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What are the tell-tale signs that you have to take a good look at your family business structure and performance? What are the fundamentals/behavioural patterns you have to look out for when assessing the health of your family business?
The importance of staying healthy as a business is imperative for a number of reasons – regardless of the future plans and whether you’re looking to sell or pass it on to the next generation.
One of my favorite pieces of advice has long been that every generation must add value and leave the business in a better state then they found it. When a business “fails” it is never because of one simple thing but usually a history of small issues that may have been created over decades. The “final straw” or ultimate breaking point is not possible in solitude. Imagine a fraying rope – it’s not noticed until the very last twine gives way and then it’s too late.
There are usually small niggles forming from the moment a business is born. Many family enterprises benefit from a positive cash flow position, which is wonderful of course, but it can sometimes hide the underlying issues. Warren Buffet famously said: “It’s only when the tide goes out that you know who’s been swimming naked.” As you’ll appreciate, that’s not usually a pretty sight for anyone.
The complexities in a family enterprise multiply with each generation which in turn and by definition brings about increased influence and influencers. Over time more individuals become involved in and around the business as well as different branches of the family. These issues can become a distraction, and often the small issues building can escalate to become far greater than the business itself.
If you add into this growing wealth and ownership complications, views of fairness and equality, then tensions and challenging dynamics can emerge and grow as a consequence. In addition to these increasing issues around the business, there is still a necessity to grow and to develop a commercially focused enterprise in a world facing change at a greater pace than ever before.
One of the biggest challenges to the health of a family enterprise is the alignment of the family. Differing generations and stakeholders can all have personal reasons and requirements for being part of the business. More established generations can be fosued on equity and control while the newer generations are focused on income and the shorter term. If these are conflicted then no matter how good the business there is a risk.
The warning lights come in various forms including:
- Stuck – one of the main indicators is that the business and family feel stuck which impacts the ability to prosper.
- Lost – everything becomes meaningless to people. Channels to market suffer.
- Detached – clients and customers feel disengaged. Creativity suffers.
- Drained – when you walk around the business you can feel the energy is low and everything feels like an effort. Innovation is impacted.
- Fear – harmony is impacted across the people in the business including the family which often shows and manifests itself as disputes, misunderstandings and feelings of uncertainty. Such fear can result in the culture and innovation suffering which in turn leads to a lack of vision or direction.
- Restless – individuals feel worthless, lost and fearful. Communication and trust suffer which leads to good staff choosing to leave.
To stay on top of these and avoid any potential issues you need to firstly recognize that these things will happen because it’s only natural. Acceptance is really important along with not feeling these are things that carry blame for anyone or anything.
Providing support to individuals and family is critical as well as within the business. Family boards that are designed and run well are just one example of providing “maintenance” and structure that helps and supports throughout the journey.
Setting clear expectations, roles, responsibilities and accountability are key. Working with a neutral facilitator is also hugely valuable. Allowing everyone to see one big picture without fear or judgment is one of the most powerful things that can be created. Checking in with this on an annual basis is the ‘health check’ to see what may have changed internally and/or externally. The process, if done in the right way, also allows creativity and opportunities to be identified, unites people across the business, and allows future proofing to be at the forefront of discussion, and to be addressed.
It’s very much about readjusting rather than removing any potential ‘illnesses’ within the business. Things will happen which will rattle even the best business leaders, so being ready and willing to adjust the course as required is vital.
I am a firm believer that everything has a life cycle and businesses will eventually end or at least morph into something else. That’s perfectly acceptable providing you ensure that the journey is the best possible and do all you can to have the greatest chance of longevity. A business is just like a loved one – wanting to live a full and beneficial life that leaves a wonderful legacy, as well as planting the seeds for the future – whatever it may be! If your business can live a good life and you’ve been part of it, that’s pretty special.