Family business can be describe when business own by one or more families members directly or indirectly and have significant ownership and commitment toward the business well being. Family business can be consist of numerous combination of family members such as husband and wife, parents and child, extended family and also multiple generations such as grandfather, father and son. These family members also play roles as stakeholder, board members, working partners, adviser and employees for the company.
Generally there are three different stages of family business had gone through in order for the business to growth from inception to maturity. Different skills are required in each stage and family issues might happen when the business moving from one stage to another stage.
The first stage is called as start up stage where the business is still new and varies from 1st to 5th year after the company started to venture their business in the market. The direction and business objective is clear since it more focused on the creation of the new business. The culture is in revolutionary change since everything is new and everything has to be created first. Family and ownership is not an issue since the founder dedicated all available time to developing the business. Raising the startup capital is the critical barrier since the business might face the danger of under-capitalizes during the initial period of business initiation and the family members are an important source of finance and business advice. Inadequate estimation of initial capital, operating cost and stream revenue will contribute to cash flow problem starting from the beginning of the business started.
The second stage is survival and stability stage where the related period is between 6th to 15th years after the business was started. During this period the company needs to consolidate and structure their business function and area due to rapid growth and positive cash flow. The culture is in evolutionary stage since it building on what founder has created rather than changing tremendously. The ownership become important to a small number of family members however the newer generations tend to escape and create their own path rather than submission to the founding generation.
The third stage is success stage where the business was already running for 16 year and above. During this period the business will traverse to a different generations and there can be several hundred of family members who already inherit share in the business. The ownership becomes to the fore since the family members with minority ownership tend to wonder about their roles in the business since they don’t work in the business and not sit on the board. They might want to sell their share and invest the money elsewhere for themselves.
The business might also face a difficult decision in how they want to manage the company whether they should continue running the business according the old ways as determined by the founder or adapt to the new market needs and requirement. The culture during this period can be evolutionary, revolutionary or the mix of both. During this period most of company will growth and expend their capacity or business. Sometimes the company will neglect the financial planning, control procedure and contingency plan for worst case scenario. When the crises occur it might result in some loss of credibility and exposed their weakness to the customers and shareholders.
Challenges Faced by Family Businesses
The family business can be described as two competing system which is family and business. Since the relationship between the family members is unique with uncertain boundaries and different rules the conflicts might arise due to overlap of the roles such as siblings, husbands and wives, parents and children, extended families, and multiple generation roles in company. The context between the business and family also different where the business focus more on profitability and productivity while family more encourage for nurturing and acceptance. Beside that individual communication within the family members also might be inappropriate in business situations .
The tension will exist between their personal life and career pursuit of the family member where the personal concern and argument may carry over into workplace and cause detriment to the company. For example the husband and wife who is a partner in a company might not able to make a good business decisions without marital problems turning the discussion into an argument. They may confuse their roles of business partner and spouse. Other example is when mother work with her son in the same workplace where this two people need to manage two relationship simultaneously where she is the mother/ boss working with her son/employees.
Rules are important concept whether at the workplace or in the family. The conflict arises when the family rules is incompatible after they are transferred to the business system. For example in family context the nurturing, advice’s giving and considerate by parent are accepted rules apply at homes. However in the business context the parenting style rules might be embarrassing to the children as the employees and this will disrupt their productivity and working relationship between the parent and child.
The guideline and qualifications for family members to enter and working at the family business also will cause the conflict since some of them are not qualified due to lack of talent or skill to fit in the work position and make useful contribution to the company. Once hire it was difficult to fire if they are trouble-making family members that cause a problem to company such as reduce the motivation of other employees by exhibit a poor attitude and cost the company money since it involve unique relationship.
When this conflict occur attracting and retaining non-family employees will be problematic to the company although the outsider can provide fair and impartial perspective on business issue that can stabilizing force in family business. For the example employees might find it difficult to deal with family conflict in the job because the special treatment was accorded to the family members and the opportunities for advancement will also be limited. Some family members might also resent the outsider and purposely make thing difficult for non-family employees to retain in the company.
Another challenge for family business is the issue such as money, personalities and trust. For the money in family business it involved the payment of salaries and dividing the profit among the family member who participate in the company. In order to growth the company needs to use quite large percentage of the profit for expansion especially for small business firm. However some family members who are the owner but not employees of the company need to be convinced about the value of investment for company future and why they receive small amount of dividend cause by the expenditures.
In term of personalities and trust it involves the succession of the family business. As the founder of the business he needs to determine who will take over the leadership and ownership of the business to continue their legacy when current generation retires or dies. Without proper planning for current generation to step down it might cause a jealousy among the family members. If it not handled sensitively when deciding who will be the successor and CEO it may result the conflict and hostility among the siblings on final decision and it has a potential to divide the family harmonies and destroy the business. Beside that when the succession is postponed the older relatives who still remained in the family business tend to maintain at their status quo and resist to change and take the risk although this attitude can inhibit the growth of business.
Why some Family Business cannot Sustain over Generations?
Conflict is inevitable in any business and in family business it was one of the major factors that contribute to the destructive behavior to the firm and family. When the conflict is not control properly it will disturb the rationality of decision making, adequate planning and in the worst case situation it will contribute to the mortality rate of family business. Although most of individual growing up in a family it doesn’t mean they are an expert in solving family problem. This concept is same for family business problem since most of the individual have poor and lack of skills for conflict management and resolution among the family members it will contribute to too many conflict to arise. Major sources of conflict included rivalries among founder, siblings and family members, lack of guideline for career enhancement, differences status and power between family an non family employees, and unfair succession process.
The key success for the family business is a good management especially in financial management and willing to take risk in order to achieve business success. Poor financial management was the main reason for the family business failure and as the owner need to learn how to ensure it meets their financial obligation. Beside that poor operational management that involving day to day running of businesses was also the failure ascribe from overwhelmingly owners.
Succession planning is a long process where most family business lack of good succession plan and it becomes more crucial in the event of sudden death of the founder. Base on typical Asian culture usually the son will takes over the family business. The lack of planning from first to second generation was the fault of the founder himself and as the result his business dies with him and this is the reason why most of family business does not succeed to the next generation. Sometimes some owner especially in small and medium enterprise prefers their heir to become professional and does not encourage their child to inherit their business so the company was sold and close down.