Family Business Leadership Failure
Typically, when I hear from a family member in a family business it’s usually because they can no longer resolve what’s not working in their business and need to turn to an outside resource.
When family businesses are not set up like other businesses, they don’t work well. Every business is different, but most great businesses have a lot in common starting with a strong leadership team. Below are four attributes of great businesses that when present in a family business make for a more successful and pleasurable experience.
A great business has a leadership team that is separate from and accountable to the ownership group. The role of the owners is clearly defined. Just like a board of directors they are measuring the company’s effectiveness as leaders, its profitability, its use of cash, debt and assets, its return on equity (i.e., return on investment), its strategy and more.
Most family businesses I’ve encountered have not set up a governing body to oversee the company like an outside investor would. The result is they don’t pay attention to measures beyond bank balances and profitability. And, this makes no sense. There are many measures that matter beyond cash and profitability. For instance, the value of the business, the return on equity and return on assets matter.
Every great business has team members with clearly defined roles and responsibilities who are accountable for the major functions needed for success. Usually a smaller company is divided into three essential areas: Sales & Marketing, Operations and Customer Service, Accounting & Finance. While a larger company might have these other functions: Research & Development/Innovation, Information Technology, Human Resources, Training & Development, etc.
Each function must have several, ideally 3-5, clearly definable roles that each person on the team is aware and to which they are accountable. And, they must have several, ideally 3-5, well-chosen metrics that they report on to the leadership team. The problem with many businesses, especially family-owned and run, is that they don’t have these clearly defined roles, responsibilities and accountability. While the person is charge of sales & marketing may have chosen measures (# of leads generated, # and $ value of leads converted, total revenue closed, etc.), it’s common for the other functions to have no specific metrics associated with their roles. Moreover, they also don’t have any specific initiatives or priorities to move the company forward toward any larger goals.
It’s important to note that accountability and responsibility are different. Simply put, accountability goes to any single person on the team who can ‘count’ and report to the team on that result while responsibility goes to anyone and everyone who has the capacity to affect an outcome related to what you are measuring.
Every great business has a leadership team that is healthy. You get along and have healthy dialogue. I have worked with many family businesses some of which have been very dysfunctional. One of my clients had been growing its revenues 10x year-over-year. But their executive team was growing more and more splintered by unspoken feuds and hidden grudges. That’s when they contacted me. I was able to solve an issue quickly which they had been fighting about for months. The team dynamic improved once a swift change was made, which resulted in increased productivity among all employees. What I did was take them through some exercises to expose their differences, so we could all get on the same page again as a family. The result was that a family member left the business, but the business and family relationships were healed as a result.
Every great business has a leadership team that is aligned and unified around the vision of where the company is headed. You can accomplish so much more when the goals that you are striving to accomplish this quarter, this year and beyond are known and there is alignment of everyone in the company. The problem in many family businesses is they are assumed and not codified. So, while they may think they share a common purpose (reason for being in business) and while they may share a set of values (operating behaviors or code of conduct) to which they are committed, the reality is that they are unspoken. It’s too easy for you as a family to lose touch with these as changes happen in the family and other non-family members have no idea that these culture-building and defining activities matter. So, written values, purpose and goals are not alive in the company and a lack of accountability or poor results become a natural outcome.
If your family-owned business is experiencing conflict, struggling with personality differences, failing to set goals, lacking accountability, not achieving your most highly desired outcomes (such as building a valuable/sellable business) and failing to measure results (beyond looking at your bank balance), then maybe we should talk. I guide family business owners to find entrepreneurial freedom.