Operating a family business has many challenges, from deciding on legacy issues to managing the complex interdependence of the family unit with the commercial world; David Harland, FINH.
We have thoroughly enjoyed Tom McCullough & Keith Whitaker’s view on the challenges that families of significant wealth face in their book and accompanying podcast “The Wealth of Wisdom”. In it they offer essential guidance and tools to answer the “Top 50 Questions Wealthy Families Ask”.
It inspired my team to compile and address the Top 3 Questions Family Businesses Ask, gathered from our twenty years working closely with many family groups. Here they are:
1) How do I hand over this business and who to?
Deciding how to hand over a family business and to whom is a critical question.
Two essential things to know are that there is never a “right” time and it is a long journey that takes planning and conversations.
The wisest place to begin is with conversations – ones that involve the whole family group. As these conversation can often throw up old and unexpected challenges, smart family business groups formalise these conversations and have them facilitated.
Having these conversations facilitated will mean all family members have a voice – a critical element to succession conversations. It also avoids suspicion, builds trust and security.
For some family businesses such as Melbourne multi-gen family business Colorific, this facilitation can be the difference between a successful or otherwise transition.
Many family businesses underestimate how extensive the handing over process is so our advice is always to start early and plan for a process not an event. Most family businesses get stuck in the legal and estate planning elements of handing over. Remember, this process requires the business to have adequate financial returns, sufficient trust in potential successors; and invariably have commenced a family and business education process. Here’s a helpful guideline.
2) How do I teach my children financial values and avoid entitlement?
This is question is often nominated by wealthy family business owners as the one that keeps them awake at night.
We all want the best for our children and the natural instinct for any parent is to give to them with generosity and love. But in doing so, history tells us there are many cases of creating an entitled, unmotivated next generation who simply lack purpose.
According to Josh Baron and Rob Lachenauer in Harvard Business Review, wealth is not the most important factor in children with an entitled mindset which is both encouraging and slightly alarming for smaller family businesses.
In our experience, avoiding entitlement is best managed from these areas:
a) Encouraged your children to work outside of the family business. If they wish to join the family business, they should do so on merit only. That is, they have to be the right person for the job, not just the most available.
b) Make sure they are contributing at a community level. Have them volunteer or take on philanthropic projects. Philanthropic projects can include the entire family group.
c) Leverage education by teaching them financial literacy from a young age. And as Barron and Lachenauer suggest, if you wish to fund something for your next gen, what better gift to give them than access to education in its many forms.
3) What will this business look like in 50 years?
This may be the hardest question of all to answer.
The technological changes that lie ahead of us over the next 50 years will be considerable. A world of autonomous cars and AI performing complex tasks, even guiding humans in delicate procedures, is right here and now.
However the keys to business success over the long-term will not fundamentally change. Especially for family businesses.
Dennis Jaffe, U.S based thought-leader in family enterprise consulting, describes succesful long term family businesses as having “created a great business first, and subsequently decided to become a great family as well. The latter accomplishment took much longer and much more collective effort than the former”
Research shows that family business that are trying to envision long-term success should focus first on their values, vision and mission. And all of that starts with fully aligned values. As Jaffe says families must “act as values-based, socially responsible entities, using their vast resources to make a positive difference in their communities.”
From that point, we see success in those family groups who then go on to cultivate and grow their human capital to ensure there is a culture of innovation and leadership.
As the world continues to embrace businesses that have more than just a commercial goal, having a clearly articulated mission will also be critical to future success.
For more answers on family business success, contact us at info@finh.com