Measuring Up: Blood Is Thicker Than Water, But It Can Gum Up Your Business
September 1, 2006
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When done right, few things are more rewarding than running a successful family business. However, family businesses can include sticky family issues that can become heart-wrenching traps for family members.
When done right, few things are more rewarding than running a successful family business. However, family businesses can include sticky family issues that can become heart-wrenching traps for family members. The following scenarios are typical of those found in many family businesses. Each of these problems has it's own particular circumstances, but the remedies for all of them are very similar.
Relationships: Family businesses are made up of family relationships. Unfortunately, family relationships from outside of the business tend to carry over into the business. Frequently this family relationship seems perfectly normal in day-to-day family life but is devastating when transferred to a business environment. Much of this behavior is driven by poor communication and lack of accountability. The solution is to build structured communication and accountability systems that cannot be easily ignored. Such meetings are public with clear objectives and follow-up accountability. They must be formal and ongoing, rather than haphazard "hallway management" types of meetings.
Equality: Just because someone is listed as a partner does not mean their contribution is equal to that of others in the business. Forming a partnership with someone who does a job that does not bring equal value to the partnership almost always spells disaster. When such partnerships are made up of family members, instincts tend to protect the lagging family participant. Over time, the contribution versus compensation pay gap will grow. Before you know it, the situation becomes unbearable for the under-rewarded and unappreciated family member.
Performance Reviews: Healthy management calls for employee accountability, performance reviews and formal compensation discussions. When family members are involved, avoiding such discussions can make for difficult times at home. Avoidance of the problem merely allows it to grow and become more complex. Establishing regular ongoing reviews with clear career path expectations can foster growth and accountability. Do your best to run family members through personnel reviews just like any other employees.
Outside Guidance: Outside advisors can be very helpful in bringing objectivity to family business situations. One of the best places to start is with a good CPA. Use the CPA for more than a once-a-year tax return. Another excellent source is estate lawyers, as they frequently work with family business situations. An outside consultant can be an ideal third party to help with family business issues. When using an outside consultant, try to find one who is experienced and is willing to deal with the problem head-on. You may also want to find a business coach who has a psychology background who can help you wade through this emotional minefield. It is important to pick an advisor that both parties will find neutral.
Startup: The problem will not get better without intervention. Due to lack of estate planning and wills, this is one of the few relationships that death may not resolve. How do you eat an elephant? You eat an elephant one bite at a time. This problem grew over time, and it will take time to fix it. So dig in and start working on it. The people who are not pulling their own weight are not going to address the issue. He or she is in denial. This is a situation that must be corrected by the family person who has the most to gain by doing so. He or she has to stand up and take control of his or her destiny.
When done right, few things are more rewarding than running a successful family business. However, family businesses can include sticky family issues that can become heart-wrenching traps for family members. The following scenarios are typical of those found in many family businesses. Each of these problems has it's own particular circumstances, but the remedies for all of them are very similar.
Two Brothers
Ralph and George were the typical brotherly dynamic duo who growing up did everything together. Ralph was three years older and a better athlete. George was not quite as athletic but made better grades. They double-dated, hung out together and even went into apprenticeship together. Ralph stayed in the family business and soon became foreman. George went to a two-year junior college and then entered the field, quickly moving into the office. Ralph rose to head foreman and George to head estimator. Unfortunately, Dad left the business to both of them. Today Ralph is an overpaid construction manager who goes home every day at 4 p.m. and George is an underpaid CEO who works until 7 each evening. Now Ralph and George do little together, and their relationship grows more and more strained.Husband and Wife
Mary and Jim have been married for 18 years. As the business grew, Mary's role grew with it. She paid the bills and did the bookkeeping. Today the business has grown to almost $1 million in sales, but they still barely make a living. Mary is an excellent bookkeeper, but Jim does not know his numbers and could care less. Mary runs job costs and financial statements that Jim does not even look at. Jim says his job is to get work and run the field and Mary's is to do the bookkeeping. Mary and Jim are starting to have marital problems, and Mary is thinking about getting a job somewhere else, but worries what would happen to the family finances.Father and Son
John White and his son Michael had a typical father-son relationship. Being self-employed, John worked long hours, but he was around to attend ballgames and take his family on great summer vacations. He was a good Dad. Like many self-employed people, John has a strong personality, and his personality tended to dominate family opinions. John made a good living but is not wealthy. Now John is 57 and his son Michael, now 36, really runs the business. The problem is that Dad does little to generate income or value to the business. Dad refuses to do estimates and even takes up much of Michael's time by sitting in his office telling war stories. Michael is growing frustrated and is not adequately paid.Similar Problems
While each story is different, the issues are similar. Each scenario contains a family member who is not pulling his or her weight, and the other family member is enabling the situation by allowing it to happen. The more engrained and entrenched the behavior, the more difficult it can be to fix. How could these situations have been avoided, and what are the root causes of the problems?Relationships: Family businesses are made up of family relationships. Unfortunately, family relationships from outside of the business tend to carry over into the business. Frequently this family relationship seems perfectly normal in day-to-day family life but is devastating when transferred to a business environment. Much of this behavior is driven by poor communication and lack of accountability. The solution is to build structured communication and accountability systems that cannot be easily ignored. Such meetings are public with clear objectives and follow-up accountability. They must be formal and ongoing, rather than haphazard "hallway management" types of meetings.
Equality: Just because someone is listed as a partner does not mean their contribution is equal to that of others in the business. Forming a partnership with someone who does a job that does not bring equal value to the partnership almost always spells disaster. When such partnerships are made up of family members, instincts tend to protect the lagging family participant. Over time, the contribution versus compensation pay gap will grow. Before you know it, the situation becomes unbearable for the under-rewarded and unappreciated family member.
Performance Reviews: Healthy management calls for employee accountability, performance reviews and formal compensation discussions. When family members are involved, avoiding such discussions can make for difficult times at home. Avoidance of the problem merely allows it to grow and become more complex. Establishing regular ongoing reviews with clear career path expectations can foster growth and accountability. Do your best to run family members through personnel reviews just like any other employees.
Outside Guidance: Outside advisors can be very helpful in bringing objectivity to family business situations. One of the best places to start is with a good CPA. Use the CPA for more than a once-a-year tax return. Another excellent source is estate lawyers, as they frequently work with family business situations. An outside consultant can be an ideal third party to help with family business issues. When using an outside consultant, try to find one who is experienced and is willing to deal with the problem head-on. You may also want to find a business coach who has a psychology background who can help you wade through this emotional minefield. It is important to pick an advisor that both parties will find neutral.
Startup: The problem will not get better without intervention. Due to lack of estate planning and wills, this is one of the few relationships that death may not resolve. How do you eat an elephant? You eat an elephant one bite at a time. This problem grew over time, and it will take time to fix it. So dig in and start working on it. The people who are not pulling their own weight are not going to address the issue. He or she is in denial. This is a situation that must be corrected by the family person who has the most to gain by doing so. He or she has to stand up and take control of his or her destiny.
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