Introduction to

Managing A
Family Business

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 Keeping the Family Business Healthy:
Four Keys to Success
by Karen Vinton

Family business plays a major role in our economy. It is estimated that over 90% of
all businesses are family-owned or controlled. These businesses contribute a big portion of
a nation's GNP. Yet what are the typical stereotypes that surround these businesses? We
frequently think of Sari-sari stores, the undeserving child who inherits the business, the
family squabbles which end up in court, and family businesses as portrayed on TV and in
movies.

Many of these stereotypes tend to be very negative and may lead us to make wrong
decisions about our own family businesses. In fact, some consultants and business experts
say the way to "save" a family business is to take the "family" out of the business! But is
this practical advice? NO!!!

For many families, the business is the major part of a family's estate. In order for a
family to survive and prosper, the business must prosper. And in order for many of the
businesses to prosper, they must be run by the family. Family businesses can survive and
be healthy but it is necessary to learn how to work with those that you love. A seemingly
easy task (who better to work with than people you know well and love dearly?), but
everyone knows that this is not always easy.

What is a family business? There are various definitions, but in general a family-owned
business is:

1. A business in which 2 or more extended family members influence the business

through the exercise of kinship ties, management roles and ownership rights,
and/or
2. A business which the owner intends to pass to a family heir.

It is obvious from these definitions why there are so many family businesses. And
since we are facing a time when many of these businesses will be passed from one
generation to the next, the crucial issue is how to keep these family businesses healthy.

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 First, we have to know what is healthy? While definitions about "healthy" may vary,
for a family business healthy needs to be the combination of two systems: a healthy
business system and a healthy family system. A healthy business needs to be economically
viable (also known as profitable) over the long haul. A healthy family system means that
relationships between the various family members need to be good. Not perfect! But
good.

So... how do we achieve a healthy family-owned business? This module will explore
four major keys for keeping a family-owned business healthy. There is a myriad of factors
which contribute to keeping a family business healthy, but these four keys have proven to
be extremely important:

1. Understand the unique interrelationships between various family and business

roles.
2. Treat the business as a business.
3. Plan for the future of the family and the business.
4. Don't be afraid to ask advice.

Key No. l -- Understand the unique interrelationships between

various family and business roles
What makes family-owned businesses truly unique is the fact that there is an
interrelationship between family and business roles which is not typically found in non-
family-owned businesses. Understanding this interrelationship is the primary key to
making family-owned businesses healthy. A "role" is a part you play in the family-owned
business drama. There are three primary roles: family (are you a mom, son, niece, uncle,
in-law?); ownership (are you a stockholder?); business (who works at the business?).

These roles can change over time and you can have roles which overlap and which
may cause many conflicts. For example, the father in a family-owned business may be the
owner, the boss, a parent and a spouse. The children in the family also have numerous
and conflicting roles: daughter, worker, boss's daughter and potential (or future) owner.
When the boss gives an order at work, it is sometimes difficult (if not impossible) for the
worker to see the boss as a boss and not as a "nagging parent." And it's difficult for the

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boss to view the worker as simply a worker, and not a child who is not living up to the
parent's expectations.

An easy way to visualize these interactions it to use a systems approach. Systems

theory provides a clear understanding of how the three sub-systems--family, ownership,
and business--interact with one another and the environment. It is particularly important
to note that a change in any part of the system affects the entire system. Participants in
each system have different goals and expectations.

"For example, family members often view the firm both as an important part of
the family's identity and heritage and as a source of financial security that will enable
them to satisfy their life-style expectations...In contrast, those in (the business) see their
careers as tied to the firm and tend to regard the business as a vehicle for professional
development and economic achievement...Finally, owners view the business
predominantly as an investment from which they want to receive a fair return".

Once people start to understand how conflicting roles work in a family-owned

business, the conflicts don't go away, but one can start understanding how they occur.
With understanding, come the ability to better handle these conflicts and resolve them
for the benefit of both the business and the family.

Key No. 2 -- Treat the business as a business

This is a business, not a hobby. This doesn't mean that you can't thoroughly love
your business and what you do at your business, but it needs to be profitable and
successful in order to survive and support your family. A student, doing a class
assignment, interviewed an entrepreneur who expressed this concept well: "You own a
business to make money, if you're in it for a hobby you'll never last for more than a year."
Here are five techniques for making your business more effective and healthy:

1. Establish ongoing communications

2. Create a family business vision statement
3. Remember the non-family employees
4. Provide training and education opportunities for all employees and stakeholders
5. Have clear job expectations for everyone

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 Establish ongoing communications by setting specific times to discuss business and
family issues. This technique contributes to both a healthy business and a healthy family.
One way of accomplishing ongoing communications is by establishing meetings both with
all business participants and with family members. Many families have established family
councils as a way of formalizing communication among family members.

Create a family business vision statement or a mission statement, which sets forth
the core purpose of the family and of the business. You may have a separate statement
for each. It should be short (100 words) and be emotionally moving (give you goose
bumps). For example, one family's statement reads as follows:

Our business is about service--to family, to employees, to customers,

and to the community. We want to grow ourselves, and we want our
company to grow, in order to provide a secure 'home base' for
everyone. A thriving business will create opportunities for growth,
community involvement, and fulfillment for everyone, family and
employees alike.

Remember the non-family employees; they are a vital component of many family
businesses. It is important to involve them in appropriate decisions; be honest about what
their opportunities are in the business; and don't promise (or hint at) ownership if it is not
a possibility.

