ENTREPRENEURSHIP / FEB. 06, 2015
version 3, draft 3

Pros and Cons of Taking Over a Family Business

Janice Martin

The ideal recipe for the success of a family business varies according to business structure, and family mentality and stability. Nevertheless, many owners of family firms wish to know the future of their business once they step down. Succession and the future are, therefore, the most frequently discussed topics in the context of family businesses. Family companies come with their set of advantages and disadvantages. “To every action, there is an equal and opposite reaction.” For the success of a family business, one must overcome those challenges and capitalize on the opportunities.

What are the advantages of a family business?

Stability

Having shared values, family members understand each other better. Understanding brings greater appreciation and respect among the family members that became business partners, fostering important family values into the business. Therefore, their family positions determine who leads the business and the structure of the leadership, which result in long-term stability within the organization.

Commitment

When the needs and survival of the family is at stake, family firms are more committed to the business. In non-family firms, the sense of commitment and accountability is almost impossible to generate, whereas in a family business long-term commitment leads to better understanding of the industry and organization, effective marketing, and better and stronger customer relationships.

Flexibility

Family members are willing to wear many hats to ensure the success of the business, and to be more tolerant when it comes to works schedules and work-related decisions. Working in a stress-free environment brings better results.

Long-term perspective

Commitment and stability of family firms result in long-term goals and perspective. Having such perspective and patience, family businesses tend to make better decisions, and have a better business strategy. A great example of such successful family businesses is the story of Glenn Walton of Brisbane Tree Experts who took over his father’s business.

Investment

In challenging times and economic downturns, members of the family are willing to contribute their own finances or capital to ensure the success of the firm. Family members are not typical workers; they will necessarily tighten the belt in order for the business to survive.

Excellent knowledge and training

Most leaders of the family business have been trained by their parents and grandparents, and have different experience within the company (before becoming the chairman) and thus have an excellent knowledge about family business, tradition and history. Whether new leaders decide to introduce something new to the system, having been trained by their parents and grandparents enhances their commitment and stability of the family business.

What are the disadvantages?

Sometimes family members aren’t truly interested in joining family business, but they do as expected, which brings new challenges to the business itself. In the public sector, they would simply be fired; however, it’s not so simple with family businesses.

Conflict

Family business can be a breeding ground for family problems: jealousy, anger, resentment, and long-lasting bitter fights, which can affect every person within the firm. When one unwillingly becomes part of a family business, conflicts are bound to happen, in most cases. Nevertheless, conflict might happen in any firm, but because family members are involved, it may result in a difficult ending.

Governance and management

When external corporate rules and internal hierarchies are taken less seriously, family firms experience governance issues. This, however, can be gravely damaging and detrimental. One such example is Samsung Group, whose chairman was forced to resign in 2008 after being indicted for tax evasion, and while the three-year sentence was suspended, a fine of $109 million was still imposed.

Nepotism

Whether managers are reluctant to let outsiders in or they have a hard time turning down relatives who need a helping hand, the common result might be employees who lack the education, skills or experience. This, in many ways, has a wide-ranging effect on the success of the firm.

Succession

There is a great risk of not having a good succession plan that leads to poor leadership, financial or legal problems, and family conflict. Whether the leader might find it difficult to retire, or the successor has no interest in the particular industry and wishes to pursue a career in a different industry, it’s of immense importance for the family business to have a strong succession plan.

One such example was in 1999 when the founder of the Hyundai Motor Group named his son Chung Mong-Koo his successor, who defied his father’s orders to step down a year later and in 2007 was found guilty of fraud and embezzlement.


The challenge for every family business is to recognize both the weaknesses and the strengths; only then will every problem and challenge turn into opportunity and success.

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