Family Business Pitfalls and How to Avoid Them

Although there are many advantages to running a family business – tight community connections and employee loyalty, to name a few – the challenges you are likely to face are unique.

Emotions are always a factor, boundaries between work and home can easily become blurred, succession planning can be complicated, and drawing in and holding onto top non-family talent can be difficult. The most common challenges family-owned companies face can often be the hardest to avoid.

Most Common Family Business Pitfalls

Communication Style: Every family has a method of communicating that is specific to them. Reading between the lines can be hard for someone who is not part of the family. Communication shortcuts can be awkward at best and sometimes downright uncomfortable if things get out of hand. Overhearing a heated discussion, for example, can also be difficult for employees even though it may not phase the people who grew up in the same house.

Because communication style significantly influences company culture, overly informal communication can inadvertently cause high turnover rates of non-family talent.

Lack of Conflict: A healthy exchange of ideas is vital for a healthy business. It is not unusual for senior leadership to disagree about ideas for new direction or company growth. What can get in the way for family-run businesses is a need for more diversity of thought or more debate around shifting client expectations or market trends.

A senior leadership team who have only worked in the family business can limit perspective and impede innovation.

Entitled Leadership: The term entitled brings to mind a stereotype of an underachieving and overindulged child of the boss. In reality, entitlement doesn’t only apply to the next generation of leaders who expect to rise to the top because they are family, regardless of how hard they work. It also refers to sitting senior leaders who don’t want to or feel ready to step aside to let the next generation take over.

How to Avoid Family Business Challenges

Transparency: Coming in on Monday morning and finding out that a decision has been made that alters your work priorities or responsibilities is frustrating. Executing the resulting changes can seem futile without knowing why the decision was made.

Any healthy company relies on a foundation of trust to elevate its company culture. Leadership can build trust when they consistently and clearly share information relevant to each employee’s role. That means avoiding familial communication shortcuts, clearly disseminating important information with everyone necessary, and explaining the reasoning around decisions that impact the company. This is true especially if an idea was hatched at Sunday dinner.

Structure: Just like boundaries are a good idea at the dessert table, they are also essential when working with and for family members. Structure gives reason and direction for leaving home at home and work at work since it can sometimes be hard to see when family dynamics are getting in the way. A structured environment looks like clearly defined roles and responsibilities, channels for circulating information, and mapped-out paths for advancement. It accounts for both family members and non-family members regardless of leadership level.

Planning: Telling a senior partner that it’s time to retire is a difficult conversation for anyone in leadership. Telling your parent or grandparent that you’re ready to step up and that they need to start passing along intellectual capital has the potential to make Thanksgiving dinner very uncomfortable.

Regardless of company structure, laying out thoughtful plans for what you know is likely to happen makes handling the unexpected a lot more manageable. Leadership development plans set expectations and guidelines for measured growth by scheduling ongoing skills training opportunities, defining thresholds for advancement, providing mentoring and coaching outlets, and clarifying expectations and consequences.

Why Objectivity Matters

Passing a business to the next generation is particularly challenging for family businesses because there are so many possible snares. Working those issues out before they happen helps your company avoid many of the uncomfortable emotions that come along with change. Whether you choose your niece or your son to succeed you as leader or agree to move to Chair of the Board from CEO when you reach a certain age, defining change points ahead of time makes transitions less traumatic.

Liddell Consulting Group has been providing leadership expertise for family businesses since 2002. We specialize in providing clarity for family members by working with them to develop customized leadership development planning and methods for execution. Contact us to discuss whether our objective point of view can help your family business reach its potential and set the trajectory for a successful future.