Avoiding Three Traps that can Destroy Family Owned Businesses

Family owned businesses have been the norm from the time of the industrial revolution and in fact, they were the mainstay of the business world in the early decades of the 20th century. With the advent of technology and the services sector, the rise of the professionally managed organizations was evident. In this context, many family owned businesses seem to be failing before the second generation takes over. The reasons for this are many and they include making the second and the subsequent generations obligated to take over the running of the company, making all family members part of the business, and operating in silos instead of being generalists who can have a broad perspective. On the other hand, the lack of a clear succession plan once the family patriarch or matriarch dies or retires is also a reason for failure. Finally, infighting among the family members over who would lead which segment once the founder or the head of the family dies or retires is another important reason for failure.

Family owned businesses could avoid these traps by ensuring that they do not pressurize the younger generation to enter the family business when they are not inclined to do so. By forcing the next generation to enter the family business, the elders often make the younger lot commit to endeavors for which they are least equipped. Next, the family can grow faster than the business and this makes the task of including everyone difficult. Often, the case becomes difficult, as the business might not have the bandwidth to support all the members. This can be resolved by ensuring that only those family members with the aptitude and the skills as well as the attitude and temperament are asked to join the business. The third aspect is the fact that many family members remain stuck in narrow areas of specialization and fail to develop the general skills needed to run the family business. This can be resolved by ensuring that non-family members are promoted based on merit and not only on familial ties.

Apart from these factors, the lack of a clear succession plan and the disunity among family members is often a reason why many family businesses fail to survive into the subsequent generations. This can be seen in the way several corporate houses in recent years have either split or have been sold off because of these reasons. Hence, these traps can be avoided and the family owned businesses could survive into the subsequent generations by following some of the practices that management experts have prescribed.

Finally, in these times when there is a rapid turnover of ideas and concepts, it becomes imperative for family businesses to retain their competitive edge in the face of the onslaught of competition. Hence, they need all the energy and the foresight they can to avoid some of the reasons for failure.


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