Provide training and education opportunities for all employees and stakeholders in
order to keep your human resources working at maximum capacity. A great way for family
members (who may have always worked in the family business) to get additional
perspective on your business and industry is to attend additional training and educational
workshops or courses. This is frequently available through industry or trade organizations.
Professional meetings provide numerous educational and training opportunities.

Also, encourage spouses to understand the business better. They may need to
attend professional meetings or educational workshops. Spouses (even those not actively
working in the business) play a very critical role in family-owned businesses. They need to

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understand the business in order to provide better counsel to their mates and in case they
ever become more actively involved in the business through ownership or a job.

Have clear job expectations for everyone including relatives who work in the
business. Even if you and your children worked on the ranch your whole life, if you make a
child foreman, don't assume the child can read your mind and know what your
expectations are! You need to sit down and discuss the job, your expectations, your goals.
Write this down, if necessary. Re-discuss these issues constantly and change the
expectations as necessary.

Key No. 3 -- Plan for the future of the family and the business
It is evident with the family-owned business systems model that family and
business are not mutually exclusive! So, when planning for one, you necessarily plan for
the other (whether you mean to or not!). Two techniques for helping you plan are as
follows:

1. Develop goals, objectives and a plan of action for your business.

2. Develop good communication skills. Realize that good communication sometimes
includes speaking the unspeakable!!!

The first step in planning is to look at your vision or mission statement. Where do
you want to be in the future? You need to set goals, develop measurable objectives and a
plan of action to help you reach your desired future. This is a great activity for the whole
family. You can work on this during a family meeting. If you have a really large family,
divide into subgroups and have each subgroup work on a certain aspect of the plan. Then
combine each part into a whole plan.

Communication in a family-owned business cannot be emphasized enough.

However, this sometimes means having to talk about the unspeakable: death, wills,
money, politics, etc. Why is it important to discuss these? Because if you don't, they can
be the root of many problems. For example, what happens if you don't tell your heirs
what's going to happen to the business when you die? Your children and spouse may not be
prepared to handle the business. Do you have sufficient money in your estate to pay taxes
or will the business have to be sold or closed?

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 It is also important to really talk to family members about whether they really
want to be involved in the family-owned business or not. Allow children to make their own
decisions. Forcing a child to be involved in a business can be bad for both the business and
the child. Talk to your children about what their expectations and goals are. Talk to your
children about what your expectations and goals are. Are these compatible?

Key No. 4 -- Don't be afraid to ask advice

Even though it may seem so at times, you are not alone in the world; there are
many resources available to businesses today! The trick is knowing who and where to ask?
The first place to start is by keeping up-to-date by reading! Your local library may have a
number of resources available. Here are some other potential sources of advice and
information:

1. Respected friends, family members, and business colleagues.

2. Service providers: accountant, banker, lawyer, financial consultant, insurance
agent, business consultant, counselor.
3. Extension agents, university professors, members of various government agencies
and development agencies.
4. SCORE (Service Corp of Retired Executives), trade association, and development
corporations.

These are only a few of the many sources of information and help for businesses.
However, it is important to know how to select advisers. The following are some
suggestions:

1. Get referrals.
2. Interview adviser before hiring.
3. Ask for a list of references from potential adviser.
4. Does adviser have the necessary technical skills?
5. Ask what fees are.

David Bork, in his book Family Business, Risky Business suggests asking the
following questions during a reference check for a business adviser:

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 1. What was the nature of the problem that prompted you to call the adviser?
2. How did the adviser go about helping you find an acceptable solution?
3. Did the adviser manage the relationship in a satisfactory manner?
4. Did the adviser understand the special conditions found in family business?
5. Was the adviser a good listener, and did s/he really grasp the problem in its
entirety?
6. Were you satisfied with the final outcome?
7. What recommendations do you have for making the best use of the adviser's talents
and skills?

The primary key to selecting an adviser for a family-owned business is, Does the
adviser understand the special conditions found in a family business? Some advisers feel
they know "the best way." Some advisers feel the best way to run a family-owned business
is to get the family out of the business. While this may be true in some cases, is it always
true? You need an adviser who not only knows the technical issues of his/her specialty,
but one who also understands the interrelating roles of family and business. You need an
adviser who will help you and your family face the important issues and decisions and not
just make the decisions for you.

In A Nutshell

Understanding and communications are consistent themes which are found in all
four keys to keeping the family business healthy. Understanding interrelationships and the
nature of your business...communicating with family members and non-family
employees...communicating with advisers and understanding the impact of their advice on
both your family and business...all of these will contribute to working effectively with
those you love while keeping both your family and your business healthy.

Working in a family-owned business can be a wonderful adventure for everyone if

you keep these keys in mind. Remember, you need to think of a family business as a
growing system; you have to be prepared for some troubles in the system, for they will
come. But, by developing these four keys, you can overcome the troubles and get back on
track. Following these four keys will help both your business and your family stay healthy.

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References

Bork, David. Family Business, Risky Business. New York: American Management, 1986.

Jaffe, Dennis. Working With the Ones You Love. Berkeley, CA: Conari Press, 1990.

Jaffe, Dennis. "How to Create a Family Council." Nation's Business, June 1992, 54-56.

Lansberg, Ivan. "The Succession Conspiracy." Family Business Review, 1988, 1(2), 119-
143.