How to Establish a New Family Business?

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Table of Contents

Introduction
Swot analysis, advantages and disadvantages of family businesses
Ethical issues
Motivation
Successful business families
Conclusion
Reference

Introduction

A family business is a commercial establishment which one or more members of one or more families possess substantial ownership interest and considerable commitments that are related to the existence and operations of the business (Leach & Pedder 2007 p.1-4).

Members who are involved in family businesses are supposed to juggle challenging and complex roles that involve ownership, family and business. This is because some members can either be owners and not involved in the daily running of the business while others may run the business but have no stake in ownership of the business it is therefore that appropriate structures are put into place to govern and form a clear distinction between the business and family making.

Diagram1: Adopted from Strategic planning for the Family Business: Parallel Planning to unify the family and business, (Carlock & Ward 2001 p.9-26).

Complex relationship in family businesses that family managers need to overcome in order to efficiently run family business enterprises.

While many people may believe that family businesses are somehow disadvantageous and risky to carry because a clear boundary cannot be set to distinguish business and family, This may simply be a lie because it is wrong to assume that family businesses are likely to fail according to Leach and Pedder (2007 p.44), who believe with good planning structures and business strategy such businesses can succeed and grow into big organizations.

Swot analysis, advantages and disadvantages of family businesses

Family businesses have their own advantages and disadvantages just like any other form of business be it a partnership, a corporation or a sole entrepreneurship the advantage of family business may include the fact that family members share common values and goals as far as the business is concerned, often family business share a common purpose at heart which is part of the family pride.

Family business also most of the time ensures strong commitment and passions from family members therefore family members may end up putting extra effort and more hours into the business to ensure it succeeds this is mainly because the business may be the primary source of income for the family (Leach & Pedder 2007 p.69).

Loyalty is another advantage of family businesses this is because often blood is considered thicker than water therefore stronger ties exist between family members therefore fostering loyalty.

Lastly when family members come together to raise capital and share loses there arises financial benefits in family owned business. Therefore with the presence of trust and family ties that are close family businesses are more likely to enjoy stability because these members behave like stewards who have a long term view of the business in mind (Gersick & Davis 1997)

There also exist some demerits for family businesses and one of them is that a business can turn out and become a breeding ground for family conflicts and problems which will in the long run affect the business performance.

Degrees of managerial and professional incompetency and may exist in such business set up because of lack of exposure and nepotism that may be as a result of employing family members as employees who I real life lack the capacity of handling functional activities of business professionally (Carlock & Ward 2001 p.66).

It often becomes difficult for older family members to retire and leave full business control to younger generations due to the level of attachment they have with the business. Both the disadvantages and advantages of family business can be manipulated by clear planning to overcome external environmental challenges.

Therefore the strengths may include togetherness, loyalty and dedication together with likelihood of business stability as compared to the threats which would be family conflicts that may arise from time to time in the business set up.

Ethical issues

The likelihood of favoritism, nepotism, abuse of resources, and mistreatment of employees and lack of accountability are among the business ethics issues that family businesses are likely to face. The best way to overcome them is separating the areas of management and family or applying strict rules and procedures that are to be followed by each member. A good way may include assigning tasks and duties to family members and having a principle of non interference. (Carlock & Ward 2001 p.66).

Motivation

According to Abraham Maslows Needs Hierarchy Theory (1983), employees have five levels of needs which include physiological, safety, social, ego and self-actualizing. Physiological needs are imperative as they maintain human existence and one cannot continue to exist without them. They include food, water, warmness, refuge, sleep, medicine and education. Safety needs are the desires to be free of physical danger, job security, ownership of personal assets and protection against emotional harm.

Social needs comprise the need to fit in and acceptance from others not forgetting the need for affection and companionship. Ego/esteem needs consist of satisfaction of supremacy, prestige status and self confidence while self actualization is the drive to become what one is capable of becoming, it includes growth, achieving ones potential and self fulfillment. Maslow argued that for one to move on successfully to the next level, the needs at the lower level have to be completely achieved and fulfilled so as to be motivated by the higher needs level.

In simple terms, for example, one would not be motivated by social status before he has achieved security or one would not be motivated by safety before he can afford the basic needs, food, shelter, clothing, education, medication, water and sleep. This shows that individuals have to work hard to get enough money so as to satisfy their needs and the needs of their dependants completely.

In such a scenario, an employee would be motivated by the money he receives at the end of the work period as then would the employee be able to fulfill his needs therefore proving Maslows hierarchy needs theory. It is therefore necessary when rewarding employees who are family members or non family members to make sure that all the contents of theory are put in the final mix of the reward systems.

Successful business families

Over 80% of businesses in American businesses happen to be owned by families great businesses such as Wal-Mart, firestone, Gucci, ford motors all started as family businesses which were initially owned and fully ran by families. Toyota is also one business which started as a family and is now the biggest car manufacturing and selling company.

Wall-Marts success family occurred because of superior strategic planning that set out policies and procedures that set clear boundaries in the management, ownership and succession of its business enterprise. A clear and sober framework of business that structures ownership and management strategy and sets strategies to do with commonality of goals was put in place to form a distinction of business values and family values therefore maximizing on the success of Wal-Mart (Leach & Pedder 2007 p. 6-14).

If such systems were not put in place then there would have been a high degree of conflict and lack of accountability that would have affected overall performance of the business in Wal-Mart. Therefore by creating a distinction in family, business, and management wall-mart has ensured good governance that tackles the issues of power and control and responsibility allocation and aims to achieve the common goals of all involved parties (Gersick & Davis 1997p. 44).

Conclusion

The field of family business is often a field that raises many issues but it is important to note that the success of any business depends on control systems that are put in place to ensure success of such businesses. The existence of clear strategic guidelines separating ownership from, management and family must be put in place to handle all the dynamics involved in running such a business. Every member of the family should know the role that he or she is supposed to play and boundaries which are not to be crossed must be put in place to ensure that business remains business and family matters do not interfere with business.

Reference

Carlock, R. S., & Ward J. S., 2001. Strategic Planning for the Family Business: Parallel planning to unify the family and business. New York: Palgrave.

Gersick, K. E., & Davis, J. A. 1997.Generation to generation: life cycles of the family business.New York: Harvard Business Press.

Leach, P., & Pedder, R., 2007.Family business: the essentials. London: Profile Books.

Maslow, A. H., A theory of human motivation, Psychological Review, vol. 25, 1943, pp. 370-396.

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