Families can work well together; a fact backed up by the US Census Bureau. But how many family-owned businesses (FOB) are there, and what are the survival rates?
Today, 90% of US businesses are family-owned or controlled, with around 30% surviving the transitioning into the second generation. There were 5.5M FOBs at the last count, employing 60% of the US workforce and contributing 57% of total GDP. Family firms range from two-person operations to Fortune 500companies.
These statistics will change with economic fluctuations. Still, they demonstrate the significance of successful family businesses that now employ 98M workers and create around 78% of all new jobs in the US. They also drive innovation, and the owners are better caretakers of their local communities and environment than non-family firms .
This article looks at how to grow your business in 2022 and beyond, with practical tips from experts for managing family business challenges in the new digital era.
What’s Behind Family Business Success?
There are no secrets, only well-executed ideas, hard work, and adherence to best practices. These principles observe good governance, maintain focus, and foster people-oriented cultures. We’ll run through these and other best practices in a moment, but first, it’s time to address the myth of family business failures.
Myth! 70% of Family-Owned Companies Fail
You may have read reports about the 70% high failure rate for family-owned businesses, but it’s not entirely accurate. What these studies don’t take into account is that FOBs often disappear because the owners sell them. They may do that to retire or invest in a new venture, so it’s wrong to group them into the failure stats .
Numerous global studies show that well-run family companies are more profitable and last longer than other business types. This is despite the complex challenges they have with governance, leadership transitions, and survival plans .
Successful Family Businesses Best Practices
No business is without its internal struggles, but family-owned concerns have to contend with unique challenges. That is, they must strike a healthy balance between family relationships and the interests of the business. And the way the successful companies do that is to follow specific best practices like the five outlined below.
#1 Set and Respect Work-Related Boundaries
Work-related rules and boundaries are vital for protecting both the business and the health of its people. Rule one is to separate work from family and personal life. When family members have a poor work-life balance, they risk damaging personal relationships and suffering chronic burnout.
The Dangers of Workplace Burnout
The cause of burnout is excessive, prolonged stress that leads to emotional, physical, and mental exhaustion. Anyone who feels overwhelmed and emotionally/physically drained lacks energy, has low confidence and little enthusiasm. And that’s bad for the suffering family member and the business .
Other potential dangers of chronic (long-term) workplace burnout include:
- Greater risk of coronary heart disease
- Increased risk of depression
- Pain problems
- Higher risk of early mortality
- Increased risk of type 2 diabetes 
|Mary Lyons of The Wealth Woman
Lyons said this about her family’s former business, Personal Economics Group. “Having clear work/life boundaries help keep your business afloat and your family healthy.”
Ownership/Management BoundaryAnother boundary never to cross in a family business is ownership/management. Not all owners can run their company or run it from the top. So, they may appoint a non-family manager instead, someone better qualified to direct the business. This boundary ensures the owners don’t interfere with management decisions.
Leaders of thriving family-owned businesses know how to strike the right balance. It’s why they establish boundaries and ensure everyone adheres to them.
#2 Maintain Open Communication
The family way of communicating may not always be the best way to converse from a business perspective. Prosperous companies adopt an approach that makes regular, open communication a critical business strategy. They agree to talk to each other and listen to the views and opinions of each generation.
The secret here is to make this a formal agreement and put everything down in writing. This approach removes any confusion of what is expected of a member. Thus, the family embraces intentional communication (IC) over assumption.
|Stacey Huff, Co-owner of T-Grip Graphics and Signs
“My advice to everybody thinking about starting a family-owned business is to get your documents upfront. Have an understanding, have an agreement – not just verbal, but have it on paper. That way, all parties involved are on the same page.”
When Communication Breaks Down
The family agrees to confront any communication problems among its members head-on. And should relations completely break down, there’s a covenant to bring in a mediator to help find a mutually acceptable solution.
#3 Seek Outside Counsel
Family business owners may not always know what’s best for their company. It’s why prosperous concerns welcome independent, third-party consultant opinions where necessary. That could be to offer professional business programs and expert guidance on finance, conflict management, leadership coaching, internal disputes, and more.
|Kelly Smith, Owner and CEO of All Tech Electric
“I thought going into a family business my dad has been successful in this for fifteen years, I should do exactly what he’s doing. I didn’t take enough time upfront to really understand that I should evaluate my strengths,” Instead, I was trying to do what he was doing, and that’s not fit for me. It took me a while to figure that out.”
When emotionally involved in a family-run business, seeing things from an outside perspective is not always possible. Hence, third-party counsel is often a wise investment. It helps owners see where they might be going wrong and thus make better-educated business decisions.
|Mary Lyons of The Wealth Woman
“My advice would be to seek outside counsel. I think it is very easy when you are used to dealing with someone, and you have a pattern of behavior to think that you understand the dynamics of what’s happening in a situation.”
