Despite the public perception surrounding family business, they make up many new businesses that form each year. According to specific reports, up to 60% of the American workforce is working for a family-owned business.
Still, any new business can and will face challenges. Regardless of how the owners are connected or related, a company first has to survive. When family members enter a business together, a few additional concerns and challenges may arise.
Thankfully, hundreds of experts are willing to analyze the success and failures of all visible businesses and compile advice for new startups. Even Harvard has created a guide for new companies.
The Five Core Rights of Family Ownership
Many unique features come with running a successful family business. For example, a family business won’t have to answer to other shareholders – at least not in the early stages of the process. That may change, but once again, that would be up to the company to decide.
Five core rights come with running a family-owned business. These rights are: design, decide, value, inform, and transfer. According to Harvard, knowing and exercising these rights will differentiate between a successful company and a failed one.
Design is all about asking what sort of ownership a family wants out of their business. Do they want a single (sole) owner? Other alternatives include partnership, distributed ownership, and concentrated ownership. There are also hybrid options, but they tend to be few and far between for a family business.
Next, a family business must decide how it will structure its governance. That is to say, a family business must determine how decisions will be made. There are several different models and options available, allowing for a significant amount of flexibility and customization.
After those decisions have been made, a family business must then sort out its definition of success. Is the company going to be more about growth-control, growth-liquidity, or liquidity-control? It is vital that a company define this goal early on, as goals help to drive business, and without them, a company risks failure.
Every business must establish a way for employees and management to communicate. Communication is a crucial part of a successful business. Additionally, a company has complete control over what information it shares outside of the company (with the exception of government-required details).
Last but not least, a family business must ask itself how it will handle transitioning to future generations? As a family business, one that hopes to last, this will eventually become a significant concern. It’s essential to create a foundation for handing off assets and transitioning roles.