The statistics about family businesses—a mainstay of the global economy—are quite sobering. It’s well documented that just 30% of all family businesses last into the second generation, and only 12% make it to the third generation. Why? It’s often the result of poor talent management.
An article in the April 2015 Harvard Business Review, “Leadership Lessons from Great Family Businesses,” provided some food for thought from a study conducted by Egon Zehender and Family Business Network International of the 50 leading family firms around the world. They found their top four best practices were:
- Establish a baseline of good governance.
- Preserve what they call “family gravity” (what makes a family special).
- Identify future leaders from within and outside the family.
- Bring discipline to the CEO succession process.
Those are certainly important steps to take in working toward establishing a sustainable family business, but as a family business consultant, I would add one more: Run like a business, but feel like a family.
Yes, that’s easier said than done, but it’s quite possible to accomplish, starting with a critical first step for many family businesses: identifying their values and creating a mission statement as well as a strong set of governance rules. Many family businesses are reluctant to do this—preferring to work in the business rather than on it—and unfortunately, that’s detrimental to their long-term health.
For instance, the process of crafting a mission statement doesn’t have to be overwhelming. According to family business consultants Aronoff and Ward, the document should tell readers “who we are as a family and what we stand for” by articulating the family’s values and the means by which they are expressed both within the family and in the community. It also describes the family’s vision for the future, documenting its dreams, hopes and ideals.
It really is best to engage in formal “baseline” activities like this in the early stages of a family business, since that’s when this type of purposeful behavior will have the greatest impact. Think of it this way: you wouldn’t erect a building without first laying a good foundation.
The reluctance to create a mission statement articulating family values and good governance rules is one of the two primary reasons I believe family business succession plans fail. The other is an unwillingness to bring in non-family talent when it’s needed to get to the next level.
Many family business owners are not comfortable allowing a non-family member to assume the CEO position/leadership role, even when no one in the family is well suited for that responsibility. This is really akin to cutting off your nose to spite your face; by promoting a family member who isn’t qualified to lead, the business is put in jeopardy.
One way to prevent this uncomfortable situation is to clarify roles and responsibilities within the family business. Understanding the difference between ownership and management can be critical to guide families in making difficult talent decisions that are in the best interest of their business.
As cited in the “Leadership Lessons…” HBR article, family businesses account for an estimated 80% of companies worldwide—and employ 60% of workers in the U.S. while being responsible for creating 78% of new jobs. Thus, it behooves the owners of family businesses to do what it takes to lay the proper foundation for long-term success, which includes implementing the best business practices cited above and ensuring you’re guided by principles and values that best define your family.