When we look at family businesses around the world that have proactively maintained and enhanced their collective business interests over many generations, we find that they have usually employed a number of consistent strategies. I call these their “12 simple secrets for success”.
Note that these measures apply to families that have worked hard to hold the family and its business interests together. These secrets don’t apply to families that have avoided dealing with the issues collaboratively by choosing to concentrate ownership and control in a few hands, thereby simply eliminating the danger of competition, rather than dealing with it.
Secret #1 – Develop a stewardship culture
Successful families in business see themselves as being there for the long term. They consider themselves stewards, rather than owners of the business. They consider themselves custodians of a sacred trust to hold and enhance the business for the benefit of future generations of their family, rather than seeing the business as a resource to be pillaged to satisfy their own immediate needs. This affects their short, medium and long range planning, their attitudes to risk etc.
Stewardship requires a commitment to nurture and enhance the business. It also implies a level of collectivism, rather than individualism. When adopted as a core value of the family-in-business, this concept creates a powerful pillar around which the family is motivated to rally and provide support.
Secret #2 – Create a shared family vision and a shared sense of family purpose
Over time, all businesses have to deal with problems, challenges and conflicts. When these become seriously difficult and/or threatening, both individuals and family need a larger, long term purpose to focus on to help them rise above the immediate problems. For example, if the family is committed to continue to operate the business so as to be able to pass it (rather than money or investments) to the next generation, this agreed objective may empower the key players to battle through any immediate problems for the sake of their longer term objectives.
As a mediator, I often find this to be a critically useful tool for dissolving conflict and re-establishing harmony within the family.
Secret #3 – Be proactive and plan for the family’s future
Proactive people are “doers” who set their own agenda and then made things happen to help them achieve their objectives. In contrast, reactive people are ”doee’s” who are forced to respond to the actions and agendas of others.
Proactive families-in-business actively plan for the family’s future and consciously direct the family, and its business, down specified paths to help achieve that desired future. The required plans have two major components: (a) strategies and (b) structures.
Strategies comprise high level, long-term visions, plans and commitments. Structures are the “things” that are actually implemented to help guide the family towards the successful achievement of the long range objectives contained within those plans.
I visualise the whole exercise as a mountaineering challenge, where the family starts out with a family business(es) and ends up as a family-in-business. The process bonds family members more closely together, for the long term, with a new collective determination to be successful in ways that satisfy all their needs. They are aided in this by the skills and the mutual sense of trust born of overcoming a major shared challenge.
The family has to scale its notional Everest in order to climb above the rain and clouds (and the muck n’ bullets), that are making life miserable where they are. They undertake the journey in order to find a new “Promised Land”.
The process begins when a champion in the family (not necessarily the acknowledged leader) obtains a commitment from other family members to attempt the journey/expedition. The first stage is strategic and it often comprises little more than the hope that family members will help each other to start, to climb, and to summit together.
Assuming this works and they get to the top of their mountain, from their shared vantage point on the summit they see new horizons (opportunities) opening up all around them. This enables them to work on their strategies, which require them to:
- Create, agree and adopt a new, shared vision (goals) for the family. This encourages them to,
- develop and adopt strategic plans (long range) for the family and for the business. The Family’s plans will usually project at least 10, and preferably 20 years into the future. Business plans will have a shorter duration.
Strategic plans contain the directions the family has agreed to take to achieve its vision.
Once the plans have been completed, the family is encouraged to develop and implement the following structures:
- Establish a formal and functional separation of the family from the business to enable each to focus more precisely and effectively on its own issues and needs. This is an exercise in professionalising both entities, that may require establishing a Family Council, a Family Forum and a Family Constitution. Once this is done,
- develop and adopt detailed business plans for both the family and the business to help both of them achieve their visions, in accordance with their adopted strategies. These plans should contain the actual “how to” details and, beyond their financial targets (both business and personal), they should include other major practical issues, such as succession planning and leadership transition,
Secret #4 – communicate, communicate and communicate!
Visioning and planning are worth very little if they aren’t communicated to the family and to other stakeholders, so they can be used to share information, generate commitments and prevent problems from arising.
When families in business get into trouble they often blame a “breakdown in communications” for their problems. This is patently nonsense. Communication in itself is not a cause – it’s just a symptom – an impartial mechanism that can be used, or not used, at will. When communications break down the important issue is not that they have broken down, but rather the reason why they have broken down.
