The top 5
Five top family business mistakes
Family business consultant Jolene Brown
Is yours a family-first business or a business-first family?
Iowa farmer and author Jolene Brown explained the difference when she spoke at the Washington State Horticultural Association’s annual meeting last December. A family-first business tends to make decisions based on emotions, on what Dad wants, or what’s been done in the past, which are not good ways to make sound business decisions, she said.
A business-first family makes decisions based on the documents it has in writing and on the best practices for any business. It has a mission statement with goals, people know what their jobs are, and they remember to be kind and courteous to each other. The results are better for the business and for the relationships between family members.
Brown discussed the most common mistakes that family businesses make.
1 Assuming all genetic relationships equal good working relationships
A common mistake is thinking that just because you’re related to someone, you should be able to work with them. That’s not true, Brown said. Acceptance in a family is unconditional, but acceptance in a business is not a birthright. There is no entitlement in a business-first family.
“If there’s someone in your family who’s angry, or addicted, or arrogant, or lazy, do not hire them—no one else would,” she said. “Why on earth would you give them a paycheck rewarding that behavior?”
2 Believing the business can financially support any family members who want to work together
The senior generation usually owns a lot of assets that they might or might not be willing to transition because they need to take care of themselves financially and have enough to live on until they die.
If the senior family members don’t do that, they will end up micromanaging the business to death, rather than transitioning to the younger generations, because they’ll perceive that the rest of the family is playing with their security.
Before transitioning a business, the older generation needs to make sure the finances are strong and can support all the family members who want to be involved, as well as the employees.
Financial records must be up-to-date, accurate, and transparent. “Don’t bring people into a financial mess and expect them to fix it,” Brown said.
On the other hand, the younger generation should not expect to come into the business at the same level as the older generation. Young family members coming into the business should bring a skill set that the business needs. Before joining the business, they should have an outside job for two to three years and gain experience of working for someone else.
This helps the new generation to be accountable, to learn that respect is earned (not genetic), and to find out what their real monetary value is. The family business benefits from what the new generation learned elsewhere.
Many businesses provide family members with a house, but Brown said each family unit should own their own house so they can update it when they want, pay their own mortgage, and have their own security.
3 Assuming other people will change, not you
The moment you bring another family member into the business, you have become interdependent and have chosen to compromise, Brown said.
If the achievement of your goal depends on the assets or power of someone else and they don’t have the same goal, then you have a problem—they don’t. They have the power.
“You still have a choice,” Brown said. “One is, do you still want to work there? If you have chosen to be interdependent, you’re not the king on the throne. If you want to control everything, please be a sole proprietor and let everybody else know you are the puppeteer and they are the puppets and you’re going to pull the strings however and for as long as you want. But, let the rules of the game be known. If your philosophy is ‘It’s my way or no way,’ be an independent sole proprietor, and you will have to pay your subjects well to get loyalty from them.”
4 Presuming a conversation is the same as a contract
The three biggest lies farmers tell are:
—“Work hard. Some day this will all be yours.” The sibling working on the farm often finds when the will is read that all the siblings have an equal share, which is not the same as a fair share.
—“I’m going to retire.” The older generation needs to retire and stop stewing over things. Their continued presence can bring the business down because a business owner has to function at the edge of calculated risk, and the older a person gets, the less risk they are willing to take.
—“Don’t worry about your brothers and sisters. They have their jobs and are not interested in the business.” That’s true until you are dead, and then they are all interested in the money.
All good businesses clarify everything in writing. They have formal annual meetings (even if few people are involved). They document finances and operating procedures, evaluate employees, send copies of documents to their attorney, and have a written mission statement, goals, business plan, and job descriptions. The compensation package is in writing so everyone knows exactly what everyone gets paid in the business, and there’s a written agreement on how much money can be spent before it becomes a group decision.
5 Believing mind reading is a form of communication.
Communication is the bloodstream of the business, Brown said. The manager needs to be approachable, and employees and family members need to know how they will be treated and what’s expected of them. People need to have a positive attitude and treat each other well. Silence means consensus, and family members have no right to walk out of a meeting grumbling if they didn’t say anything, she said.
“You are in the people business, not the fruit business,” she stressed. “As we move to use of new technologies, global marketing, and new requirements for businesses, do you speak the same language?”