Four Problems and Solutions that Accompany Starting a Family-Owned Business

If you’re reading this, you might be considering starting a business with one or more of your family members. Chances are pretty good that you’ve done a lot of research and asking around as you prepare to make this big step, and it’s also pretty likely that people have repeatedly warned you against starting a family-owned business.

While there is a lot of statistical evidence that shows that family-owned businesses have a high rate of failure, there are also a lot of examples that show that families that work together, stay together. In fact, some of the most successful companies out there started with a single family. Walmart, Phillips 66, and Nike are all prominent examples of how well things can work out for family-owned businesses.

Four Problems and Solutions that Accompany Starting a Family-Owned Business

(Pixabay / MAKY_OREL)

Some unique challenges accompany working closely with members of your family, but with a little bit of stick-to-it-ness and clearly determined guidelines, you can navigate through these problems and own a successful business.

Problem: It’s hard to separate work from home.

In the comedic television show “Parks and Recreation,” one particular scene comes to mind that perfectly illustrates this scenario. Leslie, a deputy of the parks department, and her husband, Ben Wyatt who is the city manager, get into a disagreement about how a certain aspect of the government should be run. The argument starts to take a toll on their home life, so they decide to set some work/home rules about not discussing work at home. Ben tries to avoid talking about the issue at work by running away from City Hall, but Leslie chases him down by arguing that every place that he runs to is touched by some aspect of city government and therefore is an appropriate workplace environment. This hilarious episode shows that when family members work in the same place, it can start to strain otherwise good relationships.

Solution: Set clear boundaries and communicate regularly.

If you don’t set boundaries right from the beginning, you are going to have a tough time. Each member of your team needs to have a definite role, and there needs to be a clear-cut chain of command to address discipline problems and complaints. While it will take a certain degree of policing, do your level best to keep shop talk out of the family picnic.

In terms of disciplinary actions, all of your employees need to understand how discipline will be handled. Favoritism and nepotism will undermine your company and could eat away at your company culture. Before hiring anyone, make sure that they understand company expectations and the consequences of breaking company policy.

Problem: It’s hard to determine compensation and succession.

The classic cinematic example of this happens in the 1995 romcom “While You Were Sleeping.” Jack Callaghan and his father run the estate company “Callaghan and Son” jointly, and one major plot point is the angst Jack feels because he doesn’t want to inherit the company when his father retires. It turns out that his anxiety was all for naught because his father was only holding onto the company because he thought Jack wanted to inherit it. This kind of miscommunication can put unnecessary strain on already delicate familial relationships.

Solution: Create a compensation and succession plan prior to starting the company.

Though things will inevitably change over time, come up with a succession plan before you even start your company. Determine if one person or a group of people will inherit the company once the owner leaves, and also decide how investors can leave the company and still cash in their investment.

You’ll also need to decide how your family members will receive compensation – whether by stocks, hourly rates, salary, or by a percentage of the profits. Whatever you choose to do, make sure that everyone is on the same page as far as how much money they will make and what they need to do to move up in the company.

Problem: Things can get stagnant.

Because you’re so comfortable with those you work with, your company may start to stagnate. People like the way things are going, so they don’t see any reason to change. While there is something to be said for the adage, “If it ain’t broke, don’t fix it,” businesses need to adjust and adapt in order to remain competitive. One particular example of this happens in “You’ve Got Mail.” Kathleen Kelly and her mother run a small, family-owned bookstore that is beloved by its patrons, but without expansion and new ideas, it simply can’t keep pace with its competitors.

Solution: Strive to introduce newness.

Consider hiring non-relatives to come work with your company. If you’re not careful with your company culture, hiring people outside of your family could create feelings of “us versus them.” Be sure to treat all of your employees fairly and without bias, no matter how long you’ve known them. In a similar vein, encourage youngsters to go out and get experience with other companies. Little Vinny might have worked at the pizzeria since he was 12, but he will be a much more valuable employee if he is required to work for another company and still chooses to return to the family business.

Also, a small group of like-minded people can only come up with so many good ideas and have enough know-how to grow a company. By contacting outside lawyers, accountants, advertising, and PR and HR firms, you can get some fresh perspective while making sure that your company is well within the law. This is not to say that Cousin Frank isn’t a fantastic accountant, but if you are finding that your business is stagnating, you might look into introducing other qualified non-relatives that can take your company to the next level. Recruiting companies can help you find top talent.

Problem: Drama, drama, drama.

Drama can happen in any business, whether or not a family runs it. The potential problem with family, however, is that employees walk a tight line between being the brother/sister/daughter/aunt/uncle/cousin and being a standard employee. There is family history, past misconduct, and old grudges that can get dredged up out of the mud whenever two people disagree.

“My Big, Fat, Greek Wedding” is a prime example of this. In their business, everything is dependent upon family, which creates some pretty dramatic moments, and while drama is fun to watch on screen, it’s not as enjoyable in real life.

Solution:  Create objective policies

The wonderful thing about family, however, is that they sincerely care about your well-being and success. You all are struggling toward the same goal, and that creates a bond that runs deeper than a paycheck. Your shared history – both the good times and the bad – can be a solid foundation that helps you weather whatever life throws at you.

It is crucial that you have clearly-defined policies in place for complaints and follow-through. Problems need to be address fairly, quickly, and without preference. If you can’t trust that you will be able to do that, don’t be afraid to hire outside human resource personnel to help you navigate these situations effectively.

If you and your family members share an exciting vision and passion for a new business and you have a good working relationship with these relatives, a thriving, family-owned business is a possibility, no matter what the detractors say.  If you stick to best practices, keep an open-mind, and arm yourself with smart policies going into the venture, you’ll be well on your way to success.