In my previous post, I highlighted two of the most common mistakes in family businesses. To avoid going on about mistakes, I’ve decided to entitle this post “Other things that often happen in family firms.”
To be sure, lots of good things happen in family firms. My colleague, teacher and friend, Prof. Miguel Ángel Gallo, liked to say that good family businesses are ELISA, an acronym for their pursuit of the following goals:
> Excellence
This one is self-explanatory.
> Low profile
Family businesses are indeed low profile. I have known prominent family-owned companies that gave their communications directors clear guidelines: the less they appear in the press, the better.
> Initiative
Without initiative, there is no sustainability. The family business has to transcend to the first and following generations. There are numerous examples of family-firm success stories, including those explored in 100 Families That Changed the World.
> Simplicity
Family firms are usually very clear about their strategy. As Michael Porter argued, when it comes to designing effective strategies, the hardest thing is knowing what not to do. Most family businesses realize this.
> Austerity
Austerity is an important value passed down from generation to generation in successful family firms. The much-proclaimed maxim of shareholder value creation has never made a dent in family businesses.
Just one example: it’s hard to imagine a family business signing multimillion-dollar C-suite contracts with the aim of increasing shareholder value.
Precisely because family businesses aspire to excellence, it is good to consider potential areas of improvement. As I’ve mentioned before, family firms sometimes run the risk of over-relying on DNA for their talent pipeline and disregarding market rules, both in terms of salaries and shareholder remuneration.
With this in mind, I would like to add a few more issues to Prof. Gallo’s ELISA: confusing emotional and contractual spheres, delaying the succession process, and having the perception of immunity.
Confusing the type of relationships
As Blaise Pascal observed, “The heart has its reasons which reason knows nothing of.” While true, it is important to keep a cool head when making decisions that can be rationally analyzed, like business issues. Business should be conducted with the head, not just the heart.
Succession
Much has been written on the subject of succession, yet it is still worth pointing out that it’s a process, not a one-off action. And as such, succession is a drawn-out, years-long process.
Companies should start contemplating succession when the current leader is fully fit and has the authority to initiate the process. Delayed successions have a higher risk of failure.
Immunity
Believing oneself immune to the abovementioned risks is the best way to fall prey to each and every one of them. A word to the wise: a little humility goes a long way.