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Graphic of people falling off rising graph - reasons family businesses fail

Graphic of people falling off rising graph - reasons family businesses fail Image from https://bit.ly/3mb1HhR

Common Reasons Why Family Businesses Fail And How To Prevent It

Nereah Obimbo by Nereah Obimbo
1 March 2023
in Business
Reading Time: 4 mins read
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Family businesses are for many an incredibly appealing proposition. They are an opportunity to work with people you already care about to secure your financial future and perhaps those of the generations that come after. They provide a shared sense of purpose that can further bring the family together as they create this legacy that can be a great source of pride.

In this crazy work culture where people are often exploited, overworked and underpaid, family businesses may offer a greater work-life balance than the rest of the offerings.

The problem is, they are faced with significant challenges which often bring them down. Here are some common reasons why family businesses fail and how to avoid a similar fate.

Family feuds and conflict

Conflict is expected in every relationship. One key reason cited for the demise of family businesses is sibling rivalry and disputes within the family which can lead to poor decisions that can accumulate, potentially jeopardizing the business.

Another family-related conflict is generational differences. This occurs when there are significant differences in the priorities, goals and expectations of the different family members based on their age. The older generation may be hesitant to hand over the reins and the younger one may have a radically different way of doing things all of which can cause conflict significant enough to crumble the business.

The solution here is to right from the start establish procedures to manage and resolve conflicts. Provide a forum where people can air out their grievances, a culture where people are permitted to raise their concerns. The concerns can then be addressed and if need be, outside expertise brought in to help mediate and resolve issues. The generational differences may be more difficult to deal with. The balance between letting go of the old tried and true methods and accepting new ideas and innovation can be a difficult one to strike. But it can be done.

Unqualified leadership and skills

Some families require their children to come work at the business regardless of their interests and skills. This can lead to a situation where people have jobs and positions that they have no interest in and maybe worse, don’t have the skills to handle. When you have unqualified people holding key positions, you risk the entire business especially when it comes to complex problems that require expertise. Plus if there are other non-family employees, having unqualified people in key positions can take from employee satisfaction, negatively affecting performance and productivity which can compromise the business’ ability to survive.

The solution here is to insist on proper training and screening so that people only handle positions they are qualified for. No one gets a job simply because they are family. They have to be able to perform the job as would be expected of any non-family member, passing any performance reviews and assessments.

Families have to begin to prioritize continuous learning and education in their ranks. Let people who are not interested in the family business leave and pursue other interests without being shamed or pressured. Make sure only qualified, committed family members join the firm.

Undefined roles and responsibilities

A related problem is not having formal structures in place with clearly defined roles and responsibilities. It is crucial that there be a difference between family and business responsibilities. Undefined roles and responsibilities can complicate familial relationships and complicate business functions risking the business altogether.

The solution is to have formal structures and policies that clearly demarcate the roles and responsibilities of each employee. This will protect familial relationships while preventing possible misunderstandings and conflicts on the business end that could compromise the business.

Reluctance to seek help

Most families will not have all the skills and expertise required to meet every business challenge. Too many families hesitate to outsource for expertise or seek external help for fear of exposing family secrets and more.

The solution is to seek trusted and reliable advisors and experts for a wide range of skills from legal and financial to planning and conflict resolution. Don’t assume that just because you have the vision and the passion, that that will be sufficient. Hire externally, don’t deny yourself all the expertise potentially available to you.

Succession planning

Family businesses often fail to set up proper succession plans. This often leads to a leadership vacuum when the founders leave or die. Poor succession planning also leads to family conflict, poor leadership decisions and a loss of direction which inevitably lead to the collapse of the business.

The solution is to have a proper succession plan which names the person to take over when the head leaves or passes away. It has to be done in advance so that the present head trains the successor and passes on his accumulated knowledge about managing the company.

Check out

Why A Recruitment Agency Is Important When Hiring For A Family Business

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Nereah Obimbo

Writer. Youtuber. Filmmaker. Abolitionist. Pessimism of the intellect, optimism of the will.

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