A backbone of the American economy is the family business. A family business, when run well and by family members who are dedicated to it and to the family’s mutual values and goals, can be a powerhouse of activity and success. Conversely, if family roles and responsibilities are not understood and communicated to all family members, this kind of business can falter quickly. It’s also one of the hardest types to transition when key leadership retires or otherwise moves on.
Why can a family business be more vulnerable than companies that are single owner or partnerships? It’s because the relationships between the owners are more complex and because family members often fill more than one role in the company in order to keep it running. If leadership overlaps and family roles and responsibilities are not clear to everyone, dissention or even out-and-out fighting is more likely to occur because the people involved know each other very well. They know each other’s weaknesses and aren’t afraid to attack them.
All businesses need leadership. While smaller businesses often do not define the types of leadership, three distinct types of leadership still exist in every business even if one person fills two or more roles. These roles encompass ownership, leadership, and management.
Family Roles: Owner
Owners hold shares in the business. They are entitled to dividends or profits out of what the business makes after expenses are paid. They make decisions and assume risk. Ideally, they agree on the mission of the company, a vision for its future, and what its main goals and values are. Owners set and approve the company’s policies and procedures. Many owners also hold leadership and/or management roles, but they do not have to. Some only hold shares and participate in larger decisions about the company.
Family Roles: Leader
Leaders translate the vision, values, and goals that the owners of the company agree upon into actual results. They strategize, motivate, inspire, and persuade the company’s employees into performing their best and accomplishing the company’s goals, both short-term and long-term. Often the best leaders are servant leaders who put the interests of the company and the company’s employees before a personal need for praise or additional compensation. Leaders are the ones called upon to make tough decisions about what is best for the company in practical terms.
Family Roles: Manager
Managers make sure that daily tasks are done and done right. If leaders are the “big picture” people, managers are the details people. They are in charge of budgeting, organizing, allocating resources, analyzing feedback, and solving problems between employees. Management complements leadership, but it is not the same thing. In small businesses, however, one person often assumes both these roles (and sometimes all three).
The Airline Analogy
At Prometis Partners we like to compare these three roles to a small airline. The owners of the airline built or purchased the airplane, and they decide what it will be used for and how often and for how long. If their airline is successful, they make money. If it fails, they take a loss.
The leaders in this analogy are the pilots. They fly the plane. They are responsible for deciding how to navigate bad weather or when the best times to fly are. When emergencies happen, they must make the kinds of decisions that keep the plane in the air and everyone on it from panicking.
The managers are the flight staff. They see to it that people and cargo are loaded and unloaded efficiently, that conditions on the plane remain safe and clean, and that people and product are cared for. If there are complaints about any of this, it’s the managers job to deal with them.
In this analogy it’s easy to see how all three types of leadership roles are necessary to the successful operation of the airline. It’s the same with every business. With family businesses, however, you often see the owners piloting the plane and unloading cargo. When the roles overlap without clear communication of who does what and why, problems can arise. This is why it’s always best for family businesses to take the time to establish governing groups that will structure and allocate family roles and responsibilities and help mediate conflict when it arises.
If a business does not have these leadership roles properly defined and understood when it’s being run successfully by one owner or one generation of owners, it will struggle with any transition of the company to the next generation of owners. It might also take a toll on family and the relationships between parents and children or siblings.
If your company is a family business, and you are considering transitioning its ownership to your children or other family members, you should allow even more time for the process to occur – not less. Involving an outside expert like an exit planner could save your company and your family a lot of trouble and heartache. It could help make your company a long-term venture and legacy to your community.