The Seven Complexities

Whether it be road construction, a jack-knifed trailer that has spilled its load, or a fender bender resulting from a sudden lane change, you will encounter many roadblocks as you travel the family business highway.

Successful management of these obstacles will afford you more choice around how and when you exit your business. While some of these roadblocks will be specific to your circumstances, there are many that typically impact every business family. Over the coming months, we will examine the most common elements that cause complexity in business families and, if not managed, can result in a failed transition plan.

As a family business grows, so does the need to professionalize. In the early years, there is little need for formality in the business. Generally speaking decision-making, ownership, and power is in the hands of one or two, and the organizational structure is simple. However, growth requires change and change increases the complexity.

While recognizing that a strong family unit contributes to the success and continuity of the business, family enterprises struggle to effectively balance the priorities of both business and family. The good news is that by bringing some formality and structure to the system, the typical complexities can be managed.

So addressing these complexities throughout your journey will greatly enhance the likelihood of arriving safely at your preferred destination — a successful transition of ownership and leadership with the family relationships still intact!

The Seven Complexities

1. No clear definition between family and business
   With the principles and values of the family at its core, the DNA of a family company is considerably different from that of a non-family business. A non-family business can rigorously apply a ‘bottom line’ policy in all its operations, strategic planning and decision-making processes, whereas the family business often has definite socio-economic goals and will base decisions on what is believed to be in the best interests of the family, employees, customers and suppliers who depend on it for their lifestyle. This blending of family and business causes a myriad of issues.
2. Family members can lose their personal identity
   While a family working together for a common goal can be an extremely powerful force, it is very easy for succeeding generation family members to feel they exist only as a cog in the proverbial wheel. In some families, children feel it’s their duty to join the family firm while others do so for the privileges that the business can bestow. Today, as many as four generations can be found working together in the family firm but the differences in their work styles, motivation and personal needs are poorly understood.
3. Unresolved Conflict
   Time and again, the media reports how unresolved conflict between individual family members has resulted in litigation and destroyed not only the business but also family relationships across multiple generations. Conflict should not be avoided but rather addressed in a positive and productive manner to find the best possible solution to the issues. Families need to be more conscious of managing differing expectations and perceptions while being proactive in finding a common interest and ways to create positive conflict.
4. No clear vision or direction - only dreams
   As the business grows, responsibility must go hand-in-hand with the privilege of being the owner/operator. Business decisions impact both family members and employees directly and also affect the community at large, so it is important that the business has a clear, unified direction. Statistics show that most business owners fail to identify a clear path forward, preferring a more “gut feel” approach to making decisions. This leaves other stakeholders with a feeling of uncertainty about the business and an increased likelihood that the team will be unable to anticipate the challenges ahead.
5. Lack of trust or “we focus”
   Trust means to depend or rely on others and is a fundamental requirement of a successful business and its inevitable transition. Within a family enterprise, trust is developed from a “we focus” or common interest around the philosophy and direction of the business. In families whose social capital has a strong foundation of trust, members are confident that individual intentions are aligned with the best interest of the family unit. Without trust, the “entitlement” virus — a “what’s in it for me” disorder — spreads quickly.
6. Lack of communication
   While it might seem obvious that a lack of communication will cause complexity in any business, most family businesses tend to communicate on a perceived “need-to-know” basis. This complexity stems from the early stages of the business when the decision-making team was small and there was little need for regular or formal communication. Unfortunately, poor communication leads to many of the stresses that manifest themselves as negative conflict. When asked, business owners who have previously transitioned their business felt that 80% of the process required effective communication. Also, the majority of failed wealth transitions in North America have been attributed to a lack of communication.
7. Lack of clarity around roles, responsibilities and rights
   Few family businesses manage the division of roles and responsibilities from a purely business perspective. Many businesses were created as an outlet for a specific skill set or talent of the founder who later finds herself struggling with tasks that conflict with her natural strengths. In addition, privilege or entitlement often leads to unqualified offspring in key positions and sometimes roles are even created for a specific family member. Failure to professionalize the distribution of roles and responsibilities breeds a false perception of rights, role confusion and greater conflict.

So as a family business owner or member, what can you do to address these complexities? The first step is to recognize the issues facing your own business. Subsequent articles will further examine the seven complexities but in the meantime, please feel free to discuss a proactive approach to managing these issues with your BDO advisor or our Business Transition Services team at 1.800.598.6400.​