How have famously successful family-owned businesses like Walmart, Ford, and Comcast created long-lasting legacies that have far outstripped their humble entrepreneurship beginnings? While family dynamics can cause interpersonal conflict at times, family businesses can also have a higher resilience because of their shared values and strong connections.
In this article, we’ll dive into the strategic planning that family-run businesses can implement to drive long-term growth through governance structures, ownership frameworks, defined responsibilities for each family member, and succession planning. Our overview will give you the tools to ensure your family enterprise is around for the next generation of family business leaders.
Choose a governance structure
A governance structure lays out who has the most authority in certain situations and which family member will take the lead on making important business bets. One such successful governance model appropriately organizes the family business like a home to separate shared responsibility.
In “The Harvard Business Review Family Business Handbook,” authors Josh Baron and Rob Lachenauer call this the four-room model.
The four-room model
The four-room governance model imagines the family business as a house with four rooms: the owner’s room, the boardroom, the management room, and the family room. At different stages in the family business, family members will occupy each room and take on its accompanying responsibilities.
The owners are responsible for managing the board and high-level company strategy. Family members in the boardroom supervise company hiring, including hiring the CEO. Management deals with business strategy and general operations. The family room is for family members to connect over shared goals and the legacy of the family enterprise.
This structure lays out the clear jurisdiction of each business owner and how they contribute to successful family business endeavors. Equally important, you’ll also need to lay out a clear ownership structure.
Create an ownership framework
Ownership determines how family members share control, and this framework can either be a source of conflict or strength as your family enterprise evolves. We’ll detail the four main ownership frameworks below, but you can also create a hybrid ownership structure combining some or all of them:
Sole ownership
In sole ownership, there is one main business owner who controls all strategic planning and decision-making. This structure is best for small businesses that require high liquidity and strong leadership.
House of Camus, a French cognac company, has used a sole ownership structure since 1863. To maintain control, each successive owner buys out the shares of their family members. Limiting the ownership to one person means less conflict over decision-making, but a downside to this is the limited pool of potential successors and external perspectives, making succession planning more challenging.
Partnerships
In this format, ownership is limited to family members who actively engage in the company. Multiple business owners increase resilience through multiple perspectives, but competition is high for family members who want to be involved.
Family businesses can use partnerships for diverse family involvement and to boost innovation and adaptability. This structure has the advantage of bringing in various viewpoints but can also create competition among family members seeking certain roles. That’s why maintaining fairness and smooth decision-making calls for clear governance.
Distributed ownership
In distributed ownership, any interested family member can be a business owner. Shares and capital are kept within the business, but decision-making can be a challenge without clear leadership. Also, highly involved family members might have conflicts with those who are reaping the profits of the family enterprise without contributing as much.
Concentrated ownership
Concentrated ownership allows any family member to be a business owner, but a select few have decision-making power. This arrangement facilitates the agility to make pivotal business decisions swiftly and with conviction, a quality particularly valuable in today’s fast-paced business landscape. But decisions about succession become complex for large families with many next-generation members competing for few ownership roles.
Clearly define each family member’s role
Because family-owned businesses have so many stakeholders, it’s essential that every business owner’s role is clear.
Here’s where Renato Tagiuri’s John Davis’s Three-Circle Model is helpful. It simplifies the structure of a family business by dividing it into three interconnected parts: the family, the business, and ownership. These parts overlap, creating seven distinct groups, each with their own goals and viewpoints. The lasting prosperity of a family business relies on how well these groups work together and support each other.
To reduce conflict, determine boundaries for family member involvement and decide what information will be communicated across areas of responsibility. For instance, owners should be privy to high-level information and have access to details across the company, but they don’t necessarily have to communicate everything to family members with lower levels of responsibility.
Navigate succession planning for future generations
Succession is a challenge when there are multiple family members vying for top ownership roles in a family enterprise. And when the sole business owner has no succession plans, it’s difficult for the next generation to take leadership.
