According to the Australian Bureau of Statistics, approximately 70 per cent of Australian companies are family-owned and employ almost 50 per cent of the workforce. Therefore, their well-being has a direct impact on the Australian economy. However, there is no simple way to quantify their financial wellbeing.
Usually, these companies are privately held, so what frequently happens within family owned and/or managed businesses going public only after a bust or when peeved members wrangle over assets in court. Family businesses may face friction points that many find irreconcilable and the intergenerational transfer and wealth distribution are common adversaries.
According to Family Business Australia, more than 30% of all family-owned companies exist in the second generation; 12% will remain viable in the third generation; and only 3% will operate in the fourth generation and beyond.
Why do family businesses fail and what can be done to avoid failure?
1. Conflicted family relationships
There can be no separating of the family business from family relations, with this situation becoming more complicated over time. Family business owners and managers hold an unenviable role as ‘mega-structural leaders,’ which includes the family business, the family, and the leader or manager. These three different but interconnected structures come together to create a mixture of complex dynamics. What is often evident are incompetent family members, spoiled children in business, entrepreneurial intergenerational hostility, altruism, marital strife, and a tendency towards autocratic control.
Action tip – You could use family meetings either as a proactive measure when you know that conflicts are beginning to build or as a routine corporate event.
Either way, family meetings offer a forum for everyone to share relevant information or updates on business projects, plan for the future and raise questions regarding issues that impact them and the organisation.
2. Death of the founder of the company
The death of the founder/owner is stated to be a cause for 78% of family business failures. Company founders who live in retirement age are becoming more unwilling to face their own mortality and to embark on a systematic process of handing over the reins, leaving the family in a death crisis.
Action tip – Delaying or incorrectly preparing the transition can have a negative impact on the company and the family alike. To make an effective transition, a continuity plan that charts the path from the current generation of owners to the next generation is required.
Transition is a process, not an event—and the more the continuity strategy resembles a negotiation rather than an ultimatum, the greater the chances of success. The strategy cannot simply be dictated from one generation to the next; new leaders need to be trained and aligned.
3. Lack of leadership
Management is not leadership, and leadership is not management. Knowledge would suggest you rarely find outstanding leadership and management qualities in the same person. Furthermore, it is uncommon for businesspeople in leadership roles who have the expertise, knowledge, competence and wisdom that enables them to effortlessly transcend one style of leadership to the next, as circumstances require. The style of leadership expected in successful times is very different from that in very difficult times.
Action tip – It is important to evaluate the business culture and team dynamics in the light of the environment and the circumstances in which the business finds itself, and to integrate this with the leadership style in evidence. It is imperative careful consideration regarding leadership style in the light of company challenges and in the context of team’s goals.
4. Hesitancy to call outside to help
A few years ago, 63% of male university graduates decided to start their own company, their primary motivation being that they did not want to report to anyone else. This ‘alpha-male’ syndrome is one of the reasons why, even when the chips are down, some male-owned family companies cannot call for outside support and even if it is genuinely sought, advice is often discarded.
Action tip – A business in crisis or downturn can be a very stressful situation and much more so when confronted on its own. It is always a good idea to employ an expert and an unbiased consultant who can provide objective strategic guidance and insightful support implementing robust strategies, operational efficiencies and processes to future proof a sustainable business with a competitive edge.
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