When does a family business become a family business?

Answers vary but usually include something to the effect of two or more family members owning a majority and having significant strategic influence over the business.

One of the most common seeds of a family business (FB) is sown when the founder of a business decides to include other family members in ownership and leadership, whether now or in the future. While the founder can engage cousins, a spouse or other adult family members in a business venture, I’d like to focus here on the special situation of the founder’s desire to bring their own children into the business.

This idea is often a “warm and fuzzy,” romantic notion for the founder (or founding parent couple). Holding an infant together and imagining that “one day this will all be yours to own and run” can fill parents with pride. Taking young children to the office or warehouse or job site is exciting for parent and child alike.

I’ve previously written about productive ways to communicate and set expectations with young children about the FB and family wealth (“Don’t Miss Out on Early Chances to Engage Kids” and “Raising Children Under Five in the Midst of Affluence”). Here I’d like to concentrate on adult children entering the FB as a serious career possibility. I say “possibility” with great intention because even if the senior generation is convinced this is a great move for the child and business, nobody should assume it will work out this way. This assumption is dangerous because it adds to the blind spots parents often have about their own kids.

Two crucial elements to the process of a child entering the FB are proving themselves prior to formally entering the FB and engaging in formal development upon entering.


*Proving Themselves Prior to Formally Entering the Family Business

Part-time jobs and summer work before graduating high school are great ways for kids to learn about the FB and see what it is all about. It is important for kids to be held accountable, not be given special treatment, and ideally have non-family supervisors. Those supervisors must be comfortable treating them as any other employee; it must have been made clear that they have real authority over these young family employees.

The rubber truly hits the road when a child is considering entering the FB as a serious career move. I believe that working outside of the FB at one or more companies and getting a promotion is a great requirement. The child gets exposed to business practices that may be very different than the family’s practices and can learn and contribute better when they do enter the FB. Sometimes, the excitement of succeeding on their own, outside of the family enterprise, leads to a decision to continue a career outside – a decision that could have been preempted by jumping into the family business without such experience.

Outside experience and a promotion helps to weed out children who are not serious about hard work, their professional development, being evaluated and performing. And non-family executives and team members at every level tend to have more respect for children entering the business when they have proven themselves outside beforehand.

If they are entering with aspirations of a career in a position that would typically require a college degree – even an advanced degree – that degree should be obtained, and some families require that a minimum GPA be attained. The more seriously parent-owners take requirements for the acceptance of a child into the FB, the better the outcome for family and business alike. This is particularly true as the size of the business increases, although small mom-and-pop endeavors would also do well to heed these practices.


*Engaging in Formal Development Upon Entering

If the FB is large enough to have an HR function, the children as prospective employees should be considered as any other applicant and go through a professional interview process. Ideally, they would only be considered for a job that is necessary and for which they qualify as a top candidate.

In reality, families often decide to include the next generation without this formality; I’ve seen this work and I’ve seen it fail. There are ways to increase your odds of success, defined as family members who enter the FB contributing and earning respect from family in and out of the FB and non-family team members.

The child entering the FB should have a formal, written development plan detailing what is expected in terms of learning, and who will provide mentoring and development. When the FB is substantial enough in size and has non-family team members, the child should work closely with non-family on the learning and development. This is NOT meant to be a punitive exercise – punishment meted out when there is a misstep, or threat to “perform or else!” Rather, this is a good faith effort to develop the child into their new role, and even future roles, while making sure they are competent, qualified and well-respected. There will be bumps in the road; quality development requires support and coaching. At the same time, when development is stalled and the child does not perform successfully, the situation can be reassessed objectively. This can include changing to a different career path in the company or even having the child leave the company.

The development plan should include:

  • Specific time frames
  • Detailed, measurable objectives to be accomplished
  • Who will be responsible for mentoring and support as well as frequency and method of communicating
  • A clear process for assessing progress and giving feedback along the way
  • Agreement that nothing is guaranteed, all will be earned

Some families set up a family member internship program in which rising generation members can be exposed to all areas of the company to see where they have interest and talent. A downside is that there is rarely time to truly learn all elements of each area in a short rotation. Also, it can appear to non-family team members that the next generation of family is being groomed for taking over before they have earned it (by virtue of the fact that they are being involved in every area to some degree). Crucial to these programs is communication with non-family team members about their own career security and the fact that the aim of the process is to make sure only family members who earn a spot receive one.

Family working together can be productive and harmonious. It requires thoughtfulness and clear setting of merit-based expectations. Without this, families risk building a welfare state rather than a flourishing enterprise (see my Jan 2014 blog on this topic).