Small Business

When It's All in the Family


By Karen E. Klein Q: I want to know in detail the advantages and disadvantages of a family business. Can your experts help me out? -- S.S., Raleigh, N.C.

A: We asked some family-business experts to come up with a list of pros and cons. Here's what they have to say:

ADVANTAGES

Business Performance. Family businesses have a competitive advantage in that family members tend to take a long-term view of their investment instead of focusing on short-term returns. "Family members behave as stewards of a business and its critical capital needs for the benefit of the next generation," says Craig Aronoff, a consultant at the Family Business Consulting Group, based in Marietta, Ga.

Commitment. Family members are likely to be more committed to the success of a business that other employees. "They are not just employees, they're owners, and they probably have a strong bond to each other and to the business," says Quentin Fleming, a family-business consultant and author based in Santa Monica, Calif. "When things get tough, they will do what they have to do to make it work." Family employees are also more likely to share the same values, making it easier to develop a company culture.

Customer Appeal. People often prefer to do business with a family-owned operation, particularly in places where there is a strong sense of community. "There's a belief that family cares, that the family will make things right for their clients, that [because] they live in your neighborhood they will treat you fairly," Fleming says. "The family face on a business makes it human." Just look at the marketing strategies of such large, multinational corporations as SC Johnson, whose slogan is "A Family Company."

Beyond Profits. Often, family businesses don't define success solely in monetary terms. Many multigenerational family concerns are proudest of their strong tradition of providing employment, commerce, and philanthropic benefits to their community.

Additional Benefits. A business can offer such things as a chance to work with family members whom you might otherwise see only rarely, a way to offer employment to qualified relatives, the opportunity to put cherished beliefs into practice, and an enterprise that can unite and benefit the entire family.

DISADVANTAGES

Squabbles and discord. People tend to be less worried about letting their hair down among family members, and family problems can easily spill over into the workplace. "Underlying a lot of family-business problems are family problems: jealousy, anger, resentment," says Fleming. If family members can't leave their personal history and any bad blood at the door each morning, the business will suffer and the work atmosphere will be confusing, demoralizing, and divisive for nonfamily employees. By the same token, if related co-workers can't leave their problems at the office, family gatherings won't be much fun.

Employment Problems. Employing relatives regardless of their qualifications or allowing relatives to develop a sense of entitlement about the business can result in poor performance, hampered growth, and lackluster profits. Just because someone is a family member, don't assume they can do the job, says Aronoff. You have to ask yourself if they have the necessary skills, abilities, and talents. If they don't, how would you fire them -- and live to tell about it?

Marital Stress. Working together can ruin a couple's marriage. "The 24/7 pressure and intensity of working together and running a business is hard enough. Doing it with your spouse can be even harder," Fleming says. "When do you find time for romance? Relaxation? Downtime? Who owns what in the case of a divorce?"

How do you reap the advantages of a family business and avoid the disadvantages? Aronoff says family members planning on going into business together need to prepare for their multifaceted roles. They should look at family-relationship history for clues as to what might happen and how they can manage the dichotomy between family and business needs.

"Family leadership that defaults to a 'family in service of a business' approach winds up with guilt, abuse, and damaged family relationships," says Aronoff. "This philosophy also ultimately produces lack of continuity when the business gets sold. In second and third generations and beyond, there may be unmanaged conflict between family shareholders who are not active in the business and those who are."

He suggests that owners take advantage of resources tailored to them, such as family-business centers and publications. His book, Family Business Ownership: How To Be An Effective Shareholder, is among the resources available on his Web site. Fleming's book, Keeping the Family Baggage Out of the Family Business, can be ordered through his site. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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