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Helping Family Businesses
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What Makes Family Businesses Different?

Appreciating family firms requires an understanding of how mixing business with family results in unique characteristics. Those who deal with businesses in the absence of family influences are often uncomfortable when confronted with family businesses. And yet family firms enjoy advantages over other businesses. Here are some of the characteristics that set family businesses apart:

  1. Family businesses are a living paradox. Balancing family interests and business interests often requires compromise between family and business perspectives. In the best of situations, dynamic tensions create new "win-win" solutions that compromise neither the business nor the family.
  2. Differences in perspective are rampant. Some members of the family business system think more as family members; others as managers; others as owners. Differences in perspective, not personality, are the source of most conflicts.
  3. Continuity planning is multi-dimensional. The company's business plans must be integrated with leadership and ownership succession plans, and both must be integrated with the owning family's estate and personal financial plans,all of which work best in the context of the family's shared and articulated goals and values.
  4. Family systems are powerful with tremendous inertia. Leading change in either the business or the family is tremendously difficult because many family members depend on the status quo for psychological comfort -- even if the status quo is unhealthy.
  5. The support of inactive owners is critical to continuity. In most businesses, owners or investors can come or go based mostly on financial expectations. In family firms, gaining the long-term, voluntary commitment for the business of non- employee family shareholders is essential for stability and security.
  6. Non-employee family owners want, need and deserve a role in the business's strategy, culture and governance system. They have a large financial and emotional stake in the business.
  7. Inherited wealth and privilege can be psychologically overwhelming. The energy and effort required to lead and govern a successful family business make the process tremendously demanding. At the same time, the next generation may enjoy significant wealth. Gaining the motivation to become a successful successor can be difficult, particularly given the ambivalence that heirs often feel. While wealth appears to bring great freedom to family members, it can be paralyzing.
  8. The business has a social purpose. Family businesses rarely justify their existence by profit-maximizing alone. The owners expect and need a higher purpose to retain their ownership,and to justify the sacrifice of personal freedom and economic diversification.
  9. The time horizon is indefinite. Owners and managers of family firms often think beyond the "present value of cash flow" time frame. Preserving the institution can appear more important than economic rationality. Family business leaders don't put much stock in short term forecasts; they often adopt a generational perspective. High "residual values" often shape decisions more than near-term results.
  10. Conflicts of interest are prevalent. Owners readily see "doing favors" or "pay back" as the quid pro quo of loyalty and past sacrifices they have made. They're often comfortable that folks will easily accord them the benefit of the doubt in such affairs.
  11. Family business leaders are more modest than their public demeanor suggests. Confidence and bravado have been developed to persuade others, who have limited real information, to believe things are better than they are. Underneath, business owners are more afraid of their own inadequacies than it appears.
  12. The culture is most often paternalistic. Paternalism is promoted due to long terms of leadership and the need to gain people's allegiance without sharing much power or information.

These characteristics are, of course, generalizations that in the aggregate, are not fair to any family business. But being conscious of such tendencies can often provide insight into why things are the way they are and why family firms may behave differently than non-family firms. They also offer clues about both family businesses' special strengths -- and challenges.

 

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