Family Business: Experts Say a Formal Plan Is Key

This is the second in a two-part series.

Family-owned businesses do not have a high success rate when it comes to surviving into a second or third generation of ownership. So some family-owned travel agencies have sought to ensure smooth operations and minimize conflict by maintaining a strict division of labor among family members.

But business experts caution against taking the strategy too far.

The approach of “I have my sand box and you have yours” can create information and knowledge silos that make a business dependent on every individual, and that makes it vulnerable, said Wayne Rivers, president of the Family Business Institute, Inc. in Raleigh, N. Carol.

Shortsighted
“It’s family-smart, because you avoid short-term unrest, but it’s business shortsighted, because it creates dependency in your organization.”

While everyone does need to have a well-defined role and accountability, it’s important to look over one another’s shoulders at times and share the inside information that makes your business hum.

“Information silos are a threat to your business,” Rivers said. “If Dad has all the contacts and all the connections at the Rotary Club and he gets hit by lightning, Mom and Sis are out of luck.”

The need for balance
Two-thirds of successful first-generation businesses don’t survive into the second generation, and fewer than 15% make it to the third, said Barbara Draper, director of the University of New Hampshire Center for Family Business.

The key is to balance the needs of the business – for performance, market share, growth and change – and the needs of the family for peace, stability and emotional fulfillment.

A good first step, Draper suggested, is to develop a written strategic plan that examines the family’s core values and its vision for the company and the family.

Developing a shared vision is crucial, she said. “It focuses everyone’s thinking on values and future goals, rather than on current issues or problems, by asking, ‘What do we want to become as a business and as a family? And how will we get there?’”

Spell it out
The plan should address family members’ expectations and look at who will own and manage the company in the future, the management’s long-term goals, business strategy, and finances.

Sometimes families resist the idea of formal planning, because it’s time-consuming or raises issues that lead to conflict among family members, Draper noted.

But it’s the lack of a clearly defined unified vision for both the company and the family that produces the conflicts that tear family businesses apart, she said.

“Planning together builds commitment and helps everyone understand the critical elements necessary for the long-term growth of the business and the well-being of the family.”

Making it work
At Montrose Travel, co-president Andi McClure-Mysza agreed that the key to success in a family business is to straddle that elusive line between separation and sharing.

McClure-Mysza’s best advice is “to create a separation of responsibilities so potential personality conflicts don’t interfere.”

“Play to your strengths. Carry your load. Communicate regularly. But, at the end of the day, roll it up and make the big decisions together.”

Oh, and one more thing. “Don’t discuss business at Thanksgiving dinner.”