Family Business: Where Does It Go Wrong – Part 1

This is dedicated to my cousin Francis Lim, who died trying to stand up for himself.

I have been thinking about family businesses a lot lately partly because many ecommerce businesses are started and run by families. I see a lot of these kinds of operations as a consultant and realize the desperate need for entrepreneurs to have guidance in how to have a successful family business. Last year I met a guy who wanted to hire me to fly me down to his city of business to fire this manager his father hired because he couldn’t do it himself!  His ecommerce business does like $4 million, and yet this entrepreneur felt the need for outside help with personnel management because of family dynamics. (In case you are curious, no, I didn’t do it because I didn’t want to enable him – he has to overcome the fear and just do it as there are deeper and broader issue than just firing the manager his father hired.)

Let’s face it – family businesses are not simple or easy. As someone who grew up surrounded by my grandfather’s family lumberyard business, and later worked in the family hardware business – along with siblings and cousins- I have firsthand experience of seemingly almost every aspect of a family business. I have an intimate understanding/exposure to details of messy, and dysfunctional family businesses.  There can be a constant air of distrust and jealousy; the fear of stealing, death threats or suicide; the paranoia about competition, turf protection, back-stabbing, share takeover and all this is aided by the rumor mongering, conspiracy theories, lazy characters, free loaders and the like. These are the usual not so nice aspects of human behavior that shows up when money is involved in the relationship.

Here are some of the problem areas that are repeat patterns in family businesses:

Communication

The lack of separation between family and business is the reason for the downfall of many a family business. My own parents had a hard time doing this and the end result was a lot of bickering at home and work with no clear lines between personal and professional disagreements. There is often uneasiness about tackling tough issues and difficult work conversations are not done with directness. As a previous ecommerce business owner, I worked with family and close friends and there were many times where unclear communication cause many disagreements and confusion amongst the staff and family members.

Finance

There is often significant lack of process in money management. Whether it comes to decision making or actual money handling, there can be much room for pilfering or erroneous choices in the absence of clearly documented financial process. It is important to be particularly demanding in choosing the family member who will handle finance as a bad choice can completely derail the business. Family members are not always the default person to handle this category. You need to hire the best person and not just because they *are* family.

Management

The other major headache area for family businesses is lack of clarity in role definition. The chain of command is hard to define or it is simply a matter of generations and that is not always in the best interest of the organization. There is also the danger that non-family employees feel unclear about their roles and loyalties and this can significantly impact motivation. Its not always automatic that family members become part of the executive team or managers. You need to make sure that they are qualified. When family members are perceived to be in position of power irrespective to their qualification, you actually do a dis-service to them because they do not also “automatically” get the respect from non-family members or family members who are working along side of them for that matter.  They actually have to work harder at earning the respect because they are family members.

There are many pros and cons to running family businesses.  One of the biggest pros in my mind is the ability to share the joy of success with the people who matter the most to you. The flip side is that the biggest con is that business failure can well destroy your family life also. There are many ecommerce businesses that have started as family ideas and some have built on the pros and others have been sabotaged by the cons!

I have found that a family business run with the emphasis on business is the best way to build a successful enterprise that lasts past the initial years. My grandfather’s lumberyard business, which he built from scratch into a thriving enterprise that employed all five of his children and many other families, did not last for a decade after the second generation took over. The good news is that there is much I have learned from having seen the missteps and there are ways to avoid these pitfalls. My next post, Family Business: How to Get it Right, will focus on how to make smart choices to build successful family businesses.

Written by :Shirley Tan