Should you hold onto your family business culture, or redefine it for the next generation?
Transitioning your family business to the next generation takes more than simply handing over the reins. Any major change in a business can affect the company culture. Installing a new leader is indeed a major change, but more is at play. Societal changes, new employees and business realities are all factors that affect the business in one way or another. Transitioning your business to new leadership is the perfect time to proactively address your company’s core values, business mission, and future to ensure that your culture is aligned with your business and financial goals.
In many family businesses, the culture has been set by the founder and leader of the business. When that person goes away, it can be hard to hold onto the culture, and still successfully grow the business. While each family business is unique, I encourage my clients to identify the family business philosophy going forward. There are three main types of family business philosophy models: Family-First, Business-First and Family Enterprise. The question to ask yourself is, “What holds our family together?” Is it wealth? Shared ownership? Working together? Family gatherings? Asking these questions will help you determine the right philosophy to drive the business forward into the future. Let’s look at the hallmarks of each philosophy.
In the Family-First model, the family’s happiness and sense of togetherness should come before everything else. Family business decisions will favor family equality and unity—even if they come at some expense to the company’s future. In this model, differences in the quality and degree of family members’ contributions to the business will not be fully recognized. While this model is a far cry from how a non-family business would operate, it is necessary if family unity is the goal. It can, however, backfire if certain family members are pulling significantly more weight and become unhappy with the arrangement. It can also impede growth. And if growth is the goal, then a Business-First approach is what’s called for.
In this model, all decisions are based on what is best for the company, and the family needs become secondary (though not necessarily forgotten). The model rewards hard work, promotes shared success, and is driven by growth and individual opportunities to succeed. Professional business principles—the ones used my most private and public businesses—should be used to govern compensation, hiring and promotion. For businesses that have followed the Family-First model in the past, this can be a monumental change. Merit wins out over nepotism, meaning some family members may be “left behind.” This does not, however, mean that these family members will be left out in the cold. In many cases, family businesses will set up an equity structure so that family members who are leaving the business will still be financially stable. And often, some family members are relived to be able to pursue careers and lives outside of the family business.
This model splits the difference and creates a balance between Family-First and Business-First models. All decisions should balance family satisfaction and the economic health of the business. It’s a great model for a lot of family businesses, but it does require long term commitment to the business and a willingness to resolve conflicts among family members in business decisions. For families with good communication habits, this model can work wonderfully. But for families that constantly bicker, it can go south quickly. Through my work as a family business consultant, I have seen both scenarios play out.
So, which model is right for your family business? That’s for you to determine, but I know this—you must be intentional as you work with your family to discuss what the future will look like, and you must be intentional when dealing with the reverberations of whatever decision you and your family make. Times of transition are often emotionally difficult, but if you focus on communication and honesty, in the end both the family and the business will win.