Family businesses play a critical role in supporting the UK economy, accounting for more than three-quarters of the country’s 4.6 million private enterprises and for nearly half of all mid-sized businesses.
But despite their importance to the economy and to their owners, the survival of family owned and managed firms is challenged by an apparently inevitable inability of future generations to repeat the initial success of the founders. Indeed just 30% of family businesses make it into second generation ownership.
Given the complexities of family ownership, there are many factors at play when it comes to understanding the poor survival rates, but these are not insurmountable.
The key is to appreciate the multiple nuances of family life and to understand how these interconnect with the many facets of building and then maintaining a successful business.
In the past management consultants have shown a propensity to focus on addressing single, discreet challenges in isolation, without acknowledging that pulling on one lever causers the many other interconnected cogs and wheels of the family business machine also to move.
By recognising the fundamental differences between an individual’s and an organisation’s actions and behaviours and by realising that nevertheless these actions are inextricably linked, family businesses can be much more effective in improving virtually every aspect of their operation. Taking a holistic and integrated view helps resolve challenges without setting off a chain of unintended consequences and without creating additional difficulties.
Running a business can be fraught with problems but when familial relationships are added to the mix, the challenges are amplified, sometimes catastrophically.
The Family Business Institute estimates that as many as 97% of family businesses no longer exist by the time they reach the third generation, but this does not mean the enterprise itself was inevitably doomed to failure, rather that the family were not able to manage a successful transition.
Often the problem in passing the business along the generations lies, rather perversely, in the challenges created by success itself. The more wealthy and profitable the business and family becomes, the less is the motivation and ambition in the future generations. As well as that, the original skills and knowledge needed to create the business in the first generation may simply not be present in the subsequent family members. And the skills and mind set of the entrepreneur are not necessarily identical to those needed to continue to grow the business.
Poor inter-familial relationships may also inhibit the efficiency of business transfer, original founders may be unwilling to relinquish control, or to move with the times. They are myriad reasons for poor succession planning and these can only best be understood by analysing how individuals and businesses work both as separate entities and, more importantly, as an interconnected whole.
Separating behaviours and activity into four quadrants is a useful tool to help understand the organisation, structure and management of a family owned and run business.
The diagram below shows these four quadrants which are based on Ken Wilber’s work A Theory of Everything, in which he proposed applying an integral theory when understanding business and wealth management.
*Adapted from Passing the Buck: How to Avoid the 3rd Generational Wealth Trap by Simon Bloom
The upper quadrants focus on the individual. The left quadrant covers thoughts, emotions, motivations which are entirely within the individual conscious. They can only truly be known by the individual experiencing them within their own mind. For example our internal monologue, the personal experience of a flavour, or how we visualise images in our mind.
The right quadrant then focuses on how the individual expresses themself. For example how they demonstrate what they are thinking, feeling or tasting. This might be a widening of the eyes in surprise, a furrowing of the brow in confusion or concern or it may even be the way in which brainwaves appear when studied by a neurologist in hospital.
The upper left and right quadrants are interlinked in that how a person feels (upper left) can be seen by an external entity (upper right) but they are distinct in that only the individual can truly appreciate the precise feeling, thought or taste.
The lower left and right quadrants cover collectives or groups. The left quadrant focuses on how we think or feel as part of a group, for example in shared religion, or in an agreed set of principles for a work culture.
The lower right quadrant focuses on how individuals manage themselves as part of a collective. This covers hierarchies, management structures and economies.
Again we can see that these two lower quadrants are linked as how the collective feels and what it believes is borne out in the structures and processes it implements.
Wilber argued that it was impossible to understand a business without appreciating the implications and the subtle nuances of each quadrant – and then considering them as a whole.
Consequently we believe effective consulting needs to take this “integral” approach. We look across all quadrants and all levels to fully understand our clients and achieve the best of the practically available outcomes. Arriving at the right recommendations and solutions for our clients for them to achieve their maximum potential, SBC aims to consider all aspects of the individual, their environment and cultures.
A successful property company approached SBC to help with a problem with succession planning.
The family business consisted of mother, father and daughter and the issue lay in whether the offspring was ready to take a permanent and progressive role within the firm.
Even at the initial meeting it became clear that the daughter, aged 20 and in her final year of university, had a serious drug problem and was borderline alcoholic. The relationship between her and her parents was at a breaking point with explosive arguments on an almost constant basis. She was on the verge of being expelled from university and her mother had very real and well-founded doubts about her child’s future, both at the firm and generally.
The first step was to stabilise the daughter. No progress could be made while her behaviour was unpredictable and volatile. SBC arranged, with the co-operation all concerned, to enrol her in a drug rehabilitation programme and helped her deal with her addiction. In addition to rehab SBC arranged therapy and counselling to find the root cause of her destructive behaviour.
As a result the daughter was able to finish her degree and start building a future for herself. This part of the consulting process dealt with the upper left and right quadrants.
We then moved to stabilising the relationships between the parents and their daughter, referenced in the lower left quadrant.
SBC uncovered a series of break-downs in communication where the parents had never discussed with the child their expectations for her, nor had they considered her own aspirations. This lack of communication was exacerbated by the extent to which the (wealthy) parents had indulged her, in the mistaken assumption she was eager to become part of the family business, giving her a generous salary from the firm in addition to a personal allowance, as well as living at home rent free. The parents were resenting that they were not ‘getting what they paid for’ and this added to the pressure on the child to do something she did not want to.
By openly and honestly discussing their feelings and expectations SBC were able to build a structure and process that worked for all the family members and for the business (see the lower right quadrant). Ultimately the daughter, now clean and having gone on to complete her Masters, set up her own business with the parents providing seed capital in return for an equity share. This provided meaning and direction for the daughter and a source of income for the family business.
Tackling the challenges facing this family firm took time and commitment on all sides. However it was successfully resolved by understanding each of the quadrants and bringing them together as part of an integrated consulting process.