2 April, 2020

Family and Business Systems 

“Happy families are all alike, every unhappy family is unhappy in its own way.”

Tolstoy, “Anna Karenina”

My work has always allowed me to peer behind the curtains of family businesses or perhaps more accurately business families. I come from one myself, so they are more or less my milieu. It is always difficult to know whether one has chosen ones vocation or whether it, in ways measureless to man, choses one. However I arrived at this strange intersection of commerce and relationships, I continue to be fascinated by the world in which individuals, through their own initiative or the initiative of previous generations, create and maintain systems of economy that then become thoroughly intertwined with their personal and private spheres.

Indeed one of the primary causes of stress and eventual collapse of small (and not so small) businesses can be found in the emotional carnage at ownership level in which disputes, rages and breakdowns in communication, between generations, siblings and spouses cripple the decision-making capacity of the enterprise. Loss of agility and focus, and factionalism and disengagement in the workforce are the consequences, leading eventually to loss, breakdown and the need for significant restructuring, again usually beginning with the ownership structure. To quote the much-overquoted beginning of Tolstoi’s “Anna Karenina”: Happy families are all alike, every unhappy family is unhappy in its own way.”, however the consequences of “unhappiness” at the ownership level are predictable even if the path and construct of that unhappiness is always individual. I know whereof I speak…

So it was fascinating for me to have a systemic map of the two distinct rules governing families and businesses explained to me by a friend and business associate in Germany recently. I have no direct attribution for this and am unaware from whose work this has been mined (I will acknowledge the source, if there is one, when I find it and issue apologies in the meantime), but Gundi Kaiser, a Bremen-based expert advisor to business families at the intersection of Family, Business and Wealth explained it to me like this:

The root cause of most business family dilemma is the fact that the rules of both systems – which are separate – tend to become conflated over time, causing systemic chaos and breakdowns affecting both the business and the family concerned, sometimes for generations. Understanding and adhering to these systemic “rules” is key for ensuring that both the business and the family can survive and thrive. She describes the “rules” governing each distinct system in this table:

The table of “rules” makes it clear that the two systems “family” and “business” run on almost diametrically opposed principles. It also makes transparent the problems that can – must – occur when the rules of one system are unwittingly applied to the other. These rules can be misapplied both ways, not just when the entrepreneur begins to treat members of his family like staff, but also when employees and team members are treated as if they were members of the family. How often have we heard teams and owners refer to the culture of the business in terms more indicative of a family, indeed how often do we hear the phrase “we are like family” in SME businesses? Only they are not.

Doug Tatum in his outstanding (must-read) book “No Mans Land – When your company is too big to be small and too small to be big.” Refers to the most wrenching decision that entrepreneurs face when dealing with growth in their business is replacing “loyal but no longer competent” staff with newcomers with the relevant skill set to take the business to the next level. He points out that the cultural transition from “loyalty” (a family value) to “performance” (a professional one) is often too difficult for the entrepreneur to face. I have my own story about this, told to me by my father about my grandfather, who founded and grew a successful business in the post-war years in the UK. Grandad evidently had a sales manager who had served with him in the war and had followed him into business. This gentleman was by all accounts delightful, funny, loyal to a T and well-liked by staff and customers, but was not at all cut out for the job of managing a growing sales division for a nascent public company and it was obvious that he had to go. Only my grandfather, who by all accounts was otherwise hard as nails and as focused a man of business as you could imagine, could not bring himself to ask a man who had been unswervingly loyal to him to leave. My father tells me that the only time he had ever witnessed his own father close to tears was when he told him that “Woody has to go.” to which he evidently responded “Then I had rather not grow.” before delegating the job to his son. The business never looked back after that and I have have no idea what became of Woody, I only know that 70 years and two generations later that story is still alive and just as poignant as it was then. There is no sweet sorrow in such partings.

Doug describes the transition from an owner-centric to team-based leadership model as the necessary replacement of loyalty as the primary determinant of information flow by performance. Which is a smart way of saying that in the owner-centric model, how close you were to the centre, usually as a result of length of tenure and your personal relationship to the boss determined how soon and how much information you received. All of us in the SME world know cases in which the secretary of 30 years standing or the long-serving technical foreman were better informed than the new sales director who had only been hired last year. The closeness to the “throne” results, eventually (actually pretty quickly) in a culture of gossip, jealousy and fierce protection against outsiders as “professional managers” are cruelly undermined in their attempt to create more efficient decision-making processes, accountability and to undo the cliques that necessarily form in the old system. Deliberately managing the transformation from loyalty to performance without losing the intimacy and trust at the heart of the culture of a small business is a spectacularly difficult process at which many fail. It requires above all self-awareness from the owner/manager and an ability to envision both the trajectory and the required culture of the organisation they have created.

At the same time, the “family rules” that the entrepreneur unwittingly applies to the business are mirrored by the grotesque application of “business rules” to their own family, in which family members are “managed” and judged as if they were employees, incentivised with money and financial rewards, “fired” if they don’t meet expectations and treated with a harshness that would be unthinkable if applied to long-standing members of staff. This screwed-up, back-to-front conflation of “systems” is at the heart of Gundi Kaiser’s practice and she admits that there is not one case of a multi-generational family business that ends up in her consulting practice that cannot trace its problems – which are often desperate to the point of tragedy with suicides and broken lives a regular occurrence – to the misapplication of systemic rules within the family and business spheres. Which makes sense to me – if you attempt to play football using the cricket playbook, chaos must, by definition, ensue.

For the business-owners themselves, especially those who have family members – spouses, offspring, cousins, in-laws – working with them in their business operations, separating these two spheres is difficult but entirely necessary if they want to maintain loving, stable relationships with their family and to retain engaged staff and a thriving culture in their business. At the very least their mental health will inevitably suffer if they conflate the two systems without corrective intervention. All of which requires rules of engagement and safe spaces to ensure that home doesn’t just morph into an extension of the office and the bedroom become a reconstituted board room. Nothing says “Let’s not have sex any more” than discussing tax strategy in the conjugal bed. Thinking this through, being honest about the extent to which the rules might be being misapplied within one’s own version of those two vital systems of the entrepreneurs life and having the courage to ask for help navigating that minefield of misunderstanding is one of the most difficult challenges for the successful business owner, but one in which the rewards for success are immeasurable in respect of the quality of life and overall prosperity.

Gundi and I are planning shortly to publish a short ebook guide for business owners to understanding and navigating these two systems to ensure their mental health, family well-being and sustainable prosperity and anyone interested should sign up to the Good & Prosper email list to automatically receive a copy when it is published