Are you employing family members (No 2)?

The previous essay explored the subject of family businesses and how they were ‘interesting’ to work with at times. Recent experiences with a number of clients have prompted me to write further on this topic. If you are a part of a family business or have ever looked at one with envy I think you should read this . . .

Migration drives the industry

With every wave of migration we seem to get a welcome new injection of restaurants, cafes and eating houses. It seems logical that people who are establishing in a new land look to their existing skills as a base for employment. One of the most common skills available to them is the ability to recreate a little bit of their culture and the food of their homeland in the form of a restaurant or cafe. These businesses are often run by family members or the members of several families, as these people are the logical choice for a ready made, partially trained workforce.

Many smaller hospitality businesses are run by migrant families

Most are family businesses

Of course it’s also not uncommon to find small family businesses in our culture, but they don’t seem to me to be nearly as prevalent as they are among our migrant population. Some of the businesses we work with have the full extended family involved: brothers and sisters, in-laws, children, nephews, nieces, cousins — the lot. It’s a great way to get started, let’s face it. I wish I had a big family when I started my business; it would have made things a whole lot easier. I’d go as far as to say it’s probably the best way to establish a new business on a shoestring — you’ve got a workforce you can control via family pressure around the dinner table and one that is unlikely to run off to the Unions or the Department of Labour and Industry if they don’t get paid properly or they have to work unsociable hours.

Needs change as the business grows

OK, so its a good way to establish a small business; but what happens when the business gets larger? Here’s where we’ve gained some of our most impressive grey hairs. The very things about family business operation that are a bonus for a small business can be a total liability for a larger business.

Take the over the dinner table management system for instance. It’s a great asset when there is a simple structure and the boss can communicate with the workers over the pasta or noodles. In a larger business that same dinner table can become a dark political tool of Machiavellian proportions as relatively junior staff members lobby directly with God in a manner that is denied to the non-family members in the company structure. The reverse of this is where God explains the company’s plans, strategies and problems in a manner that is not available to the rest of the staff, thus giving some an unfair advantage in the career progress stakes.

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Informal, family decision making is not suitable for larger businesses

Decision making becomes problematic

In this environment decision making can also become quite a twisted process. What would be a clear cut issue to a well structured company can become quite murky when a higher priority is attached to keeping the family happy rather than what is good for the business. It’s human to want to keep the peace at home; it’s also human to want to enjoy your Christmas dinner.

Moving on, there is the pro-family member bias that always seems to manifest itself in a number of family members occupying senior positions way beyond their level of competence. A consequence of this is that an incompetent senior manager can inflict severe trauma on the pyramid below them. In professionally run companies poor managers are usually given their marching orders. In family businesses they are often shuttled sideways into ‘non critical’ jobs like administration or marketing. This is where we get to meet them in less than wonderful circumstances.

We also strike a fair smattering of family members who are trapped in an occupation that they hate with a passion, but that they feel that they can’t leave without dropping in status and salary — so they stay and become more unmotivated and more destructive as time goes on. Others hang in there in fear of family repercussions or being written out of the will.

Family management is generally only suitable for small businesses

Restructuring

As family businesses grow they need to be restructured into proper company management.

Don’t get me wrong — I’m not suggesting that family businesses are a bad idea, but I am suggesting that a family management system is only suitable for businesses up to a certain size. I can’t be more specific than this on what this size might be — this depends on the people and the business — but as a rough guide in the hospitality industry I start to look at restructuring family businesses when they reach around the $3+ million annual turnover.

It’s a horrible process and not one that is reasonable to expect a family member to oversee. It usually involves getting rid of the family members who are in inappropriate roles and getting appropriately skilled and qualified people to replace them. I think it’s wise to get a dispassionate, objective outsider to oversee this process. Unfortunately it’s often us they call on to do this and we’ve had to learn how to manage the process without being drawn into all the infighting. I’m relatively indestructible now and have learned not to let it get to me but it took 15 years to get to this point.

If you do happen to preside over a family business I suggest you think well ahead. You’ll need a clear business plan and some well thought out policies regarding family members, communication, structure and performance or you’ll end up with a very difficult no-win situation to deal with.