While there’s no such thing as a completely failproof business plan, here’s what many successful family-owned and -run businesses have in common.
Family businesses serve as a true economic engine both domestically and on the global stage, accounting for one in five U.S. small businesses and representing roughly one third of companies in the Standard & Poor's 500.
Naturally, such enterprises—generally defined as those run by two or more family members with the family having majority control or ownership—also face unique challenges.
While every business, industry and family is different, the organizations that get it right tend to have many of the following attributes in common.
They Emphasize Good Governance
All companies can benefit from bringing in outside expertise in some capacity—whether it is with an advisory board or board of directors.
For family firms, however, it can be imperative: An analysis of leading family firms published in the Harvard Business Review found that such formal governance is arguably more critical for family businesses. Not only does it help the family and company leadership establish clear goals, boundaries, and processes, but an outside board is often critical for attracting new talent.
In fact, among the leading companies the researchers studied, a quarter of non-family executives indicated they initially had governance-related concerns about joining a family business, lest they face hidden agendas, nepotism or a lack of dynamism.
Independent oversight not only helps appease these concerns, it can go a long way toward ensuring such fears don't materialize.
They Embrace Core Family Values
Family firms shouldn’t lose sight of the values and qualities that give them an edge. The Harvard Business Review pegged this as “family gravity,” explaining that the firms they studied had one to three family members standing at the core of their organizations.
“These people personify the corporate identity and align differing interests around clearly defined values and a common vision,” the authors note. “They focus on the next generation, not the next quarter.”
They Get Ahead of Succession Planning
Many of the biggest conflicts surrounding family businesses arise from the question of succession: The likely successor is not interested in staying with the family firm, multiple family members are vying for the same position, or no single individual has the experience necessary to take the reins. Often a lack of planning is evident.
A 2016 survey by PwC, for example, found that only 23% of family-controlled businesses have a succession plan in writing that has been communicated to stakeholders.
Addressing succession long before it becomes an issue is critical to avoiding any of the above scenarios. As is true of any well-run company, the best family firms don’t wait until a crisis to consider a successor or successors. Rather, these businesses identify the qualities required in future leaders, identify potential candidates early, and think purposefully about how to instill in those candidates the expertise they’ll need to guide the company through its next iteration.
They Plan for Liquidity Needs
Family businesses can thrive for generations, but it is almost inevitable that some family members will want to cash in his or her shares. Much as with succession planning, leaders shouldn’t wait for a crisis to think about how to fairly value the company, draw parameters around ownership, and map out a clear course for facilitating an exit.
They Create Clear Boundaries
Solid governance can help families sidestep or navigate many of the common issues—compensation, roles and responsibility, strategy and succession—that can spark trouble.
That said, it is no replacement for families creating and reinforcing clear conventions regarding when and how they discuss business. The family firms that endure are often those whose members understand how to draw a healthy line between focusing on family and focusing on the business.