As I explored in a recent article published in the Harvard Deusto Business Review, prosperous family businesses owe their success to adhering to the following five essential rules:
1 – Treat the business as a business and the family as a family
2 – Foresee changes to avoid surprises
3 – Implement structures for nearly everything
4 – Pay attention to growth and find a role for everyone
5 – Avoid the above-mentioned classic mistakes often made by family firms!
Over time, many of these companies evolve from a family business to a business family.
While all five tenets are important, here we’ll shine a spotlight on the first: why family-controlled companies need to clearly delineate the boundaries of family and firm.
The blurry boundaries between family and firm
It’s easy for things to get mixed up in the initial stages of a family firm since ownership, governance and management all fall upon the same person: the founder.
In the beginning, blurred boundaries between family and business spheres frequently arise. During this stage, the founder does everything to lead the business project, which family members will grow to understand, or at the very least, appreciate its driving mission and vision.
Please note that I’m not referring to start-ups, which tend to be laser-focused on their next financing round and its impact on the firm’s ownership structure.
Here I’m talking about family-centered projects: the entrepreneurs who lay the foundations and the venture they hope to build with their family, which in the early days is often their spouse since any children they share are still young.
It’s important to remember how quickly children grow up and how keenly they understand the world around them. From a very young age, they grasp far more than most adults can fathom. These children – future heirs of the business legacy – will soak up the company’s overarching values while sitting around the dinner table.
There is no need for formal lessons to instill these values, and they wouldn’t be of any use, anyway. Values can’t be taught on a blackboard; just like positive energy and the common cold, they are contagious.
Families and firms follow different rules
This high degree of family rapport is very helpful in terms of instilling values yet also escalates the risk of confusing the distinct spheres of family and firm. Avoiding this overlap is critical, since each realm abides by different ground rules: in families, people are loved for who they are, not for what they do.
The same cannot be said for the business arena. Logic and rationality rule in business settings; in families, people follow their heart.
Successful family businesses proactively and promptly separate these two realms.
As history attests, failure to do can exact a steep price for both.
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