There is no law that makes a business a family business. Instead, it is the makeup of the personnel and finances that constitute a family business. This article will discuss how family involvement in the business makes it function as a family business. The finance aspect will be discussed in another article.
To be a functioning family business there must be at least two members of the same family in the first or second generation working full time in the business. One of those members must be the CEO or the Chairman of the Board and the other must be in a major position such as manager of sales, finance, or other decision-making position.
More members of the same family may work in the business but the discussions of business matters by these two positions characterize the business as a family business.
It Is How Agreements Are Made That Makes Family Businesses Different
A Family Business is conducted as a family business through the agreements of the major business personnel.
As decision makers, family members make the business their business as it is impossible to discuss business matters without considering the wants and needs of the major decision makers.
Every decision about products, prices, sales, marketing, manufacturing, hiring, and functioning of nonfamily personnel affects the family. Thus, every decision in the business includes family interests.
Family interests pervade every decision and action In a family business whether acknowledged or not
In understanding what goes on in a family business remember the family is always hiding in the background. Actually, the success or failure of the business depends upon how the family thinks about and acts together in the business.
But much of the true business decision making does not happen in the business. Instead it happens in the agreements of the family even when the family makes up an exceedingly small proportion of the business personnel.
Do you know that family businesses sometimes have difficulty competing with nonfamily businesses? One of the reasons is the existence of this overwhelming influence or weight of the family.
Many family members forget this weight because they have so often factored it into their deliberations without thinking about it. Nonfamily personnel also forget it because they are not a member of the family so do not really know or understand how the family would respond in making any decision.
Do not forget the weight of family influence as you deliberate making any decision or change in any family business process
To forget this weight will cause confusion in the business because family and nonfamily may consider the agreement from opposite points of view. Even family members may see it from opposite points of view if they have not been involved evaluating how to make the change.
The Larger Problem – Deciding on Direction
Now we get to the larger problem of How families decide on their business direction.
A family business may not be able to compete with a nonfamily business if all the family members have not been a part of a decision-making process.
It is one thing if the two decision making family members discuss and decide and plan for the business. It is another thing if the whole family must be a part of guiding the business.
It takes longer when many minds decide something because doubters need to be convinced by the reasons why the decision must be made in a certain way (can you make this clearer to someone who doesn’t understand family dynamics like you do?)
Knowing the reasons why a decision is made is an important part of being in any family. Without knowing reasons, members will do different things. And doing different things in a family can cause headaches that become bigger in a business.
Knowing why something is decided or done in a particular way can be difficult for all members of a family to understand if they do not agree or have not been involved in the discussion
And this is the bugaboo of family businesses: not everyone hears the same thing because individuals in a family have different desires, wants, and needs. But
Including members in the business who do not agree with family decisions is a mistake (is this inclusion in the decision making or the family business as a whole?)
If one is not a member of the family to disagree with family decisions Is a mistake. You must change the whole family to agree with you if you want to stay in the business. Either work with the dissenters to support the family wholeheartedly or ask them to perform other activities. Hoping there is a middle ground on this issue is a mistake.
Many families have suffered business failure and others broken up by making this mistake. Sometimes the family breaks up first, sometimes it’s the business.
Now, you understand why agreement is necessary in families who have a business.