Every small business faces challenges. Every business owner must deal with issues and problems in the course of building and running a successful operation. In many ways though, the challenges—and advantages—in a family business are unique.

The advantages are somewhat obvious. You work with people you know well and love, you experience greater flexibility and security, and often you’re building a financial legacy for retirement and future generations. These benefits often contribute to a positive business identity and a reputation of trust. It’s generally agreed that when customers see you as a family company, they have a tendency to trust you more. “Family owned and operated since 1948” has a nice ring to it, doesn’t it? And statistics consistently reveal that the long-term success rate of family business exceeds that of other, similar sized businesses.

Where’s the Challenge?

According to the University of Southern Maine's Institute for Family-Owned Business, almost 35% of Fortune 500 companies are family controlled. Family businesses account for 50% of U.S. gross domestic product and they generate 60% of the country's employment and 78% of all new job creation! Those are some impressive figures. Yet the failure rate among family-owned small businesses is still high.

What are the major causes? Are they the same as small businesses run by individuals who are not related? One study determined three underlying causes for the failure of family businesses: 1) unresolved conflict, 2) failed leadership, and 3) lack of shared goals on a personal, family and business level. Some other major sources of conflict in family businesses tend to be differences over management roles, sibling conflict, financial issues, and lack of long-term company vision and succession issues.

A list of the top ten sources of business problems for the family business might include:

• Family issues such as divorce, financial crises, and health issues
• An absence of clear policies, procedures, and business norms
• A lack of documented business strategies for operations, growth and succession
• Compensation issues (salaries, benefits, etc.) not being clearly defined
• Role confusion, poor control of operations, and a lack of a reporting structure
• Lack of or misplaced talent, skills, and ability for family members
• Issues with non-family employees such as fears of despotism or favoritism.
• Communication problems due to unresolved family issues or relationships
• A lack of a unified vision for the business
• An absence of documented company values, ethics, and business philosophy

As is the case with many problems and challenges we all face, recognizing and acknowledging them is the first step to effectively overcoming them.

The Family That Works Together

One of the key factors for ensuring a successful family business is the understanding by everyone involved that, at work, the success of the business must be paramount. Verbal communications must become more impersonal and attitudes more objective. Family members who work in the business must accept the employer/employee relationship— just as they would in another business. All job descriptions must be clear, in writing and adhered to. Any personal problems that originate at home should be left there when the workday begins and workplace issues should not be allowed invade the home life. When all family member accept and abide by this distinction between “home” and “work,” not only will it help avoid strained personal relationships, but it will also communicate to other employees that, at work, the needs of the business come first.

There are three components necessary for building, or re-building, a strong and effective foundation for a successful family business:

1. Clear and effective communication between all family members
2. A well defined reporting structure—a chain of command
3. A documented strategic plan for business growth and orderly succession

The Power of Objectivity

At E-Myth Worldwide, many of our clients are family businesses. Looking for help and advice outside of the business is a good practice for any business owner, and perhaps even more critical for the owners of family businesses. The insight and objectivity that outside advisors, coaches, and mentors provide can prove to be critical to the growth and success of the business.

One of my clients, a husband and wife partnership, struggled for years with the division of duties and roles they felt they each had to have in their business. During our coaching meetings we realized that the wife was perfectly suited for (and comfortable with) being the CEO while the husband, who had that title, simply preferred to manage their business development. This is a huge revelation to have both personally and for the business. We set to work right away on restructuring their organization chart and their own positions to be in alignment with their individual strengths, skill sets and personal desires. Their business has flourished as a result and they are both far happier and fulfilled in their roles.

Another example of a typical family business obstacle: the roles of parent and child. One of my recent clients, a family-owned and operated business, came into our program with a strong business and great potential. But as we got further into our coaching meetings, it became apparent that their stated positions in the organization were sorely at odds with the way things really worked. This is not unusual in a family business; often a family member is given a title, but not the true responsibilities of the position. In this particular situation, the eldest son held the title of CEO of the company; the father was the Sales Manager. However, it was understood by everyone (including me) that Dad still called the shots and all decisions were made by him. Over time it became equally clear that communication between the family members was not as open and frank as it needed to be.

While conversations around this type of discrepancy can be uncomfortable for anyone in a working relationship, for family members, it can be particularly awkward. But the fact is that business is sometimes uncomfortable; there's just no getting around that. All of my experience told me that until they confronted and acknowledged this reality, their potential for growth was being stalled.

When we stepped back and looked at the business holistically, when we really investigated how the lack of integrity in these roles was actually hurting the business, the solution became less about fixing personal issues, and more about improving efficiency for the business. So we tackled these issues together, openly and honestly, and agreed on the necessity for functioning within their assigned roles and reporting structure. When you frame it in the context of creating the best business possible (which is what everyone wants) this re-alignment was logical and dissipated some resentment and confusion that was truly getting in the way of success.

Share Your Story

Do you own or work for a family business? What obstacles have you faced and how have you overcome them? Post a comment and tell us about it.