If family businesses reach a deadlock in negotiation amongst themselves, more often than not they eventually resort to selling. Recent research done by experts from the Sauder School of Business indicated though that selling the family business is not a panacea for solving problems and that it can rather cause a range of other, even more complex problems.
Studies by the Sauder School of Business revealed a number of issues that are unique to family businesses. A major concern is the fact that inter-personal dynamics complicate matters tremendously and make it extremely difficult for family members to remain objective and professional.
Some family members constantly compete with each other and will go to great lengths to prove their superiority and authority. For others, it’s so important to protect their relationships that they will almost tread too carefully and rather steer clear from confrontation altogether. And because family members hardly ever tackle issues head on, or talk about them openly, governance in many family businesses is virtually non-existent and it frequently gets to the stage where selling appears to be the only solution.
The problem is that this almost always leads to regret. A case study by the Sauder School of Business illustrates this point clearly – the Strand family sold their refrigeration supply company. While the sale was profitable, one of the Strands noted in retrospect that he and his siblings realised that they could have made far more money if they had hung in there and continued to grow the business for longer. But even greater than the projected financial loss, was what he called “the loss of identity and pride associated with owning a respected business.”
Said Mr Strand: “when we sold the business, we believed the new company would keep our family culture.” Needless to say, this isn’t how it played out. “We stayed on as employees, but we’ve all now left with the exception of my father, who still provides some consulting.”
There are also a number of other unforeseen predicaments that arise every so often from the sales of family businesses. For example, family members have mostly been part of the family business for their whole lives, and many don’t have the skills or experience to successfully pursue other careers. And the share of profit earned from the sale of the business cannot always provide for everyone for the rest of their lives.
In many instances, the decision to sell is made in the heat of the moment and can leave family members in dire straits because they didn’t anticipate that it would ever be necessary to plan for alternative sources of income.
To try to avoid regret later and ensure that one builds a family business that can become a legacy for future generations, there are a few key elements that one has to consider, the most significant of which is of course, communication.
Talk to each other frequently, to ensure that you’re speaking the same language and saying the same thing. But apart from transparent and regular communication, sound governance in family business is perhaps one of the most critical factors for success.
Blood is thicker than water, and on a personal level it’s admirable to let family come first. But when it comes to business, one should never lose sight of the fact that business requires the corporate touch. A family business should be operated like a business more than a family, and it should have the same systems and processes in place to govern and manage it as such.
As is the case with all businesses, to accomplish the business objectives effectively, everyone must first be in consensus. And to achieve the required levels of growth, everyone must pull their weight toward the same goals. The only difference is that because of the intricacies at play in a family business, this is a lot trickier to realise.
For this reason it might be best to consult an external business advisor who is neutral and objective, to facilitate communication about the family business’ and the family members’ objectives for the business.