This brings us to the Iceberg Principle: for every issue (symptom) that becomes apparent in a family-in-business, there will probably be at least nine causes lying below the surface that have made it happen. The issue is the catalyst for action, but if that’s all we deal with we are only dealing with the symptom, not with the cause. If the causes are serious we ignore them at our peril, because they will continue to generate more issues in the future.
The most successful families-in-business enjoy and employ effective communications between key family members at all times. This provides them with a better understanding of where everybody is at at any given point in time (early warning system for preventing future problems); provides mechanisms and environments for dealing with issues and problems as they arise (problem management) and helps to ensure that there are both the skills and the forums available to resolve conflicts if they break out (dispute resolution).
Secret #5 – Don’t prevaricate!
Solve problems and conflicts both early and well otherwise, especially in families, they can fester and worsen. Effective communication is fundamental to effective problem solving. Therefore, the quality of the family’s communications (nature, style and frequency) directly influences the quality of its problem solving and decision making.
The vast majority of problems are either actively solved or they evaporate through neglect however, a small number will inevitably grow into challenges. Challenges, in family businesses, cannot safely be neglected. Where an ordinary business that fails to recognise and respond to its challenges may become uncompetitive and vulnerable, the family that fails to respond to challenges just drives them deep underground, where they can become festering wounds that re-emerge years, and even decades later, to the profound detriment, and perhaps even to the ultimate destruction of the family and the business.
Many families prevaricate over issues and situations because they fear that what looks like a can of worms may actually turn out to be a bucket full of snakes! Without wishing to be simplistic or sexist, it often seems that males avoid tackling family problems head-on for fear of unleashing an expected (though usually undefined) emotional backlash, while females are typically more pragmatic and often seem better equipped to deal with whatever emotional issues arise. Note that this is not, by any means, a universal rule.
Secret #6 – Separate the Business from the Family (Structures)
“Don’t confuse the kitchen table with the boardroom table”. When family issues cloud business decisions, and/or business issues overwhelm the family, don’t expect much good to come of it. The family needs to be very clear about when its actions are being influenced/directed by family concerns and when it’s rather in business decision-making mode.
Formalising the management structures and processes for both entities helps. In the business this means having a Board of Directors and a defined management team with specific roles and responsibilities, both towards the business and its shareholders. In the family this means establishing a Family Council to represent and make executive decisions for the whole family, to develop rules for the interaction between family and business (Family Constitution) and to establish effective and constructive communication processes (eg: annual Family Forums) to enable family members to be treated as legitimate stakeholders in the family business (just like shareholders).
Secret #7 – Separate the Ownership from the Management of the Business (Strategies)
Strategies are the commitments and plans the family makes to turn itself from being a family with a business to becoming a family-in-business.
First, a champion steps forward in the family. They will have a vision, or at least a need, to facilitate change.
The champion enrols the rest of the family in the process of developing a long range vision for the family, and for the business. Visions must be developed, identified and owned: (a) by individuals; (b) collectively, as a family; and (c) by and for the business. For each of these entities, visions should be captured in Vision Statements.
Family values are identified and adopted as core business values. Many things tend to be taken for granted in families, including individual and collective values. As with all strategic activity, the journey is at least as important as the destination and the very action of discussing and agreeing vision and values amongst family can be one of the most powerful defining and bonding experiences the family will ever undertake.
Mission statements may be produced as a result of this process. These will capture the task that the family has signed up for, over the long term, like a military mission.
Strategic plans are high level plans developed to help achieve the family’s vision in accordance with its agreed values. Strategic plans place serious shape and size and, most importantly, specific directions around the vision.
Secret #8 – Seek Balance (1): Work on the business AND in the business
One of the most persistent observations about family business people is that they spend all their time working in the business and little or no time working on the business.
Working in the business means staying in the trenches, amongst the muck and bullets, dealing with day-to-day issues and putting out bushfires. This tends to reinforce a person’s sense of importance, and it may be an important prop for their ego and sense of self-worth, but if the business has achieved any size, it’s seldom the best use of their time and talents.
This role is strictly tactical, or operational. It’s a doing role, rather than a deep thinking role.
Working on the business means getting your head above the trenches, preferably high above in a (notional) helicopter, from which vantage point you can look towards more distant horizons, take in the bigger picture, see challenges and opportunities long before they arrive, and take measures to deal with them far more readily.
This role is strategic. It’s a deep thinking role, rather than an active doing role, and it should inform and direct the actions of those responsible for operations (tactics). Such people will, of course, include the person now working on the business just as soon as they revert to working in the business!
