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Lead Your Team Strategy

5 Biggest Challenges of Owning a Family Business

5 Biggest Challenges of Owning a Family Business Credit: Dreamstime.

Basim Mansour always looked up to his father, Michael.

Michael, whose story Basim describes as that of the “typical poor immigrant,” built a successful plumbing business in the suburbs of Washington, D.C.

Mansour never intended to follow in his father’s footsteps, but when he was 19, his father died and his plans changed.

“Life throws you into things,” he said. He took over the business — now called Michael & Son — and flourished in his role. He grew the firm into a plumbing, electrical, HVAC and remodeling company that employs dozens, including some relatives.

Mansour is one of many businesses owners who see the benefits that can come from bringing family on board.

A recent survey of small business owners in the United Kingdom showed approximately one-fifth of respondents have hired a family member. The overwhelming majority of them  — 94 percent — said they feel this decision helped their businesses.

The survey, released by Bermuda-based insurer Hiscox, Ltd., also found that more than half of respondents said that their inherent trust in family members was their key reason for hiring them. Family members’ reliability and willingness to work hard also rank high amongst the qualities that make them desirable prospective employees.

If you are thinking of starting or taking over a family business, consider these five common challenges you could face:

Training a successor

Dr. George Vozikis, head of the Institute for Family Business at California State University, Fresno, knows this challenge firsthand.

When Vozikis was five, his father, an entrepreneur, died. The death triggered visits from a procession of creditors who demanded payments on debts of which his wife and children were — until then — blissfully unaware.

The biggest family business problem, Vozikis said, is the so-called "one-man show."

“It's the mentality that, ‘I'll be running this business from my grave.’ Good luck,” he said.

Vozikis said training a successor will help prepare for an owner’s eventual departure.

The importance of delegating

Zac Robinson and Amanda Robinson Holstine are the brother-and-sister duo that run Husch Vineyards, a northern California winery their family has owned for decades.

They describe life on the vineyard as nearly idyllic, but not without its challenges.

“Neither of us has been successful handing off day-to-day responsibilities,” said Zac. “My phone still rings when the toilet backs up.”

Delegating day-to-day operations that can be handled by someone else will free owners up to focus on growing and expanding the business.

Staving off resentment

Part of the reason a family business exists is to benefit the family. It’s something all employees should understand, but heads of family firms must be careful not to alienate those employees who come from outside the clan.

Allen Fishman is the founder of The Alternative Board, a global network of entrepreneur coaching groups. A family business owner himself, he is the author of the book “Nine Elements of Family Business Success” (McGraw Hill, 2008).

Fishman said problems arise when a family member is placed in a position for which other employees feel he or she is unqualified.

“If you put a 25-year-old relative in charge of someone who has been there for 20 years, you’ll have resentment,” Fishman said.

A better method, Fishman said, is to find a place in the company were the family member can thrive, even if it’s low in the pecking order. This way, the individual can rack up successes, gaining the respect of nonfamily co-workers before advancing.

Making tough decisions

After a late entrepreneur’s death, grief-stricken family members must make tough decisions about what to do with his or her business. The dual challenge of a leadership transition in the midst of a family crisis throws many family firms off balance.

“We’re looking to people to make calm, rational business decisions when they are grieving,” said Drew Mendoza, managing partner of the Chicago-based Family Business Consulting Group, “It can get messy.”

Mendoza noted, however, that family businesses can put plans and procedures in place that will fortify them against potential tension a sudden death could cause.

Fair compensation

Compensation can be a can of worms in any company. Family businesses , though, have an especially tough time devising payment schemes that are fair and — just as important — perceived as such.

For instance, should comparable family and nonfamily workers be paid the same?

“Most would say yes,” Mendoza said, “but what about the need for family members to always be the first in and last out?”

He explained that this obligation — along with the challenge of constantly protecting the company brand — gives family members responsibilities their nonfamily counterparts can avoid. Devising a fair payment scheme means taking this into account.