20 challenges faced by a family owned business

17 08 2006

Every business organization has a unique set of challenges and problems. The family business is no different. Many of these problems exist in corporate business environments, but can be exaggerated in a family business.

Family business go through various stages of growth and development over time. Many of these challenges will be found once the second and subsequent generations enter the business.

A famous saying about family owned business in Mexico is “Father, founder of the company, son rich, and grandson poor” (Padre noble, hijo rico, nieto pobre). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and and empty bank account.

Prepare now and help your grandson avoid the poorhouse.

20 challenges for the family business

  1. Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.
  2. Informality. Absence of clear policies and business norms for family members
  3. Tunnel vision. Lack of outside opinions and diversity on how to operate the business.
  4. Lack of written strategy. No documented plan or long term planning.
  5. Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.
  6. Role confusion. Roles and responsibilities must be clearly defined.
  7. Lack of talent. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out.
  8. High turnover of non-family members. When employees feel that the family “mafia” will always advance over outsiders and when employees realize that management is incompetent.
  9. Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions.
  10. Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company.
  11. Training. There should be a specific training program when you integrate family members into the company. This should provide specific information that related to the goals, expectations and obligations of the position.
  12. Paternalistic. Control is centralized and influenced by tradition instead of good management practices.
  13. Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation.
  14. Communication problems. Provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems.
  15. Systematic thinking. Decisions are made day-to-day in response to problems. No long-term planning or strategic planning.
  16. Exit strategy. No clear plan on how to sell, close or walk away from the business.
  17. Business valuation. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value.
  18. Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business.
  19. Vision. Each family member has a different vision of the business and different goals.
  20. Control of operations. Difficult to control other members of the family. Lack of participation in the day-to-day work and supervision required.

Actions

Information

13 responses

8 07 2007
RJ McHatton

The thing I hear almost daily in my video biography business is how people want to leave advice about their values, their ethics, their philosophies to their future generations. Most of my clients are the kids and grandkids who want to preserve the voice of the older generation through a video. The founders of the family business want to keep the family culture alive. I think the family businesses are so successful because customers want to buy from people who have a consistent culture, a name they can trust. A set of values.

7 08 2007
CHANDRASEKHAR S. IYER

IF YOU CAN GIVE MORE INSIGHT WHETHER FAMILY OR PUBLICALLY HELD PHARMA COMPANIES GIVE BETTER DEAL, SOCIETAL, ENVIRONMENTAL, PROFITABILITY & SUSTAINABILITY FOR FUTURE

14 12 2008
Lynn Northrup

I think this is really useful information. The three challenges that I think are the most critical include:
1. Failure to have a succession plan
2. Lack of estate and retirement planning
3. Failure to engage in strategic thinking and planning

All of the challenges are important, but the continual failure to think forward and to engage in day to day fire fighting is a recurring problem I have seen with all the family owned businesses I have served in my consulting practice.

6 03 2009
hema

this is really useful information.

21 04 2009
Selling to Zebras Blog » Blog Archive » 20 Challenges Faced by a Family Owned Business…

[…] further ado, here’s the link to a very well-written article on the topic: 20 Challenges Faced by a Family Owned Business Category: Selling to Zebras  |  Comment (RSS) […]

8 02 2010
Lee Nierman

Our family buisness runs very well, it is just hours are never fair. The amount of work load and responsibility is not precieved on a balance at all. I just tell my family good by see ya next winter. There is so much more to life ! The problem I face is I love what I do.

20 03 2011
handsome

yaya very good…i like it!!!

5 04 2012
ken

very extensive thank you.

10 04 2012
Clement Bekoe

Good work done. Learning made easy.

13 08 2012
Hellenna S

It helped but however we still need more and kept updated about the challenges. Thank u!

21 06 2013
Ralph Anderson

What do you do when your brother is the manager of the family business and he’s a bully, control freak, bipolar, anger junkie with a low self esteem?

28 06 2016
How Mid-Market Business Lessons Apply to Family-Owned BusinessesFortéONE

[…] these lessons don’t occur until the second or third generations enter your business. In that case, these lessons may help you identify the situation, which is best […]

12 10 2016
ruth

is it necessary to focus on the Family today?

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