was set up for success!

Disagreement Photo via Shutterstock

Adam Sonnhalter Adam Sonnhalter is the co-owner of Maximum Value Partners providing coaching and direction for the profitability and sustainability of small businesses. He is also co-host with Jack Mencini on the weekly radio show/podcast Dirty Secrets of Small Business® that debunks the common myths of business ownership, exposes the impact of government regulations and shares small business success stories.