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Going Into Business With Your Family? Tips to Consider
About 90% of businesses in the U.S. are family-owned or controlled. If you're starting a business with family members or have already done so, how can you ensure its success, and what can you do to make sure both your business and family relationships stay strong in the process?
A recent study has identified some top tips for long-lasting success. Researchers from Kennesaw State University and Ernst & Young interviewed 25 of the largest global family-owned businesses and found some key commonalities:
• They had a succession plan in place, with successors clearly identified (87%). This helps combat a common threat — businesses failing to survive once the first generation lets go. Forbes reports that two-thirds of family businesses die during the hand-off from first to second generation. Another 50% don't make it into a third generation.
• They had a board of directors (90%), mostly made up of, or controlled by, family members.
• They communicated well, with regular family or shareholder meetings to discuss business (90%), as well as regular meetings to discuss family issues (70%).
• They cared deeply about each other (81%).
• They were proud of their companies and families: 76% referred to themselves as a family business in their marketing, and their family strongly identified with the company as "who we are" (68%).
Other tips for running a family business come directly from someone involved in such an enterprise. Sam Prochazka co-founded Novosbed (a producer of memory-foam bedding products) with his brother and sister, Andy and Helenka. He discussed lessons he's learned with Entrepreneur:
• Select a leader or decision-maker, rather than relying on a "committee of relatives" which, warns Prochazka, can lead to "execution paralysis."
• Make sure everything is in writing — don't be informal, which can leave room for misinterpretation.
• Don't fire relatives if you can help it — this leads to family rifts. Instead, he says, hire wisely, have clear performance expectations, and if it doesn't work out, encourage a resignation rather than a termination.
• Use constructive criticism and keep it professional. Treating siblings like siblings can be a recipe for disaster.Don't drudge up childhood fights or patterns of interaction that don't have anything to do with the workplace.
In The Business Journals, Connie Certusi found from interviewing successful family business owners that another key is:
• Identify skill sets family members may have, and use these in the business.
Too often, she says, family businesses run on assumptions without taking time to look closely at who brings which skills to the table.
If cousin Jerry has always been fun and friendly, for instance, don't automatically stick him in a salesman role. Maybe while you weren't looking, he went off to college, majored in accounting, and has a head for financial analysis. In other words, don't let your perceptions of a family member affect your ability to view the person as an outsider. And speaking of outsiders:
• Bring in outside talent to broaden your family business base, suggests Prochazka. This helps fight insularity, where everyone has been brought up a certain way, with a similar mindset and experiences. While that might make for cohesion, it also can mean you miss additional perspectives from non-family members that can help your business grow.
Lorna Collier is a Chicago-area writer whose articles about business and technology have appeared in the AARP Bulletin, Intuit Small Business Blog, Workforce Management, Crain’s Chicago Business, CNN.com, USNews.com, the Chicago Tribune, and many others. Her husband runs a second-generation family business.