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Family Businesses

Dealing With Expectations while in a Family Business

Business and Expectations are words that naturally complement each other and are well understood by all, after all, a 'Business' is a continuous transactional exercise which is (generally) established on the principles of creating wealth!
Dealing With Expectations while in a Family Business
Image credit: Shutterstock.com
President of MK Jokai Agri Plantation Pvt. Ltd
6 min read
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Hence expectations are inherent in any business or commercial setting. Different stakeholders have different expectations, for example, shareholders expect fast & high ROI (Returns on their Investments), the Management, other Employees expect consistent remuneration increments, high-performance bonuses & promotions. The vendors expect timely and fair payments for their goods and services, and the customers expect honest products and services at the lowest prices.

In a 'professional' business setting the relationships between all these stakeholders is based purely on economic considerations. In other words, the relationships are simple 'give and take' relationships and Emotions have little role to play here.

This is in fact what makes life simpler!

Family Business

A 'Family Business', on the other hand, is a whole different ball game. 

The stakeholders in a family business too have all the expectations that any normal (professionally managed) business would have.  However, at the same time, apart from being stakeholders, the members of a family managed businesses are at the end of the day family members too! And herein lie the complications!

The way expectations are dealt with within a family is very different from the manner in which expectations are dealt with in a business! The manner in which a father would deal with the expectations of his son or vice versa is vastly different from the manner in which a supervisor would deal with the expectations of his report or vice versa!

But what happens when the father is the supervisor and the son is a reportee and they are both working in the same family business or for that matter siblings working together in the same business! Things could get quite ugly if the situation is not handled properly and the repercussions would be something that both sides would have to live with throughout their lives! 

That is why the family business model is often referred to as a 'double-edged' sword, which, if handled skillfully serves as a loyal weapon but if handled callously slays the owner of the sword.

The Data

Today, family businesses are in-fact one of the most common forms of enterprise! Research shows that family enterprises account for 2/3rd's of the World’s businesses; form an estimated 70per cent - 90per cent of Global GDP and fund 85per cent of all start-ups across the Planet!

At the same time research also shows that up to 70per cent of family businesses fail to transition into the second generation. From the 30per cent that survives, only 12per cent transition into the 3rd generation and a mere 3per cent survive into the 4th generation!

This means that despite being such a common model of business, family businesses are fragile and have short life spans. Why is this so? 

One of the primary reasons that "family-managed" businesses are unable to sustain themselves is on account of their inherent inadequacy to manage the expectations of their stakeholders. 

The reason for this vulnerability stems from the fact that the officers running a family-managed business are almost always conflicted between their emotional responsibilities and their economic responsibilities, this is simply because these officers are first of all family members and then business members.

In short, 'emotional sense' rules over 'economic sense' in family-managed businesses and that is precisely what leads to its downward trajectory.

In any professional setting, the bond bringing together different individuals running an organisation is purely economics and officers are appointed based on their capabilities to create & sustain wealth for the organisation. In a family business, however, it is filial ties that bring together members and it is the same filial ties which take precedence over 'ability' while appointing officers to manage the family businesses.

This absence of ability & experience is what often leads to unreasonable expectations, thereby creating issues which the business is not in a position to deal with, culminating eventually into stagnation of the business or worse, failure.

This is exactly why managing expectations of stakeholders in a 'Family Managed' business is an extremely challenging affair, one that the business does not need to deal with, quite frankly. 

This does not mean that the institution of family business itself is flawed. Certainly not! 

It simply means that a "family-managed" business structure is not always in the best interest of the business itself, especially if the organization is in a mature stage in its life-cycle. 

The ideal situation for a family business would be to remain a family-owned enterprise but be professionally managed and not family managed with strict legal checks and balances in place, which make it impossible for any family member to make unreasonable demands. This would ensure that the expectations of family members are kept in check because the members know that there is no way they can go against the hard-coded rulebook of the organization, even if they are the owners.

Professionalizing a family business is perhaps the best way to make it sustainable for the long term. When people know their place and the extent of their reach, it sobers down their expectations too and if a member is not satisfied with the rule-book, that member is always free to start his or her own venture and become an entrepreneur. This way the member may continue to be an owner in the family business by way of his or her birthright but at the same time finds a possibility to work in another environment which suits him or her better!

Examples

Take any combination of family members who have assumed office in a family managed business, be it a parent-child combination or a situation where siblings are running the business, it does not matter.  Majority of family managed companies end up the same way. They either de-merge into smaller units granting independence to individual family members or they end up being acquired by larger corporations or they file bankruptcy or they simply become insolvent and die out. 

The fail-rate statistics for family businesses stated above are therefore the culmination of what happens when emotional sense is allowed to rule over economic sense and this is possible in family-managed businesses because of the fact that family members are running the day to day affairs of the business, instead of professionals.   

A time-tested mantra here would, therefore, be to "Let Family Businesses be managed by professionals and to allow Family members to become entrepreneurs". 

This would indeed be one of the safest and most sustainable ways for family members to manage their individual & joint expectations while being part of a family business and at the same time maintain good relations with each other.

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