By Robert Sher, Contributor
Mathew Knowles, father of Beyonce, watched the failure of his family and career play out in a highly public way in 2011. Following a disagreement over tour revenue, the singer and actress fired him as her manager. Gordon Ramsey, a celebrity chef, gave his father-in-law wide control to run business matters, only to fire him in 2010 after allegations of personal use of business funds. If your family business suffers a crisis, it probably won’t play out in the tabloids. But that’s not much comfort for you or the people closest to you. Family businesses leaders face a much harder task than solo entrepreneurs in running companies because they must manage conflicting sets of demands.
As someone who worked in a family business and now advises family businesses, I have seen families make both great and terrible decisions in the pursuit of double benefits: money and stronger kinship. All businesses hope to earn money (beyond standard salaries) for their owners. Family businesses also desire a stronger family unit and better career opportunities for family members.
However, the second desire complicates the management challenge. Leaders of family businesses must manage three conflicting demands:
- What the business needs and wants to thrive
- What the family needs and wants as a whole (for example, cohesiveness and closeness)
- What each family member needs and wants to thrive
You may be a master problem-solver, but this three-way dilemma never goes away. It requires constant care, like many things in life. How effectively you manage the dilemma determines if your company earns single or double benefits, or in fact causes single or double damage: the company earns less money than competitors, and damages family relationships.
Managing the Dilemma: Five Must-Do’s
Having advised family businesses on how to win the elusive goal of double benefits, I see five crucial strategies that separate the winners from the pack. Here’s how smart families successfully manage the dilemma.
1. Honor choice and independence
Your business is not the military: There can’t be a draft. Family members must choose to apply for employment. Ideally, it’s a real choice, which means they had other job opportunities and you encouraged them to consider those alternatives.
Family members must also be able to leave without penalty, emotional or otherwise. Can you fire a son but still love him? Yes. Will you treat a son who quits like a traitor? I’ve seen it happen. The hard truth is, only with freedom to enter and exit can we ask for and receive true commitment to the business, and true commitment to the family.
2. Insist on performance-based pay
Higher performance equals higher pay; lower performance equals lower pay. Make performance measurable and pay family and non-family members identically.
The outside world does a good job of valuing work performance. Follow that lead, and you’ll be well-positioned to compete for employees (both your family and non-family), and employees will understand how to compete for rewards.
Resume and experience count toward pay. Non-performance factors like family politics, birth order, personal need, ownership share, and longevity must not count.
3. Create an enviable culture
Since you shouldn’t draft family members, how do you attract the best and most industrious ones? By making your family business a great place to work. Family members should see a culture that prizes fairness and trust, and opportunities for meaningful work and career development.
Relying on family loyalty for employee retention is also a bad strategy. Build a great culture, and high-performance family members will come and stay. Only the Death Star needs tractor beams.
This culture will be crucial as you position the business for long-term success. While many companies start with an individual’s entrepreneurship and vision, successors must modernize processes and operations over time. In PwC’s 2014 Family Business Survey, 40% said professionalizing the business would be a key challenge over the next five years. By professionalizing, PwC means “establishing structure and discipline to that vision and energy, so that family firms will be able to innovate better, diversify more effectively, export more, and grow faster.” Asking the next generation to do this difficult work without a strong cultural foundation simply won’t work.
4. Stress the value of emotional intelligence
Emotional intelligence has become a hot leadership topic, for good reason. As more companies prize collaborative management models rather than command-and-control management models, emotional IQ contributes greatly to success.
I am talking about factors such as self-awareness, self-regulation, empathy, and related social skills. Ideally, all families teach children these elements of emotional IQ. But in reality, not all family members develop strong “soft skills” — or want to use them. If you find yourself in this predicament, communication is key. That abrasive family member will not be any less abrasive in the business setting.
A family that can’t communicate and collaborate in healthy ways has no business being in business together.
5. Create clear family goals
You need a clear, written, and mutually-accepted understanding about how the business will serve the family. For example, are you all about short-term cash flow to the family? Or do you want the business to create long-term family assets, in which case you will act to maximize value? Is guaranteed employment for all members of the family a goal? Finally, are you chasing a way of life that preserves family togetherness? Choices must be made.
One Family’s Journey: Kevin Barry Fine Art
Kevin Barry made the leap from solo entrepreneur to family business leader with his company, Kevin Barry Fine Art (KBFA), founded in 1995. The company serves interior designers who buy art for offices, hotels, and corporate and healthcare settings.
In 2000, the company entered a new chapter of its life when a longtime friend of Barry’s children joined the company, followed by Barry’s daughter and son. The company had revenues of $2.5 million in 2007 when I first began advising Barry and his three young team members. Barry sought outside guidance because “we were making it up as we went” and he saw the situation getting only more complicated.
What did KFBA do right as it transitioned to a new generation of leaders? First, Barry invited his children to join the company, but they clearly had a choice. Starting in their early 20s, the two worked on commission for 10 years, earning their way.
While Barry had launched the business in California, his daughter broke open a new opportunity when she made big sales to large hotel clients, then opened and led a gallery in San Francisco. His son later opened a gallery in Vegas to serve the hospitality market there. The childhood friend managed the operations and marketing work from California. This geographic dispersion allowed the three young leaders to develop as they acted more independently. And the fact that each one developed external reputations, unique expertise, and individual relationships made them undisputable forces in the business.
Barry took succession planning seriously. He went through a careful process, including financial advice, tax and legal advice, and establishing a board with outside advisors (including me) to sustain governance as he plans his retirement.
When family members move from employees toward partnership, a typical big issue is fairness in pay. The board took control of compensation as a group and adapted real-market approaches to performance management, including salary benchmarking. The board also instituted 360-degree reviews (including quantitative and qualitative results) to shape executive development and compensation.
Barry got what he wanted: The business and the family thrived. Barry’s dream was to get to $10 million in revenue, and the business has long since surpassed that goal, with double-digit growth continuing to this day.
With Great Power Comes Responsibility
Those of us who are leaders have great power to guide and support people we love. The world is a rich and wonderful place, with many options for our family members’ success. The mantra, “How can I help my family?” is the right question, yet only one of the many possible answers is a family business.
If you’re leading or planning to lead a family-owned business that seeks family benefits in addition to economic benefits, then accept and manage the three-way dilemma using the strategies outlined here. Like all matters involving relationships, it will be hard work. But you’ll get to watch the next generation in your family add new chapters to the company’s story. And they won’t be fit for tabloids.
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