#4 Hire the Best People for the Job
Because it’s a family-owned business, that doesn’t mean every position must go to a spouse, child, or other relatives. It’s a nice idea, but there may be roles where a non-family member is the best person for the job.
Successful FOBs tap into the non-family talent pool. It’s how they cover positions that the family members don’t have the experience or expertise that match a position’s needs. Another advantage of recruiting non-family members is the valuable outside perspective the employee brings to the table.
Attracting Non-Family Members to Your Business
Attracting, recruiting, and retaining talent is a daunting task for any kind of business. But you can do things that distinguish your company in the labor market.
Highlight the less formal, less bureaucratic work culture
- Clearly define the role and authority
- Offer a competitive compensation package
- Propose long-term incentive plans
- Include the outside talent in relevant communications
#5 Prepare Your Succession Plan Early
You can never prepare your succession plan too early. Most second and third-generation family businesses devised their prenuptial agreement policies long before those in the next generation engaged. Conversely, FOBs that procrastinate experience business confusion and potential family discord.
|Greg Kish, Attorney at Kish Manktelow & Bailey, PC
“Family-owned businesses need to have a succession plan in place that not only addresses the future leadership of the company but also structures the passing of ownership interests to the next generations.”
Don’t wait until the kids are middle-aged or older if you want a smooth transition. Instead, start to prime the next generation well in advance. It’s never too early to teach members about financial management, healthy business stewardship, etc.
Likewise, you need to know if there are family members with no intention of carrying on the business. And the best way to do that is to have an open discussion with all. Unfortunately, many FOB owners make the mistake of assuming they know what younger members aspire to. But in reality, not everyone wants to take the reins.
|Mary Lyons of The Wealth Woman
“I realized, through the act of running the company, which was kind of nice because I got to have a trial run, that my passion was actually not in running it. It wasn’t too long into that – two years to be exact – that I had to tell my dad that I don’t want to buy out the company, which put a big wrinkle in the succession plan.”
A wise business owner is intentional with the next generation. They identify the talent in family and non-family employees, investing in them early to ensure the company’s top leadership is in place for the future.
The family business succession planning 6-point checklist:
- Start planning at least five years ahead of time
- Talk. Don’t assume the next generation wants what you want
- Involve family members in succession discussions
- Do what’s best for your business
- Train your successor(s) early and often
- Seek expert help to compile a successful succession plan
Remember, succession plans can be overly complex with family firms. There may be relationship and emotional issues, too. Much of this is due to younger generations being uncomfortable talking about financial matters, aging, and passing away. By starting discussions early, the family has time to get comfortable with these topics.
|Tré Black, President of On-Target Supplies & Logistics
“I can remember it like it was yesterday. I was about 30-31 years old, and I woke up one day and decided what kind of life I really wanted to live. Did I want to be committed to the future of On-Target, and did I want to be committed to the people that made it work for so long? I was committed and decided that was going to be my life.”
Tré Black went on to say that the family business is what the American dream is all about. That is, to pursue what you love with the people you love.
Common Challenges for the Family-Owned Businesses
Even successful family-owned businesses have their challenges, and this final section identifies some of the most common. Understanding potential problems makes it easier to prepare for and apply solutions if or when they arise.
1) Family-Related Issues
Running a business can test the strengths and weaknesses of even the closest families, affecting relationships at physical and emotional levels. Financial issues can also cause disputes, especially when family and business funds clash.
2) Overly Informal Workplace Culture
The laid-back culture has many positives but can also disrupt business operations if you’re not careful. The reason is that an overly informal culture lacks policies, documentation, clear strategies, and goals.
3) Pressure to Hire Family
It might be the case that some family members are not cut out for the business. But the pressure to take them on—because they’re family—can be relentless. The only practical solution is to treat them as you would a non-family applicant that wasn’t suitable.
See #4 above: Hire the Best People for the Job.
4) Trapped in the Business
Some family members may feel trapped in the business and loyalty to the business and family prevents them from speaking out. They carry on in silence, which is not good for them or the company and over time can lead to friction and even resentment.
See #2 above: Maintain Open Communication.
5) No Exit Plan
Every FOB needs to plan for future events, whether foreseen or unforeseen. Not having an exit plan is a disaster if the owner decides to retire early, transfer responsibility, or even sell the business.
See #5 above: Prepare Your Succession Plan Early.
Does your family-owned business need a boost to its digital presence or an entirely new marketing strategy? Bold Entity’s expert services help families reach the next level of scale for their company through results-driven approaches. We guide you through the intricate process of branding, re-branding, and creating a holistic marketing strategy to support your near and long-term success.
Contact Bold Entity to Learn More