Private Vs. Family Businesses: What's The Real Difference?
Is your business a private business or a family business? In this episode of The Leadership Hustle, Andrea Frederickson and Michelle Hill discuss the distinctions between the two and the unique challenges faced by family businesses. They explore the unintentional ways that privately held businesses can evolve into family businesses and the potential consequences of not setting clear boundaries. Tune in to learn how to navigate the complexities of family dynamics in the workplace and create a thriving business for generations to come.
Takeaways
Most family businesses start unintentionally
Clear boundaries are essential
Fairness is key
Communication is crucial
Family dynamics can impact the business
A family constitution can provide guidance
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Private vs. Family Businesses: What’s the Real Difference?
Family businesses are the backbone of many economies and represent a significant portion of enterprises worldwide. These ventures intertwine personal relationships with professional endeavors, creating a unique blend of challenges and opportunities.
While the passion and commitment in family businesses can drive remarkable success, the complexities of family dynamics can also create significant hurdles.
At Revela, we understand the unique dynamics at play within family businesses and are dedicated to helping these organizations thrive. On this episode of the Leadership Hustle podcast, we explore the intricacies of family business dynamics and offer a roadmap for navigating these challenges through proactive planning, open communication, and the establishment of a family business code of conduct.
The Unintentional Family Business
Many businesses don't begin as intentionally designed family businesses. They evolve organically, often starting as a means of livelihood for a single family.
Michelle Hill, co-host of the Leadership Hustle podcast, highlighted the often unintentional nature of family businesses, citing the example of Jerry Jones and the Dallas Cowboys: "Well, with the Dallas Cowboys, it's similar to what you were talking about, right. It's…he talks about it obviously unintentional, but, um, every day is such a joy because he gets to not only go to work and do the things he loves, but while at the same time, he gets to do it with his family."
The transition to a family business can be subtle. A family member needing a summer job, a spouse brought in to manage finances, or a child joining the company after graduation can all mark the beginning of this evolution.
Proactive measures must be taken to address the unique dynamics that arise when family and business intertwine. Unmanaged family dynamics can have far-reaching consequences, impacting not only family members but also non-family employees and the overall health of the business.
Impact on Non-Family Employees
Perceived favoritism, unequal treatment, and the inability to provide constructive feedback to family members can erode morale and create a sense of unfairness among non-family employees. This can lead to decreased productivity, high turnover, and a decline in psychological safety.
As Andrea Fredrickson explains, "One of the things that might be a negative consequence,” Andrea Fredrickson explains, “is how do the non-family member employees treat the family member? Like, can I correct them? Can I tell them that's not how we do it here?"
These questions display the delicate balance non-family employees must navigate when interacting with family members in positions of authority.
Family Member Dynamics
Blurred lines between family and business roles can create confusion and conflict. It can be difficult to switch off the "family" dynamic when discussing business matters and vice versa.
Unresolved family disputes may spill over into the workplace. When these issues are not addressed constructively, they can negatively impact business operations and create a hostile environment for both family and non-family employees.
While shared history and a sense of loyalty can be powerful assets, the inherent complexities of family relationships can also introduce challenges that require careful navigation. As Fredrickson observes, sometimes family members come into the business with differing levels of experience and expertise, which can create friction.
Business Operations
Inconsistent application of policies and procedures, potential financial mismanagement, and difficulty in making objective business decisions are common consequences of unmanaged family dynamics.
Fredrickson notes, "The other is as a parent or as a…like, do you hold them to the same level of expectation that you do for everybody else? So if everybody else has to be there on time…it means on time. It doesn't mean an hour after. It doesn't mean 15 minutes late."
The emotional ties in family businesses can sometimes overshadow sound business judgment, negatively impacting growth and profitability.
Establishing a Family Business Code of Conduct
A family business code of conduct, also known as a family business constitution, is a vital tool for navigating the complexities of family-owned enterprises. This document outlines the rules and expectations for family members involved in the business, providing a framework for fair and transparent operations. Key components of a family business code of conduct include:
● Eligibility Criteria: Defining clear criteria for family members to work in the business, including education, experience, and skills.
● Job Descriptions and Compensation: Establishing clear job descriptions, pay scales, and performance expectations for family employees, ensuring fairness and consistency.
● Conflict Resolution: Outlining a structured process for resolving family-related disputes that arise in the business context.
● Communication and Decision-Making: Establishing guidelines for communication and decision-making within the family business, promoting transparency and collaboration.
● Use of Company Resources: Defining clear rules regarding the use of company resources by family members, preventing misuse, and ensuring accountability.
Fredrickson emphasizes the importance of establishing these rules early: "Before you bring on any family members, I would go through and say,' Here are some standards that we're going to put into place. They're written, they're understood.'" Involving all family members in the development of the code is crucial for adherence.
