When a company’s ownership is dominated by a small number of stockholders related by blood, it is often hard to distinguish between what is good for the business and what is good for the family.
This blurring can be a positive thing. As someone who grew up in two family businesses, I saw both the positive and negative: the satisfaction my parents gained from having autonomy and getting a new order from a customer but also the long hours and unpredictability of entrepreneurship.
When dinner conversation at home is as likely to be about whether the family business will be able to make payroll as what the children did at school that day, it does leave an impression.
One of the biggest determinants of whether someone will be an entrepreneur is if they were exposed to it as a child. For those who grew up around it, starting a business is much more natural and therefore likely. For good or for ill, children surrounded by a family business know what they are getting into by choosing entrepreneurship in adulthood.
However, there is also a potential down side to a family business. To understand this better, I reached out to David Pellegrini, a psychologist who specializes in family business matters. He pointed out that unlike a “normal” company, the CEO in a family-run business is usually both the generational and professional leader. This can be challenging because, as he puts it, “being the boss of one’s own children tends to lead to an expectation of fealty, loyalty and appreciation from the children.”When this happens, the offspring who are not in charge tend to be deferential.
In my consulting business, I have often seen this pattern of behavior to be very damaging. The head of a family-owned company who does not exercise care can become convinced that there is no need for outside viewpoints, particularly if things are profitable.
Pellegrini notes that this stifles the leaders’ personal growth, because “they have less need to develop skills of persuasion, consensus-building, or true engagement.” It also puts the business at risk if unexpected challenges arise, since it will not have the benefit of a broader experience base to draw from, or lessons to be learned.
Another downside is that viewpoints of non-family members are often treated with suspicion, if not contempt. The entity becomes a self-referential echo chamber, with the business leader in the middle of a sycophantic group offering only news he or she wants to hear. This issue cannot be solved through marriage; often, those who marry into a family are still treated as second-class citizens, since they are not blood relatives.
So, what can break this toxic dynamic? In my experience, the only remedy is for the family head to consciously separate family dynamics from the business, involve professional management and entertain contrary views.
Without making these changes, a family business leader may succeed for a time, but long-term success is highly unlikely.