The art of running a family business

By Marlene Richey

You met him at art school and it was kismet. You knew that this was the person with whom you were meant to share your life and dreams. With similar interests and life views, you’re perfect for each other. You eventually marry and then decide, because of a shared passion for jewelry design, to open up a business together. You’re madly in love and everything is hunky-dory, so what could be better than spending every day working alongside your soul mate?

And everything goes along fine until one day you realize that you each see the business a different way. Maybe you want to diversify your lines while your spouse just wants to focus on the tried-and-true bestsellers. Maybe you’d like to hire some additional help in the shop to free you up to spend more time with the kids, but your partner doesn’t think you can afford to hire outside help. Or maybe one day you realize that this business you built is no longer your dream and you want to get out to try something new. If you just had a regular 9-to-5 job, you would give your boss two weeks’ notice and move on. But what if you’re one of the bosses and you share ownership of the business with your spouse? Did you plan ahead in case one of you ever decided to walk away? Did you discuss what to do if your plans for the business ever diverged?

Starting a business is never easy, but it can be even more difficult when your business partner is a spouse, child, sibling, parent, or other close relative. While a family-owned business can eliminate some of the risks involved with starting a business because you already know each other’s shortcomings and assets, it also opens up the door to a whole different set of problems because of the relationship you share outside of the business. Family-owned businesses can be great, but there are steps that need to be taken to ensure business success (and family harmony) long before you ever hang up the “We’re Open” sign.

Getting Started

Family-run businesses are the oldest forms of economic organization going back to the beginning of civilization. And today throughout the world, family-run companies still make up a vast number of businesses, especially as more and more people choose to follow their passion and dreams.

Running a business with members of your family can be the best option for many people or a disaster just waiting to happen—it all depends on how you set up the business from the beginning and how well your family can communicate about important issues. Navigating the tricky personal and business challenges that are sure to arise is an art form unto itself, and it demands planning and constant care to ensure things work smoothly.

Before you hang up your shingle, discuss with your partner how the company is going to be set up and spell out everything in a business plan. The first thing to ask is if all parties honestly want to be a part of the business and if they are capable of giving equal time and effort. If not, differences in available time, start-up money, and commitment should be discussed with an attorney and guidelines established so that everyone involved feels comfortable and secure with the decisions.

Next, you’ll want to consider the skills, talents, and personalities of the people involved. Identify each person’s strengths and weaknesses and assign responsibilities that best suit everyone’s abilities. It’s important to be honest with yourself and your partner as you determine who will be responsible for what.

“It is very important for everyone in a business to have a distinct role,” says Tony Lent, whose two sons are a part of his company, Anthony Lent, in Philadelphia. “Even if one person has multiple titles, everyone must know their role and assume responsibility for that job. With family businesses, choosing these roles can be difficult because of the nature of the relationships and one person may feel entitled to certain things or responsibilities. Therefore, making sure that decision making isn’t emotionally based when it comes to determining roles is very important.

“One of the best things we did within our business was implement a real corporate structure,” he continues. “This is actually a living document with a broken down outline of the structure of our company. We have all signed off on it and agreed to re-evaluate it when necessary. It has helped us define what everyone’s roles are and how decisions are made. That certainly doesn’t mean we don’t argue and disagree, but when you realize the scope of building a business, especially something as multifaceted as a ‘brand,’ you have to make decisions and settle disputes quickly otherwise you will suffer from ‘paralysis by analysis.’ The structure we have developed helps getting through minor disputes.”

As you’re assessing your new potential business partner, ask yourself if this family member is really the person with whom you want to go into business. Falcher Fusager of Magick in Fairfield, California, recommends that anyone thinking of going into business with family ask themselves: “Do I trust, love, and like this family member so much, that I want to spend a solid chunk of my life with them?” If the answer is not an emphatic yes, it would be wise to rethink your plans before opening for business.

Finally, you’ll want to cover the ‘what if’ situations and spell out exactly what will happen if the business ever needs to be dissolved or someone decides to walk away. This is comparable to a prenuptial agreement—you don’t want to expect the worse but it’s best to be prepared for it. And it’s better to address these issues now while everyone loves each other, and not later if there’s a problem and animosity or hostility is in the air. Your attorney should be well versed in the possible issues that could arise in your individual situation and can help guide your agreement decisions.

Making It Work

Once you’ve established the guidelines for your business, there will still be numerous challenges you’ll have to overcome. The following is a list of several things you should expect to face.

Dealing with Conflict
No matter how much groundwork you lay at the start of your business, conflicts will eventually arise. Many small, family-owned businesses don’t have policies and practices in place to handle potentially difficult situations, and family members rarely have management training. Experts agree that seeking the assistance of a neutral third-party mediator, therapist, or consultant with business experience is often well worth the time and money.

When bringing in a mediator, make sure they have expertise in setting up guidelines, goals, and strategies to make your business successful. However, there is no easy, one-size-fits-all formula to running a business. Each one is dictated by the family members involved as well as the economic environment, product or service offered, finances, and family history and traditions.

