Pros and Cons of a Family Business

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Family businesses can be a source of satisfaction or disappointment.
Family businesses can be a source of satisfaction or disappointment. (Image: RAYES/Digital Vision/Getty Images)

According to the Harvard Business Review, some 70 percent of family-owned businesses fail or are sold before the second generation takes control. This daunting percentage underscores the importance of weighing the pros and cons of running a family business. There are several advantages and disadvantages families ought to consider before entering into a venture together.

Leadership Development

Bringing younger family members into a business and grooming them for leadership early on in their careers can strengthen a company's management team. Family members can start out working on the production line or in the shop and slowly develop a feel for how their family’s company works. Those that learn a trade or company from the ground up often have the insight and experience needed to lead a business effectively, once it’s their turn to take over.

Transfer of Knowledge

As a professional in any field, one of the toughest things to attain is work experience. In a family business, however, knowledge and experience can flow freely between family members, making it easier to hone younger family members’ skills and competence. For instance, parents can start teaching their kids the ins and outs of the business early on, while their children are still in high school or college. For family businesses that have been around for generations, extensive knowledge about products, services and target markets can be transferred on to the next generation.

Power Struggles & Limited Mobility

Sibling rivalry and parent-child disputes often follow family members into the workplace, which can lead to power struggles. This can have a devastating effect on morale and the overall direction of a company. Also, if senior family members relinquish control to a younger generation, it’s often difficult to let the younger members run the business uninhibited. Younger members of the family may have different ideas for the direction of a business, which can lead to conflict and tension between generations. In small companies, a lack of job advancement opportunities can also lead to power struggles.

Subjective Performance Assessments

It’s difficult for many parents to see their children for who they really are and provide objective performance assessments of their work. Personal biases can get in the way of appraising management performance or the quality of work a child produces. For instance, if a project milestone is missed or if products are not delivered on time, parents may be more inclined to blame other staff members for the errors, rather than hold their children accountable. This can create animosity among other personnel working for the company.

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