Fostering Healthy Family Business Communication
Open and honest communication is the cornerstone of any successful family business. It is essential to establish regular family meetings to discuss business matters, encourage active listening, and create a safe space for family members to express their opinions. Professional facilitation or mediation can also be beneficial when navigating sensitive or complex issues.
Beyond meetings, fostering open communication requires a culture of transparency and trust. Family members should feel comfortable sharing their ideas, concerns, and even disagreements without fear of reprisal.
This involves active listening, empathy, and a willingness to consider different perspectives. Creating opportunities for informal communication, such as casual conversations or shared meals, can also help build rapport and strengthen relationships.
As Hill experienced, sometimes even difficult conversations are necessary: "It came to a point where I had to sit the family down and say, we need some rules, right?" This highlights the importance of addressing challenging topics directly and proactively.
Family Business Conflict Resolution
Conflicts are inevitable in any business, but they can be particularly challenging in family-owned businesses. Addressing conflicts promptly and directly, focusing on finding mutually acceptable solutions, and seeking external help from a family business consultant or mediator can help manage conflicts constructively.
A key element of successful conflict resolution in family businesses is establishing a clear and documented process. This process should outline the steps to be taken when a conflict arises, including who should be involved and how decisions will be made.
Documenting conflict resolution processes in the family business code of conduct provides a clear roadmap for navigating future disagreements.
Building a Positive Family Business Culture
Creating a supportive and inclusive work environment is essential for fostering a positive family business culture. Promoting transparency and trust, recognizing the contributions of all team members, encouraging professional development, and balancing family interests with the needs of the business are key to a thriving family business culture.
Acknowledging individual accomplishments creates a sense of belonging and value, motivating employees to perform at their best.
Family members should be in agreement about the company's mission, vision, and goals and communicate these values clearly to all employees. This creates a sense of unity and encourages everyone to work together toward common objectives.
A positive culture benefits employees and strengthens the business as a whole, leading to increased productivity, innovation, and long-term sustainability.
Forging a Legacy of Collaboration and Success
Navigating the dynamics of a family business requires careful planning, open communication, and a commitment to fairness and transparency. By establishing a family business code of conduct, fostering healthy communication, and prioritizing conflict resolution, families can create a legacy of success that extends across generations.
At Revela, we partner with family businesses to navigate these complexities and build a thriving, multi-generational enterprise. We understand the unique challenges and opportunities that family businesses face, and we're here to help.
Check out the rest of our podcast to learn more about how you can support your family business and achieve its full potential.
About the Hosts
Andrea Fredrickson
Andrea Fredrickson is a thought leader and consultant at Revela, an organization based in Omaha, Nebraska specializing in the development of leaders, culture alignment, and business strategy for private and family businesses of all sizes. Revela is one of the region's most experienced thought challengers, helping individuals and companies find their greatness. Andrea has built an amazing team by believing that fundamentally people want to be successful and become better versions of themselves.
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Andrea has degrees in education, management, and business. She is the author of Insight Unseen; How to lead with 20/20 business vision. She helps people see things differently, self-reflect, and never stop looking for ways to improve themselves on a personal and professional level. Andrea has spent more than 30 years researching and developing methods to help people communicate and lead more effectively.
When Andrea isn’t working with clients, you’ll find her spending time with her family & friends and making memories by exploring new cities.
Michelle Hill
Michelle Hill is a master facilitator and coach at Revela, an organization specializing in the development of leaders and aligning the culture of privately held and family businesses of all sizes. Revela is one of the region's most experienced thought challengers, helping individuals and companies find their greatness.
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An ambitious leader, Michelle has the natural ability to create forward momentum to build teams and get results. She inspires others to look within themselves and to challenge the status quo. She helps create high-performing environments. Michelle brings a diverse background: operations, employee development, and sales in the steel, hospitality, and consulting industries.
Outside of work, you will see her competitive side engaged in her daughter’s sports and ISU athletics. She loves life, her four-legged companions, and captures all the moments through her camera’s lens.
TRANSCRIPT
Andrea Fredrickson: Is the business that you own, a private business or a family business? In this episode of The Leadership Hustle, we're going to discuss the difference between the two and how to make the transition. Hello, and welcome to the Leadership Hustle for executives whose companies are growing fast and need leaders who are ready. So welcome back to this episode of The Leadership Hustle. I'm Andrea Frederickson.
Michelle Hill: And I'm Michelle Hill.
Andrea Fredrickson: And I am so excited about today. When we were preparing for this episode, we were talking about what topics should we talk about? And incidentally, it was just accidentally, but we were both thinking of the same topic. So Michelle, you brought up this idea of family businesses, and there is probably, I don't know if there's a topic that I have more passionate about than family business.