Succession planning can have other positive outcomes as well: A Boston Consulting Group study of 200 family-owned businesses in India showed that companies with succession plans in place saw more market capitalization growth than others by a difference of 28 percentage points.
It’s important to create a transition plan for assets, responsibilities, and ownership for the next generation to prevent conflict and set them up for success.
Plan ahead for change and growth
Combining innovation with tradition gives family-controlled businesses a competitive edge, making them better equipped to survive. Family business owners have strong emotional investment in the continued success of the family business because they want to contribute to the family legacy and create a future for their children.
They also want to create opportunities for career advancement. This aspiration is particularly notable among women involved in family businesses, who often face a unique set of challenges. Historically, family businesses were male-dominated, which could potentially lead to a lack of representation or recognition for women’s contributions.
Even today, despite changing societal norms, women may still find themselves in a struggle to break traditional gender roles within the family business setting. This gender dynamic can sometimes hinder women’s career advancement, with them being overlooked for promotions or key leadership roles in favor of male counterparts.
However, the desire to foster inclusivity and ensure equitable opportunities for all members, irrespective of gender, is prompting many family businesses to address these challenges. They are increasingly recognizing the importance of diversity and the valuable perspectives women bring to the business. Thus, by striving to create a more inclusive environment, family business owners not only aim to provide equal opportunities for career advancement but also to enrich the business with diverse insights, which can be a significant asset in the modern business landscape.
Still, business owners must utilize strategic planning for the future if they want to boost their staying power. They need to embrace digital transformation to stay innovative, and promote learning and preparedness among future generations so they can take the wheel in their family business.
Learn from others’ success and failures: Case studies
Some family businesses have grown far beyond their humble beginnings. What’s their secret to generational success? Generally, it’s been their focus on family, ownership structure, and innovation. Here are some examples of these techniques in action, and where some have fallen short:
Chick-fil-A
From New York to Paris, Chick-fil-A is a major establishment within the food industry – and it’s a family-owned enterprise. The Cathy family has a net worth of $14.2 billion, making them the 21st-richest American family enterprise.
The fast food giant known for its chicken sandwiches is famous for its consistent customer service, quality food, and strong company values. However, Chick-fil-A’s anti-LQBTQ+ connections have also resulted in consumer backlash, proving that some outspoken values can be a potential source of concern for family businesses.
Chick-fil-A’s experience highlights the intricate path family businesses navigate – balancing values against sustainable growth.
Walmart
Founded by the Walton family, this retail giant became a global powerhouse in the retail industry.
The family’s concentrated ownership allowed for prompt decision-making, contributing to the company’s growth. For instance, the Walton family’s consolidated ownership structure helped them align swiftly on a global expansion strategy, ultimately leading to accelerated growth and market penetration. However, this structure also highlighted succession challenges, especially since the family had a large next generation to consider.
Walmart’s ability to adapt to changing market dynamics while maintaining a sense of family cohesion and business vision has been both a strength and a challenge. This underscores the importance of aligning family goals and business strategies in the face of exponential growth and generational transitions.
The Sages Family Business
The case of the Sages family business is an example of how family dynamics and ownership structure can impact a family business’s trajectory. Thomas Sages, who turned a single grocery store into a large supermarket chain, initiated a conversation about the future of the business with his four children as he aged.
Unlike his expectations, all of them wanted to remain shareholders to potentially pass on shares to the next generation. The family had to navigate complex scenarios surrounding share distribution, particularly given Thomas Sages’ two marriages and prior share distributions.
They were also concerned about the process and implications of selling shares in the future, emphasizing the importance of a well-thought-out shareholders’ agreement to secure the business’s future ownership while providing some flexibility for individuals to sell shares.
Cultivating strong leadership across generations
Creating a family business that withstands the test of time takes more than enough generations to keep it running. Strategic planning includes clear plans of ownership, a division of responsibilities, and foresight for how succession will take place. With these key strategies, you can help ensure the longevity of the legacy that is your family business while minimizing work-related conflicts in the office and at the dinner table.
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