Family Business – blood IS thicker than water but is that always a good thing?

I have been involved in several small and start up ventures. Some with new or “un-related” partners, some with “friends” and others with family members. I have never, up until this point, thought to compare the relative benefits and challenges of the various constructs. It is tricky enough to start and run any new venture – capital, investment, running costs, salaries, skills , responsibilities, roles, authority, workload, location, strategy etc – but at the end of the day, working effectively with any business partners seems to me to be the essence of all operations.

My extensive time in corporate world presented few of these challenges. Everyone has a defined role with understood responsibilities, rewards and (usually) measurements and feedback systems. Additionally, despite any relative success and failure, in this world the company always owns the job, you as an individual only own your own skills. This introduces levels of detachment that small business, including family operations, are not usually able to offer. Also, even if we hold a position of authority and responsibility, we can effectively go home and switch off. There are resources for each and every activity and a relative detachment from the actual day-to-day finances. Many smaller businesses do not have such extensive procedures and protections in place. They typically limit the “who does what” to informal agreement and understanding. This allows for greater flexibility but can, if not managed effectively, lead to cross-over of activity, decision-making issues and potential rewards disputes. So, given the extensive history of family business and the vast number of family businesses that thrive in the UK, what, if anything, does family business offer that non-family ventures are unable to exploit and can these ventures learn anything from non-family structures and operations?

There are undoubtedly a myriad of specific areas where corporate business is “different” from the smaller concern but I wish to concentrate on what I consider to be some key topics here, most of which concern the “human” element. Assuming that all of the necessary business structure documents have been completed (LLP, partnership, private ltd company etc) where and why can a family business learn or indeed offer lessons?

Structure
Many structures abound but in corporate world roles, titles and responsibilities are clearly defined up front encouraging specialisation and expertise. Many smaller businesses and particularly family affairs leave this expressed structure as implied. This can lead to issues, particularly if the ownership of shares and profits is not also as equally defined.

Authority
Just who is boss? The appointed final decision maker may simply follow the “rules” of sibling-dom – this may not be the best or most effective policy. Just because a sibling (or even parent) is “older and wiser” does not necessarily mean that they are best placed to make all the final decisions.

Skills
Corporates spend immense amounts on seeking the right person for the right role. Family business has an extremely restricted talent pool. You kind of get what you have. Ensuring that the best allocation of duties and roles is critical to success which may not always be an easy task – telling big brother or Dad that you know more or can do better may not go down so well!

Responsibility
In corporate business, everyone should know the exact level and scope of their responsibilities. In a family business there can be a tendancy to blur the lines. This encourages knowledge-spreading and reduces the chance of “silo management”.

Representation
One family member can ostensibly offer the same “face” of the business as any other – the assumption being that one represents all whereas in other businesses there usually exists an understanding and acceptance that sales sell, marketers market, managers manage and directors direct.

Rewards
Again, family business can blur the lines – if the youngest of the family is assumed to be the least experienced and is expected to “defer” then there is the danger that their rewards (shares, revenue, bonus etc) may reflect this as the “natural order” of things. In corporate world, this correlation between age/experience and rewards are very much less defined. Young, talented IT or marketing individuals often commanding far higher salaries than the experienced “old dogs” that have years of experience.

Communication
I guess that it can be assumed that family members communicate but what happens if they do not? In a corporate environment, silo management and internal politics often lead to knowledge storing and internal competition but there does exist a minimum requirement for communication and collective reporting. A family has a massive opportunity here because of the assumption that blood is thicker than water, and usually is, but always be aware that when a family tie breaks there is more at stake than a few spikey internal memos!

The weakest link
Business can develop, manage, train, monitor, assess, appraise, discipline and eject employees. You cant dismiss a sibling! You may be able to remove them or transfer them around the business but a brother is always a brother, a sister a sister and a parent a parent. Any relationship is only as strong as the weakest link and the inability to detach completely the work-role from the family-role may cause problems never dreamed of in non-family business.

I understand that for every “benefit” there can be made a case for the opposing perspective so are there any definitive benefits that a family business can offer that non-family concerns cannot? Maybe. The issue of blood being thicker than water may produce invaluable benefits of natural compatibility – trust, familiarity, communication, tolerance, unity, succession planning, mutual development of skills and the like – but equally they may present challenges that other ventures do not have to face. Sacking a sibling for example or not passing on the family business onto the eldest son (figuratively speaking) irrespective of talent and ability can put pressures on all other members of the company. “Young” Mr Smith may not have anything like the kudos and respect that “old” Mr Smith possesses.

I would personally recommend a family business – to me, the intrinsic familial ties offer benefits (by way of understanding and natural support) that other ventures cannot – a friend is always only a friend, a partner always only a partner, a boss can never be a father. Members of non-family ventures can leave, or change their priorities at their own, detached and personal volition and possess their own natural and understandable tendency to support their own family over and above yours. A family will generally support itself and this united front may be the single, and most defining advantage that any business can possess.

This article was published in the3rdimagazine on 4 September 2011

 

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