Click on the icons below to subscribe.
Guest: CEO Coaching International’s Sheldon Harris, a coach and entrepreneur with a particular expertise in running large organizations.
Episode in a Tweet: Family-run businesses can’t let their family issues run the business into the ground.
Quick Background: No, Amazon and the other tech giants have not wiped out family-run businesses. In fact, one third of Sheldon Harris’ coaching clients are family-run businesses that feature multiple family members in various roles. And in Sheldon’s experience, that arrangement can be just as complicated as it sounds. “It’s hard to find a business that doesn’t have challenges,” he says, “and it’s hard to find a family that doesn’t have challenges. So those things are just amplified in the case where you’ve got both of those dynamics going on.”
On today’s show, Sheldon discusses how family-run businesses can learn to keep their family issues from running the business into the ground.
Key Insights on Successful Family-Run Businesses
1. Identify the objective.
The first BIG question we ask the CEOs and entrepreneurs we work with is, “What do you want?” Having a clear answer is maybe even more important for CEOs of family-run businesses who are balancing professional and personal goals every single day.
“I encourage patriarchs or matriarchs to answer, ‘What is the objective that they’re trying to achieve here?’” Sheldon says. “Oftentimes, their stated objective is to maximize the benefit of the asset they’ve created over their lifetime, over their blood, sweat, and tears of building the firm. And if that truly is their objective, the first question then has got to be, ‘Who is the very best person to run this firm, to hand the reins off to, regardless of whether they’re a family member or not?”
On the other hand, Sheldon has worked with entrepreneurs who would rather sacrifice some of the company’s potential by keeping it 100% in the family. “In some cases, it would be better off for the family to liquidate the business and then take that asset and move it into a different form, rather than the business,” he says. “Or perhaps consider keeping the firm but bringing in outside management to run the firm.”
There’s no one way to succeed with a family-run business. But there is only one person who can set the company’s overall vision and map out the best path forward: the CEO.
2. Keep everyone in their lanes.
If multiple family members are involved in the company on an operational level, power struggles are inevitable. Non-owners might try to take over a little too much ownership just because they have the family name. Key players who aren’t relatives might feel like they’re always going to be on the outside of the business looking in.
“The first thing we’ve got to do is identify clear swim lanes, clear roles and responsibilities for each member of the team,” advises Sheldon. “What often happens in a family business is they might have clear swim lanes and roles for non-family members that are holding executive positions, but when it comes to family, they just kind of run rickshaw across the whole organization. This creates all kinds of dissonance within the team.”
You can only achieve harmony if the CEO sets clear levels of authority and responsibility. An equity owner who is also sitting on the board and who is also working as an executive is wearing way too many hats. On the other hand, shareholding relatives who don’t work for the company shouldn’t expect to have the same authority as relatives who are running the business day in and day out.
3. Operate more like a business and less like a family.
Along with proper division of responsibility comes proper expectations of performance and compensation.
“What I often find is somebody is executing an executive role for less than market pay scale because they’re a family member, so they’re taking one for the team,” Sheldon says. “And while, in the short run, that sounds noble, it can get kind of wonky when that individual can start to feel like, ‘Hey, I’m putting in more effort and my salary isn’t commensurate with market rate. And yet I’m receiving the same distribution as one of my siblings who isn’t contributing nearly as much.’”
If a really likeable family member is floundering in a leadership role, well, “nice guy” isn’t a job. But neither are “hero” or “martyr.” High-performing employees and executives should get paid what they’re worth, whether they’re related to the CEO or not.
“The more we can begin to get the family business to operate more like a business than a family, the more objectivity we’re going to bring into the equation,” Sheldon says.
4. Cultivate talent beyond the family tree.
And clear-eyed objectivity is critical to perhaps the most critical decision a CEO will have to make in a family-run business: putting the best possible people in every role.
“If you’re not going to create an environment that creates a feeling of equality and respect for people who aren’t family members, there is no way you’re going to optimize your potential as a business,” warns Sheldon. “You’re never going to have top talent pulling in the same direction. In fact, usually what happens is top talent has long ago left that organization because they don’t feel that they’re on even footing with the family members. So, you end up with subpar players in those critical roles, those that are willing to just suffer and go along with whatever the family wants to do, and that’s not going to lead that firm to success.”
A commitment to five-star talent means that the favorite grandkid might not be the best person for an important job. Maybe that grandkid needs to spend a few years honing their chops in a lower level of the company, or even at another organization. Or maybe that relative needs to be replaced.
That’s a hard conversation. Being a CEO is tough enough without having to see ex-employees at every family function. Don’t be afraid to look for some outside help if you’re struggling with family staffing issues, whether that means assembling a board of advisors your family will listen to or working with a CEO coach who will hold you accountable to the business above all else.
1. Know what you want. Are you out to make this business as BIG as it can be, or do you just want a comfy company that will keep your kids employed?
2. Set boundaries. From 9 to 5 you’re the CEO. Your expectations for relatives who work for you should be the same as for any other employee.
3. Stay objective. If family issues are clouding your perspective on the business, get an outside perspective you can trust.
Transcript: Download the full transcript here.