Six Questions You Must Ask Yourself to Succeed in Your Family Business
by Shel Horowitz
According to Richard Narva and Thomas Davidow, every family business must answer six questions if it is to succeed and grow. Narva, an attorney, and Davidow, a psychologist, of Genus Resources, Inc., in Needham, brought their analysis to the Family Business Center on its home turf at the University of Massachusetts at Amherst, March 3.
Although family businesses are often portrayed--when they are covered at all in most media--as small start-ups, Narva stressed the diversity of management style, age, and size. He says there are 42,000 family businesses with revenues over $25 million, and that the cumulative effect of family business is equivalent to an economy larger than any in the world except the U.S. or Japan. He is aware of one business--a Japanese hotel--that was founded in the 8th century and is now in its 47th generation within the founding family.
This, however is rare. Narva commented that even among businesses that successfully transition to a second generation, the failure rate in trying to move control to a third generation is around 90%. One reason is that old bugaboo, family conflict. "The schisms that we see in families--those patterns repeat. The business survives a schism between generations 1 and 2, but the pattern repeats and the business doesn't make it."
Davidow, with more of a family systems perspective, addressed some of the psychological issues involved. Families, he says, are those we depend on and count on. The need for approval from our parents is a strong motivator, but when a new family member joins the business, participation definitely comes with strings attached. "Now you're going to be working with that person and they're going to be staring at you every day.
You are extending all those issues into the work situation. If it does not work, the cost to each of you, emotionally and financially, can be devastating."
Both Narva and Davidow were themselves raised into business families. They noted that the stakes are higher in any family business, whether small and entrepreneurial or large and established. Davidow likes to use the analogy of a car engine. "I see family business shaped as a piston. At the bottom is the energy, the drive, that drives the business. But there are problems pushing the business down."
But not all problems can be blamed on family. For instance, hundreds of New England family shoe manufacturing businesses went under in recent decades, as cheap labor from a multinational labor pool made U.S. production costs uncompetitive. Still, Davidow and Narva believe some of the closings resulted from family squabbles in which an older executive resisted suggestions from the younger generation to modernize and automate and/or diversify the product lines in order to stay competitive.
When a family business is undergoing stress, not only business relationships but personal ties among relatives are at stake, the two consultants pointed out. For example, if you have an argument in the office on the third Wednesday in November, you still have to sit down with your opponent the next day over Thanksgiving dinner, and that can be tough to do. Narva and Davidow believe when businesses address their six questions, they will avoid that "profound sense of loss and bitterness;" everybody becomes a winner.
So what are these questions?
- Are you strong enough to make decisions based on what's best for the business rather than what's best for the family?
- Does the founder/entrepreneur have the necessary commitment to maintain long-term profitability?
- Can you be in the family business and still be an autonomous person?
- Can you deal with ambiguity?
- Is there accountability?
- Is generating money the only reason the family/business stays together?
Within this broad framework, Narva and Davidow exposed many issues a family business must grapple with in finding answers to the six main questions.
For instance, a major focus within Question Five was on role ambiguity: is someone acting as a family member or a business manager in a particular situation? Davidow noted that families tend to be internally focused, run largely on feelings, and value stability and security.
Business, however, must focus externally. It must evaluate the demands of the marketplace, of its customers and suppliers. The focus is on tasks rather than feelings, and adaptability is far more important than maintaining homeostasis. Both of these paradigms are operating constantly in any family business. Because of the family desire for stability, other family members will resist change in one member. This is why family therapy was developed--because treating one part of a whole family system while leaving the rest untouched makes real change very difficult. SaysDavidow, "The whole family has to address the issues and move forward. How hard to you press for change? Very hard. Who does the pressing? Everybody, including spouses. What is a realistic time frame? When families decide to bring in outside people, they've made a commitment to change. There's some sense of relief, a surge forward. but it takes about 18 months to begin to internalize these changes, to figure out what works. And in the life of a family business, that's not a long time."
Where do the two roles of business manager and family member intersect? "The overlap can be ethics, honesty." This dynamic between the roles and between different family members, in turn, reflects back to the first question. Davidow and Narva believe, as do most family business experts, that decisions must be made on the basis of what is best for the business, even if that seems to interfere with the priorities of family members. They related an amusing story about a senior executive whose son was goofing off on the job, showing
up just often enough to collect his pay. One payday, when the son came in to pick up the check, he was sent instead to meet with the father at the elder executive's country home. The father was wearing a reversible Sherlock Holmes-style hat, and the facing side sported a button that said, "Boss." Wearing the hat, the father informed the son that he was fired--then reached up and turned the hat around to reveal another button that said, "Dad." He put his arm around his son and said, "I hear you just lost your job. Is there anything I can do to help?"
Narva and Davidow did not just lecture. They led participants in several exercises, including a small-group session on each participants' perception of something s/he did that was "heroic." Responses, reported back by each group, ranged from physically saving lives to pressing to secure a business opportunity that firmly established a new business's viability. A number of common themes emerged:
- quick response under pressure
- willingness to sacrifice, give of yourself, take risks
- decision-making, negotiation, people skills
- commitment, perseverance
- being prepared to respond ahead of time
- standing one's ground
- trusting your judgment
- "ingenuity in the face of adverse conditions"
What did all this have to do with family business? The unspoken but very clear message was that these qualities present themselves in successful family businesses.