Business consultant and mentor, Stuart Allan, looks at the dynamics of family-run businesses and why they so often fail.
According to the Institute for Family Business, two-thirds of UK businesses are family-owned. That’s 4.8 million in total, of which over 16,000 are medium and large businesses generating over a quarter of the value of goods and services produced by the UK economy and employing around 9.5m people.
There are plenty of multi-generational success stories, like JCB, Pentland Group and Clarks. Big hitters Dyson and Specsavers are also family run, but keeping it in the family isn’t always easy, and only about 20 per cent of family-owned businesses in the UK make it to the third generation, according to Imperial College Business School.
So, what makes a family business prone to failure?
First-generation family-run businesses are as likely to succeed as any other. After all, all parties have hopped on board voluntarily and presumably have a keen interest in making the company work. The second-generation will probably have grown up seeing the company evolve and it will have played an intrinsic part of their family life, so again they are engaged stakeholders. By the time we get to third-generation, we are seeing a wider familial group, of siblings and sometimes cousins, getting involved, which starts to make things more complicated and brings a bigger mix of opinion, ethics and skills to the board table. This can sometimes be a positive, but statistics show us that it often dooms the company to failure.
Sense of entitlement
Otherwise known as the spoiled brat syndrome, we’ve all seen it; the expectation to be given a high-powered position without any consideration of skillset. If any business is to succeed and grow, it must have the right people in the right jobs; that can be harder to orchestrate in a family business, but it has to be done, even if those at the top don’t end up being family members. That’s not to say that, with training and mentoring, skills can’t be acquired, and if the dedication to improve themselves through hard work and learning is evident then, perhaps, they have the potential to lead, after all.
Much trickier to manage in a family business, different characters can have a huge impact on an organisation. The trick here is to acknowledge the differences and embrace them! Who is going to be better at what? Make those personalities work for you, just as you would if it was a stranger working for you. Just because Cousin Billy’s mum, grandad and great grandad were head of accounts, it doesn’t mean he has to be. Billy may be creative and have a flair for marketing or sales, or he may be a mathematical genius without a leadership bone in his body. If it’s the latter, then put him in accounts, but don’t make him responsible for other people!
Personalities can also cause friction, and when you’re dealing with family members, that can have the added complication of not being able to escape from it at the end of the working day or becoming a loyalty issue between different branches of the family. This needs to be addressed early and carefully managed if you are to prevent it causing ongoing problems.
Now, this is a tricky one! Handing over power is never easy, but when you add familial loyalties to the mix, it becomes a minefield of nepotism. Only one in two (49 per cent) UK small businesses have a succession plan, according to research published by Barclays Bank, in 2015, but I would suggest that it is critical for any family-run business to have a succession plan in place. The bigger the family, the harder it is to treat everyone equally, not everyone can have a place on the board, but that doesn’t mean you can’t treat everyone fairly (hopefully you treat everyone fairly, regardless of family bonds). There are so many factors that come into play in succession planning, but the most important one is time. Long-term planning is key, as is getting everyone on board.
Making a family business successful is not easy, but the likes of Nike, Volkswagen, and Samsung have done it, so why shouldn’t you?
For advice on structure, succession planning or anything in between contact Stuart Allan on 01206 523394.