Only a very large, or a very special business can justify having someone working on the business (ie: strategically) all the time. Usually, strategic leadership occurs in short and deliberate bursts, designed to set the direction of the business for the short to long term. Most of the strategist’s time is spent implementing the actions required to achieve their strategic objectives, and between those times, briefly and regularly, they need to disassociate from the business, to monitor how well its actual performance is meeting their plans and expectations. It’s good to do this on a qualitative, big picture basis as well as on a quantitative (ie: financial or production performance) basis.
Secret #9 – Seek Balance (2): Work for the family AND with the family
Many family business proprietors work long hours and persuade themselves that they are doing it all for the benefit of the family. Over time, this becomes their accepted justification for being away from the family, as it actually increases the amount of time they spend away – because, of course, they’re working for the good of the family … so it’s all justified!
Taken to extremes, this circular argument becomes entirely self-defeating. If you spend a lifetime flogging yourself “for the sake of the family” you may find that they completely lose interest in you … because, of course, you were never home!
This raises another issue that’s particularly relevant to families-in-business – the succession conundrum. When the next generation sees their parents running themselves into the ground – working hard and excessive hours – rather than being filled with admiration (unless they are seriously in tune with such a work ethic), they are more likely to want to run away from it.
Secret #10 – Seek Balance (3): Award yourself enough “me time”
It’s too easy to get wrapped up in the family business, and in the family (especially when it’s young) to the virtual exclusion of your own interests. Eventually you may hit a point that makes you want to scream: “Enough – everybody’s taken a slice of me and there’s nothing left for me!” At this stage you’re on the edge of burnout, or a breakdown, and urgent action is required to pull yourself back from the brink.
The problem is that your work ethic, financiers, partners, and/or own sense of propriety kept telling you that you couldn’t take any time for yourself, right up to the point where you hit the wall. In this state you’re no good to the business, or to anyone else, including yourself. If the business depends on you – both you and it are now in deep trouble.
One of the most difficult issues in succession planning is finding somewhere sufficiently different and exciting for the retiring business leader to want to go there when they step back from, or leave the business. I think of this as needing to have another rock to hop onto.
Their belief, which they may not readily acknowledge, is that: “the business is my life, so not being in the business will be my death”. The resulting black terror makes many otherwise sharp and confident individuals cling to the business as a drowning man clutches at straws, often keeping them there long past any sensible “use-by-date”.
The problem is that they have a very real point. Surveys of senior executives forced into unexpected early retirement have consistently shown that many have shockingly short physical life expectancies – seemingly because they fail to adjust to the loss of their former prestigious roles. In other words, they couldn’t find another rock to hop onto.
Successful family businesses encourage family members to develop, maintain and pursue private interests, sports and hobbies. This is not only a validation and celebration of these individuals and their differences, it also makes good strategic sense because it helps them to keep their lives in balance by giving them permission to take “me time”: (a) it gets them away from the business, which is good for strategic thinking apart from anything else; (b) it can increase their family time (depending on what activities they follow) and (c) importantly, it gives them another, and perhaps many other rocks to hop onto when the time comes to let go of the business for the next generation to take over.
There is then no black hole, or abyss of doubt about what lays beyond the business, because they know what’s there for them – and they’re looking forward to spending more time doing it.
Secret #11 – Develop a Family Constitution – values, rules and policies
A key component of the overall sustainable family plan is the Family Constitution. This defines who and what the family is and how it and its individual members should interface with the business. There are two main rationales for having a Family Constitution:
- To establish the rules of engagement for family members and the business. Doing this at a time of calm and goodwill is infinitely preferable to trying to find, or worse, having to make the rules when in crisis.
- To provide the family with a focus on which they can work together intensely to develop, agree and adopt their shared values, aspirations and future practical and operational requirements. (This is covered in more detail in the paper on Family Constitutions elsewhere in your folder).
Secret #12 – Parent well. Teach + support + respect, at home and in the business
Having a family business provides parents with two opportunities to parent their children. First they parent the child to become a person, then they parent them as employees to help make them successful in their careers.
The key objective of any parent should be to make their children self-sufficient, eventually bringing them to the point where they are wanted, rather than needed.
Both parent and child (whatever their ages) need to understand and recognise when to let go of each other, and they need to be able to actually do the letting go. This requires high degrees of mutual trust and respect. Because there is this double connection in family businesses, everybody needs to work at least twice as hard at developing this trust and respect.