Family Business 101 #1
Define Everyone’s Roles Up Front

• Planning produces clarity and reduces the potential for conflict
• Family Businesses have more “capital” at risk
• Understand Governance and Ownership first

The musicians showed up for the first rehearsal session ready to go.  The violinist wanted to play concertos; the horn player wanted to play Souza.  The drummer wanted to play “Wipe Out” and the saxophonists wanted Coltrane.  The run-through was chaotic, to say the least.

Now, imagine that instead of musicians coming together from different walks of life, the players are actually family members…

Considering a family business?  In one now?  What can family businesses do to create the best opportunity for success? Organizations thrive on clarity.  Family businesses are at significantly higher risk without it.   There are too many problems that can occur without well-defined roles.  In a standard environment, it would be likely that people come together with certain expertise and roles charted out.  If not, the founders would be expected to include in a business plan the proposed management team and their respective roles.  Investors and bankers require this as a matter of course when they consider putting their funds at risk.

Family businesses have more “capital” at risk than other enterprises.  Not only do they have financial capital at risk, they are also more likely to have family dynamics that remain long after the family enterprise has failed or is not delivering well.  People working at a business without family ties can leave, choosing other places to work.  Family members may not have the same level of freedom in case things do not go well.   Unless the enterprise fails entirely, family members likely face increased pressures to stay the course. 

As a practical matter, it can be substantially more difficult to exit a family member from an enterprise, even if they have not contributed financial capital.  It behooves those contemplating a family business to ensure that the members take on roles that enable them to operate at their fullest potential.

Companies are always well advised to create a working business plan.  What is the commerce contemplated? What need does it serve?  Who is the potential customer?  How much are they willing to pay for the contemplated product or service?  Is there any market data that would suggest growth potential?  The same approach works for a family considering investing in a going concern as well.

These are the kinds of questions that anyone would ask about getting into a business or sharpening an existing one.  For a family concern, it will be helpful to know what is the family’s purpose for getting into a particular enterprise; why now?  Why this one?  What is the specific appeal?  Does it match up with the family’s values?

Any family member who expects to contribute within the business should participate in this important preliminary work.  Those who join later need an intensive briefing about these questions and how the family approaches them so that they also have clarity and agreement.

In terms of assigning roles, the old adage of “measure twice, cut once” is important.  Because good organizations insist on clarity, roles that will satisfy the business challenge need to be fleshed out and adopted. 

As the work of defining the roles within the business sharpens into focus, a parallel effort needs to occur within the family members to determine which member is best suited to fulfill a particular role within the business proper.  Just because Member A has a trumpet and Member B has a saxophone should not automatically entitle that person to play that instrument in the band.

Governance and ownership need to be discussed and agreed upon in advance, or in the case of an operating business, clearly discussed among the members.  Once the members define and integrate their overall purpose into their discussions, it is easier to arrive at governance and ownership decisions.  As these are settled, it is then effective to engage in strengths analysis to help determine which member can begin in which role.  With ownership questions answered, it will be easier for members to engage fully in their roles as they see their ability to leverage their strengths.  It reduces the possible hierarchical friction that can occur and be exacerbated by family dynamics.

From this point, the members and any non-family management members should engage in the discussion of Mission, Vision and Values that will define the way in which the enterprise goes to market.  With these building blocks in place, a strategic and, following that, annual planning process can identify specific goals and members can easily identify their accountability in attaining them.

In The Five Dysfunctions of a Team, Patrick Lencioni describes the foundation for high performance is Trust.  By collaborating on purpose, and on governance and ownership structure, the members can begin to develop trust with one another in the fulfillment of their roles.  It creates the opportunity for a professional assessment of vulnerability and trust rather than relying on past family estimates and dynamics.  From this foundation, the business is grounded “on all fours” and has the stability to begin or enhance operations.