Influence of family dynamics on the family enterprise

Q&A with Dr. Sarah Burrows, Assistant Professor of Entrepreneurship at Smith School of Business at Queen’s University. A key focus of her research is understanding how family dynamics influence the management of the firm and entrepreneurship across generations.

Below are excerpts from a video transcript from Smith Business Insight, the thought-leadership platform of Smith School of Business.

What are some challenges unique to family businesses?

A couple of the major challenges unique to family businesses are certainly that inseparable nature between the family and the business. And there are a couple of things with this. One, you really do have to make a conscious effort to try and keep family in the family and business in the business. So don’t let what happens in the living room influence what’s going on in the boardroom. There are these three distinct, but interrelated roles. You could be just a family member. You could be a family member and an employee. Or you could be a family member, an employee and a shareholder. And that’s really tricky to manage these different dynamics.

And then I think the other thing too that we often don’t talk about is the fact that when that next gen takes over, there’s a lot of pressure put on his or her shoulders. And so really making sure that they have the support that they need to be able to do that successfully [is important].

And then lastly, of course, is the hot topic of succession. The research suggests that 30 per cent of family-owned businesses make it to the second generation, 12 per cent make it to the third generation, and only three per cent make it to the fourth generation and beyond. So, succession is clearly tricky.

Why do family businesses fail?

One of the big reasons family businesses fail is due to a lack of communication and a breakdown in trust. We might think about succession as one point in time; the point at which you pass the baton. But you have to realize that there are decades of family history and dynamics that are informing that decision point. And so, to the extent that you can engage in that open conversation and make it a multi-stakeholder conversation, is really important.

What do successful successions get right?

What does a successful succession look like? First is the importance of starting early. And these are small things, like take that next gen when they’re children to accompany you to the office. When that next gen is socialized at an early age, it’s really important so that they begin to foster that emotional attachment to the firm. But also stakeholders, like employees and suppliers, get to know them. And so, there’s kind of that legitimacy building. Once that next gen shows an interest, what are their visions and their goals for the family business? And how is that aligned or not aligned with the predecessors?

And then I would say lastly to go outside. And what I mean by that is typically they spend three to five years working in the same industry, but at a different firm. And so again, that contributes towards your legitimacy building when you do come back, but also in terms of the knowledge and the capabilities that you need to lead the firm.

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