Common Threats to Family Businesses and How to Overcome Them

Jinky Romero Ironwood Insights

A common factor among small businesses is that most of them are family run or, as we call it, “mom and pop” shops. According to Forbes.com, family businesses generate over 50% of the US Gross National Product. However, as anyone who has ever worked with family would tell you, keeping the business going is no easy feat. In fact, about 50% of family run businesses don’t survive the transition from second to third generation.

In working with family, there are a lot of problems that may arise that are exclusive to this type of situation. Here are the most common threats to the success of family run businesses and how to overcome them:

  • An informal setting can lead to a lack of structure. One of the perks of running a business with family is that you don’t have to worry about a culture that is too uptight. After all, these are people you’ve known your whole life. However, this kind of laid back culture, if abused, may cause negative effects to the overall operation through a lack of structure and firm policies. To avoid this, talk amongst yourselves and lay out a set of rules and policies early on in the game that is firm and structured, but not uncompromising to the “family” atmosphere. Make sure that every person involved is held to the same standard and are on the same page regarding them. When someone slips up, don’t let it slide as to avoid complacency within the team.

 

  • While not all, a lot of related people are brought up in the same environment, sharing almost the same opinions, and shaped by almost the same experiences. This may be detrimental due to a lack of third party view who can point out things about the business that may be overlooked. When running a business, all sides and options must be looked at before coming to decisions and having people who think alike due to similar upbringings might not translate well in making informed decisions. To overcome this, don’t be hesitant to ask for external opinions from friends, customers, or employees not related to you. As a business owner, you must be open-minded and accept that an outsider’s view of your company is important to its growth.

 

  • The worst fights people get into are those that are with their family. Adding a business in the middle of it just makes it even more chaotic. Most fights that happen within a family run business stems from inability to remove personal feelings and problems from the business environment. The best way to make sure that family feuds (there will always be some, no matter what) don’t become the downfall of the business is set aside personal issues when dealing with business decisions.

 

  • When operating a family business, the hardest thing to avoid doing is hiring relatives purely for the sake of them being family. This may be due to pressure from other family members, laziness to actually look for qualified employees, or familiarity – whatever it is, nepotism is not something you want in your company culture. This is not to say that hiring family members would be detrimental to the business, not at all. If a relative right for the job, there shouldn’t be a problem. The real problem comes when qualified people get passed over for people whose only edge is being related to the owner. Not only will hiring an unqualified person cause negative effects to the business, this will also leave a bad taste in the mouth for other employees. Simple solution: Treat applying/employee family members just like how you would treat anyone else. Create a fair application, promotion, and salary process that favors no one. Bonus: Here are tips on what to look for when hiring for your small business.

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