Father and son starting a business together

Tips for Running a Better Family Business

5 min read • Jun 13, 2020 • Katherine O'Malley

A family-run business needs to follow the same foundations as any business. But a family-run business also has some extra complexities to address—like long-standing family dynamics, established family roles, and coworkers who sit at your dinner table each night. So what could help a family business run even better, given these additional challenges?

Have an In-Law Policy

An in-law policy defines whether in-laws can be part of the family business.

There are pros and cons to allowing or forbidding in-laws to join the business. Given the uniqueness of each business and family dynamic, there isn’t a one-size-fits-all rule. Careful evaluation of your situation is key.

For example, allowing in-laws into the business might strengthen family bonds if everyone is all-ina spouse can’t complain about the hours put into the business if they have an equal stake. However, a divorce could cause conflict if it leaves a hole in employee roles or if lawyers arrive to divvy up assets.

But a policy that forbids in-laws could cut both ways. You might have to exclude an in-law who has skills that could round out your team. On the flip side, you can avoid hiring the in-law who isn’t a good fit for the values of the family business.

Whichever way you choose, it’s critical to have the policy in place before the question arises. If you wait to decide this policy, it can get dicey from a family perspective. Why was one in-law hired while another in-law told to find a job somewhere else? Without a policy, family members may not understand that one person was hired due to their expertise while another was turned away as their skills did not fit a business need.

Develop an Owner’s Mindset

Develop an owner’s mindset rather than an operator’s mindset to help a family business adapt to changes in the marketplace. 

An operator’s mindset focuses on “operational excellence,” where the focus is on improving the quality of operations for the business’s traditional products and practices. Problems are solved by innovating better operational practices or by fixing operational inefficiencies.

An owner’s mindset is an operator’s mindset combined with a focus “on being in activities that create value (financial, social, relational, and reputational) according to the key values of the owners.” In other words, an owner’s mindset recognizes the importance of operational excellence but is willing and able to look at the big picture. It allows a business to adapt products and practices based on the business’s core values and the current marketplace. Solutions to a problem might include operational changes or even switching gears to a completely new industry and product. The focus is on business value, not the product.

For example, a family-run restaurant based in a seasonal lake community went out of business due to an operator’s mindset. Most income was generated during the prime lake season months of May through September. Using an operational mindset, they tried to generate enough income during those months to sustain them year-round by building a better sandwich (operationally cutting sandwich costs while increasing sales of the sandwich). An owner’s mindset would have allowed them to step back and ask the harder questions, such as, “Should we be a seasonal business rather than a year-round business?”

Have a Succession Plan

You won’t run your business forever, so create a succession plan before it’s needed. In a family run business, it’s important to know whether your children want to be a part of the succession plan. If they do, consider what steps need to be taken to bring the younger generation into the business

McKinsey Institute identified one challenge of a family business as “developing the next generation as motivated and responsible shareholders.” In other words, you can’t name a successor and throw them the reins. Begin training your next-in-line several years in advance

Don’t Ad-Lib Decision-Making

Make sure you have a formal structure for decision-making.

As tempting as it is to rely on unwritten decision-making roles based on the natural strengths and weaknesses of family members, a formal decision-making framework with defined roles helps avoid conflict as the business decisions become complex. Decisions such as changing suppliers, creating a new logo, or selling a major asset shouldn’t be spontaneous. Do a SWOT analysis of family members to help outline who is best for contributing to which decisions. 

Besides defining these roles, decide if your business warrants an advisory board. Having a board can remove potential family tunnel-vision problems and shift focus to the strategy or longevity of the company.

At the very least, consider the risks of an equal partnership, which is 2 people with equal stakes in the business. Would a formal decision-making process or an advisory board help mitigate those risks?

Create an Employee Handbook

An employee handbook communicates your rules and policies to all of your employees. For a family-run business, ensure your employee handbook has real guts and depth to it. 

Ensure family members follow the same handbook as non-family members. No one wants cries of favoritism to disrupt a workday.

Establish Rules for Work-Life Balance

Have a plan for turning off the work conversations when you aren’t at work. 

Without guidelines, Grandpa’s 80th birthday celebration might turn into a family discussion of last month’s profit and loss statement. Include clear boundaries for work and personal lines, whether that means rules for when business emails are checked or when and where a brainstorming session can be held.

A family business relies on a healthy family dynamic inside and outside of the workplace. By following these tips, you can run a better family business.

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Katherine O'Malley

Katherine O'Malley is a contributor to the Lendio blog. A technology geek at heart, she splits her time between traveling, freelance writing, database administration work, and implementing SEO on her travel blog. In her free time, she loves to research the challenges small-to-midsize tourist suppliers face and find ways that technology can help them out.