Laurie Watt, who runs Mayer and Watt in Maysville, Kentucky, with her husband Simon and son Geoffrey, recommends hiring a business therapist you can visit regularly. When she and Simon brought their son into the business, they became aware that their family dynamic could be disruptive to the work environment. When they began to see the effect it was having on the business, they began meeting with a therapist weekly.  Eventually they transitioned to monthly visits and now consult with their therapist on an as-needed basis. These visits help them work out potential issues before they become insurmountable problems by giving everyone the opportunity to calmly voice their thoughts and opinions with each other and an unbiased third party.

Make Smart Hiring Decisions
Couples who run their own companies are often eager to bring their children into the family business. And while there’s nothing intrinsically wrong with hiring your children, it may be best if they first gain some work experience outside of the family business. “If it is a child joining a family business…they should get good solid work experience elsewhere first,” recommends Simon Watt. “One does not want to have to teach the ‘work ethic’ to a child. It is a good idea if the work experience they get is in the same business, but a different sector. This enables them to bring a different set of skills/knowledge to the table.”

If your company has grown to the point where you begin hiring non-family members, don’t create two classes of employees—family versus non-family.
“Often you find family members might get away with behavior they wouldn’t have if they were working for someone else,” says Lent. “It is difficult to separate father-son or sibling relationship behavior from working environments, but for us, we have learned to be professional and also a family.”

Make sure that all employees are treated equally with raises, promotions, rewards, pay, praise, and criticism given, not according to bloodlines, but according to the work done. If you show favoritism toward family members, you’re likely to end up with resentful and disgruntled employees. You want to encourage everyone to work hard and be rewarded on merit.

Keep Emotions in Check
Emotions often run a family business. It’s not enough to say, “It’s not personal, it’s business.” With a family business, it’s always personal. Giving and receiving criticism from a family member and someone you love is very difficult. If you did your homework when you created your business, how you’ll handle disagreements and conflicts should be spelled out in your business plan.

While your business plan should outline how to handle disagreements, sometimes in the heat of the moment, it’s difficult to adhere to. This may be the time for you to step outside to get perspective on the situation before it escalates. Get away and come back when emotions have calmed down and you can discuss the matter in a respectful manner. Distance and time can be a great healer.

Be Open to Advice
All family members involved in running a business have their own world views and the way they want things run. However, if everyone in the business has a similar point of view, experiences, and values, it can sometimes make it difficult to spot important signals, problems, and information. To avoid this, create a family council. It should comprise members who may be owners but not necessarily company employees. It should not include non-family employees.

The council should meet regularly to discuss how family issues or concerns may affect the business. While you can use the council to establish policies and procedures, the council should not micro-manage the business. It is an opportunity to discuss the larger picture and to assess how well the company is achieving its long and short-term goals. By bringing in people with differing points of view, you’re likely to receive valuable new insights and thoughts for your business.

Moving On
With all the planning involved in starting a business, one area that is often overlooked is succession planning. In Pricewater-houseCooper’s 2014 Family Business Sur-vey of nearly 2,400 family-business owners and leaders, 53 percent of respondents stated that they have a succession plan in place for some, if not all, senior roles. However, when these respondents were questioned further, only 16 percent were found to have a discussed and documented succession plan in place.

According to the Family Business Institute, although 88 percent of current business owners believe their family will still control the business in five years, 30 percent of family-owned businesses survive to the second generation, and only 12 percent survive into the third generation.

One reason why so many family-owned businesses eventually fail is because not everyone in the family will want to be involved in the business. However, the Small Business Administration also cites that many businesses close not because family members don’t want to take over the reins but rather because no succession plan was ever created. A succession plan that spells out the details of what happens to the business is a necessity for its continued success.

In a recent article, AboutMoney.com outlined five things necessary for setting up an effective succession plan:
•    Choose a new leader, whether it’s a family member or not.
•    Mentor the next generation.
•    Create a realistic timetable to hand over the company.
•    Develop an exit plan.
•    Let them lead while you can.

The contents of your succession plan will ultimately depend on your circumstances and business. Every business is different and there is no one way to do it—this is for you, your family, and your attorney to decide. However there are several issues that must be addressed in your succession plan, including the length of the transition from one generation to the next, who is the best and most qualified person to take over the reins, and what happens in the case of death, illness, divorce, illegal acts, selling the business, a partner wants to leave the company, family members want to oust the leader, or other issues that could have an impact on the business such as sliding sales, political unrest, manufacturing problems, and an economic recession.

While there are a lot of pitfalls for family-owned businesses, there is a big plus to having this type of business: You’re in business with your loved ones. And even though the love you share as family can create some headaches on your way to success, it can also make starting and running your business a lot easier.

“I appreciate the fact that in our (at the time much smaller) business we did not have to build a foundation from nothing in order to proceed,” says Molly Bell of Albuquerque, New Mexico–based Rio Grande, which was started by her father Saul and continues to be run by Molly and her brothers Alan and Eddie. “A healthy organization has high trust and respect, minimal politics, perfectly aligned core values, and high levels of productivity. Family members working together in business have better odds of highly developed trust and vulnerability. Trust and respect is presumably more easily achieved, maintained, and nurtured because of the shared history and love. Because of a common upbringing, the odds of perfectly aligned core values and absence of politics is extremely high!”