Learn the unique challenges that family businesses face. In this video, Eric Flamholtz outlines the two major challenges that families face: strategic issues and family dynamics issues.
- Of all the businesses out there, the most difficult to manage are family businesses. Why? First, they have all the problems of any other business. Like any business, they need good products, good resources, effective management, an efficient operating system, customers, marketing, et cetera. On top of having all the problems of any business, they have special family issues. What are special family issues? There are two kinds of special family issues: strategic issues and family dynamics issues. Strategic issues are about the purpose or mission and vision of the business for the family.
Family dynamics issues refer to the interaction among people in the day-to-day business. Let's talk about strategic family issues. Joe from ABC Family Company believes that the purpose of the business is to maximize long-term family wealth. Joe's wife, Jane, thinks the family business is a bank which should keep all family members employed. So Joe and Jane hold very different views over the purpose or mission of the family business. These two divergent views are a very serious potential source of conflict between Joe and Jane.
What's going to happen if Joe wants to buy a company that will enhance the future value of the business but it'll put a hold on the short-term profits, and in turn, reduce the family's current income? The result will be conflict, arguments, bitterness, hostility, and maybe even a divorce. Believe me, I've seen this. There can also be conflict over family dynamics issues. For example, what happens when the head of the business is not the head of the family? Let's say Carlos owns a business and he's hired his father, Roberto, to manage the sales department.
Carlos is the owner of the business, but his father Roberto is the head of the family. What's going to happen if Carlos and Roberto disagree on where the sales department is headed? What's also going to happen if Roberto, the head of the family, decides he has the right to tell Carlos what to do in the business that Carlos founded? Again, there's going to be trouble. Another family dynamics problem occurs when a family business includes non-family members as employees. Will non-family members be treated equally? Will they be given the same opportunities and held accountable in the same way that family members are? If you own a family business or are thinking of starting a family business, these are some serious issues to consider.
If you don't resolve the strategic and family dynamics issues, I guarantee you will have a family business civil war, and there'll be nothing civil about it. So a successful family business must manage all of the regular problems of any business and the special problems of a family business. We resolve those issues through a family business planning process, and the output of that process is the family business plan.
- Recognize the two kinds of family business issues. Define values in terms of a family business. Identify the six key areas of family dynamics. Summarize how to manage a business when the business leader and the family leader is not the same person. Recall the steps for creating values for a family business. Examine the importance of family business plan objectives.