Family matters – the challenges of a family business

13th January, 2017

Involving family in a startup can pay off – or lead to disaster.

No matter how bright your idea for a startup, you can’t realise it alone.

Although their number is dwindling, some iconic brands still call Australia home – Akubra Hats, Haigh’s Chocolates and Bundaberg Brewed Drinks among them, not to mention corporate giants like Linfox and Visy. All have one thing in common: family ownership.

Of course, these firms grew over generations, not overnight. But at some point the founders chose to involve family members in their venture, so why shouldn’t you?

Weighing it up

There are reasons for and against, but according to KPMG’s most recent Family Business Survey, managing and resolving conflict is the biggest challenge, with 80 percent of respondents saying they have experienced conflict and tension with family members over the last 12 months.

The top five causes of conflict are:

  1. differences of opinion over future direction surrounding vision, goals and strategy
  2. balancing the needs of business versus family
  3. lack of communication
  4. succession-related issues, and
  5. financial stress.

On the upside, 80 percent of survey participants are optimistic about future growth prospects and their entrepreneurial ability to seize new opportunities.

Planning for success

But unless addressed and properly planned for from the outset, business pressures and stresses can fracture family relationships. Everyone needs to be on the same page with KPIs, core business objectives and, in particular, financial entitlements that impact family members’ security and quality of life outside work.

It is fruitless for family businesses to implement an entrepreneurial culture unless they have the financial resources necessary to fund associated competitive initiatives and strategies.

Nick Hatzistergos, chairman of mid-tier accounting firm William Buck, which specialises in SMEs and has helped numerous family businesses transition to the next generation, says a good idea on its own is not going to be good enough.

“Like any startup, you would want to see a gap in the market and ensure you have the requisite technology, infrastructure and financial capability to take advantage of that opportunity,” Hatzistergos says.

“You need to plan your approach into the market, whether as a startup in a mature sector or as a disruptor – like Uber, for example – where you will need very deep pockets.”

Hiring right

You will also need a deep pool of talent. Family members’ reliability and general willingness to work hard may make them desirable prospective employees, but there other issues to consider.

“The best advice I was given early on was that your brand is your promise. To match that aspiration you need to attract the right talent. Be slow to hire,” Hatzistergos warns.

In a family-owned business, a spouse, children and other relatives are often given jobs because they are, after all, family. Anyone wanting to join your business should add value through specialist skills and knowledge, preferably gained from experience in an industry outside a family setting.

If they can’t, hire people that can.

When up and running, most Australian family-owned businesses have between 20 and 200 employees which, unfortunately, can become a volatile mix and one that, at worst, alienates those from outside the family.

Treating everyone fairly is a given, but a sure way to exacerbate tensions is to appoint family members to positions for which other employees believe they are better qualified.

Succession planning

Matters can be particularly sensitive when it comes to succession. Managers and CEOs of family businesses tend to have longer tenure than CEOs of non-family entities, but should the baton be eventually passed to a family or non-family member?

“The real differentiator of a family business is who owns it, and if a business is closely held by an entrepreneur or a family group, a corresponding closeness with customers will develop,” says FINH managing director David Harland, whose firm advises family businesses.

“Being able to nurture an intimate relationship with customers and identifying the value in that is a key strategic strength.”

It is also one that may be lost if a family startup is not handed to the next generation (one in three aren’t).

Even so, the decision has to hinge on who has best skillset to progress it. As such – and hard as it might be to think about relinquishing the reins – exit planning at an early stage is essential.

There is one other key factor that impacts longevity, and it will probably determine whether the business survives even one generation of family ownership.

Here’s the critical question: Do you have the unique leadership qualities to stop talking shop 24/7 in the interests of maintaining long-term family harmony?