If you’ve ever bickered with your siblings when you were younger over who gets the last slice of cake or the best seat on the couch, you already know that family dynamics can be complicated.
Now imagine transferring those dynamics into a workplace. Working with family can sometimes magnify personal conflicts, but when you navigate these challenges successfully, your family members can become some of the strongest and most loyal partners you’ll ever have. In a family business, this closeness can be both a strength and a weakness – an incredible foundation for success, but one that requires intentional effort to sustain.
Family businesses face unique challenges that go beyond typical workplace issues. From navigating succession planning to separating personal relationships from professional responsibilities, these challenges can either strengthen a family business or lead to its downfall.
In a recent conversation with Philip Pryor, CEO of Family Business Central, we discussed the unique challenges family businesses face, particularly around conflict management and communication. My conversation with Phil really helped guide this article, so I highly recommend listening to the episode here.
Here’s a closer look at why family businesses fail and, more importantly, how to ensure yours doesn’t.
1. Not having a succession plan
One of the most common reasons family businesses fail is the absence of a clear succession plan. Without a roadmap for leadership transitions, power struggles and conflicts can arise, potentially resulting in key family members leaving the business.
Family business owners also can’t assume that the next generation will automatically take the reins. Each individual has their own aspirations, which may not align with the business’s future.
How to avoid it: Develop a detailed succession plan well in advance. Work with a trusted advisor to facilitate open conversations among family members, ensuring everyone’s perspectives are considered. This approach helps minimise conflict and sets the business up for a smooth transition to the next generation.
2. Blurring personal and professional boundaries
“I’ve seen families go from bitter conflict to deep mutual respect by addressing the underlying emotions and finding common ground. It’s not about perfection but about persistence and communication” – Philip Pryor on It’s Never About Money.
In family businesses, the overlap between personal and professional relationships can create tension. While strong family bonds can be a strength, personal conflicts often spill into the workplace, leading to heated disagreements that harm both relationships and the business.
How to avoid it: Establish clear boundaries between personal and professional life. Set expectations for behaviour in the workplace, and create a culture that encourages open, respectful communication. When personal conflicts arise, address them promptly to prevent escalation.
3. Poor governance
Without proper governance structures, family businesses risk poor decision-making and inefficiency. When decisions are left entirely to family members – without external perspectives or checks and balances – it can potentially lead to complacency or conflicts of interest.
How to avoid it: Implement strong governance practices, such as creating a board of directors that includes impartial third-party members. These unbiased individuals provide critical insights, ensure accountability, and bring valuable external perspectives to the table.
4. Resistance to change
While many established businesses struggle with adaptability, resistance to change is particularly challenging in multi-generational family businesses. This can be because different generations may have different agendas, appetites for risk and/or ideas for the future of the business.
Older generations, often focused on preserving what they have built, may see risk-taking as a threat to their legacy. They may fear that embracing change might compromise their identity or traditions, leading them to cling to outdated practices. Meanwhile, younger family members may push for innovation and expansion. This generational tension can hinder adaptability, which is crucial to staying competitive.
How to avoid it: Find a balance between preserving your legacy and embracing innovation. Facilitate discussions between generations to align on a shared vision that respects both legacy and future growth.
5. Emotional decision-making
“Families are ultimately emotional. We don’t fight as hard with anyone else as we do with family because of the deep emotional connection” – Philip Pryor on It’s Never About Money.
Family businesses often face the challenge of making decisions influenced by emotions rather than objective reasoning. Loyalty, sentiment, or the desire to please certain family members can result in not only poor financial or strategic choices, but also resentment – especially if certain family members feel unheard or undervalued. Over time, these decisions can erode the foundation of the business.
As well as this, personal disagreements can often spill into business matters, compounding tensions even further. Clear communication – both personal and professional – is key to preventing these issues from escalating.
How to avoid it: Make data-driven decisions and rely on objective analysis when determining the best course of action. Engaging a third-party mediator or unbiased advisor can help ensure that emotions don’t cloud judgment, leading to better long-term outcomes.
Turning challenges into strengths
Family businesses have the potential to be deeply rewarding, blending legacy, tradition, and purpose. However, without intentional effort to address these common challenges, they can quickly unravel. By focusing on succession planning, establishing boundaries, strengthening governance, embracing change, and prioritising objective decision-making, family businesses can thrive for generations to come.
At Stephan Independent Advisory, we understand the complexities of running a family business because we are one ourselves and we have helped many family business owners. We’re here to help you navigate these challenges, so your family business can continue to grow, succeed, and leave a lasting legacy.
