How to run a family-owned business

I’ve some really bad experiences with family-run businesses over the years. However, I also know that some of the best, and most-rewarding, companies to work for are family-owned. Donald Trump’s business, as big as it is, qualifies. So when I a got a call from Brittany Thomas (who is promoting a new book by Henry Hutcheson, president of Family Business USA, titled “Dirty Little Secrets of Family Business”) I agreed to do an interview because I figured I could learn something. In addition, I hope that through me, maybe some of you who work for family-run businesses, are thinking of starting one, or may someday work for one, could learn some things as well.

From my perspective, the core problem of a family-run business is that family members often feel they are not appreciated as employees or feel they taken advantage of, and nonfamily members feel they are at a disadvantage when it comes to raises and advancement. The advantage of a well-run family business is it treats employees like family and the family executives think long term and don’t trade off, as do most hired public CEOs, who think in terms of short-term financial gains for the long-term survival of the firm. Or put more bluntly family-run businesses tend to avoid layoffs like the plague, while too many regular CEOs use them as an almost annual tool.  

But those are my perceptions, here are Henry’s:

Rob Enderle: What are the most common reasons that family-run companies fail?

Henry Hutcheson: Letting unqualified children run the business, the current generation waiting too long to pass over the business, siblings not being able to work together and poor communication.

Enderle: Is it advisable that children first work at an outside firm or simply come up in the company?

Hutcheson: The highest correlation to successful succession is when the next generation spends some time working outside the business. The reason is that it develops a strong sense of independence and self-awareness. Either after high school or after college is the best time to do this. However, sometimes this is just not possible. In this case it is important to give the child projects that can enable them to develop a sense of independence.

Enderle: If there is a dispute in a family company what is the best way to resolve it? Worst way? Which is more common?

Hutcheson: The best way to resolve issues in a family business is to be aware beforehand that issues will come up in a family business and to have regular communication regarding working together in a family business such that the issue never actually becomes a dispute. The worst way is to avoid discussing uncomfortable issues when they are small, [or] to continue discussing [small issues] when emotions have taken over. Most family businesses are aware there are difficulties, have good communication, and address issues when they are small.

Enderle: If a child or parent in a family-run firm feels underappreciated, what should they do?

Hutcheson: They should bring it up. If the family is having regular family meetings these are safe places to have these discussions. It is important to also be aware that many times appreciation is not given because it is never reciprocated. If there is a culture of not appreciating others, then even though your performance may warrant recognition, it won’t happen.

Enderle: How should you review a family member’s performance so they don’t feel underappreciated or, conversely, take corrective behavior actions timely?

Hutcheson: The best family businesses sit down and agree to job expectations, sit down midyear to measure, and then measure again at the end of the year. Secondly, it is very helpful if the expectation setting and measuring is done by a non-family member. This way it makes it professional, not personal.

Enderle: If you were to list three things the parent running a family company should always do what would they be?

Hutcheson: Start your child at the bottom, move them up and around as they earn it, have good and regular communication about their performance and all other family business matters.

Enderle: If you were to list three things a person working for a family-run company should do as a family member what would it be?

Hutcheson: Focus on being the best you can be with the work that you have, understand that being in a family business can be difficult and requires some effort to make it work right, and engage in and promote good ongoing communication.

Enderle: If you were to list three things that a person who isn’t in the family, but works for a family-run company, should do what would they be?

Hutcheson: Focus on doing the best work possible in your area, realize that there can be family dynamics that go on that you will not know about or understand, be aware of and guard against the possibility that dysfunctional family businesses will promote less capable family members over non-family members.

Enderle: Finally, would you ever work for or run a family-run company yourself? Why or why not?

Hutcheson: Absolutely yes. Well-functioning family businesses treat all employees like family. Working in or for a family business you can have great flexibility in good times and bad, and what could be better than working with the people you love the most!

Why I won’t go the family business route

 My own experience with family-run business is such that I’d never do it again. But largely the problems were both my lack of maturity at the time and that the family members running the businesses really didn’t know what they were doing. I could take the family part out and instead say the rule is don’t work for a company that is badly run, regardless of whether it is being run by family or not.  

One thing that really resonated with me was the answer to the question of whether kids should work someplace else first.   I’ve had both friends and other relatives work for their parents and much of the problems they had likely came from bad expectations on the kids side, and the parents still seeing them as kids. Working someplace else first better sets expectations and provides a resume that can be used to build respect with the parent.  

In any case, I hope this is as interesting for you as it was for me. One final thought: I just realized I do work for a family-run business, but that is OK because my wife lets me think I’m the boss. Hmmm, maybe that should be another rule?