Learning to Speak the Same Language in Your Family Enterprise

It’s no secret that the majority of family businesses do not make it to the second or third generation.  The old adage, “shirtsleeves to shirtsleeves in three generations” explains the failure of grandchildren to successfully manage a family enterprise and family wealth.  Planning to be successful for multiple generations takes education and planning.  One of the simplest places to start is learning a common language that you and your family can use.  Imagine you are a crew member on a sailboat race for America’s Cup, but not two people in the crew use the same sailing terms.  Winning becomes highly unlikely.  The same is true for a family business.  In this post we look at three terms: 

• Family enterprise

• Ownership

• Continuity planning

 The first term is “family enterprise.”  How is a family enterprise different from a family business?  You can think of a family enterprise as a system.  The family business is just one component.  Another component could be real estate holdings. A classic systems example is a car.  If you took all the pieces out of a car, each part wouldn’t amount to much.  But when properly put together you get a moving vehicle.  And just like any system, a family enterprise can run well or not.  Understanding the characteristics of healthy vs. unhealthy family enterprises can help many families start to understand their own system better.  Once you start from a place of understanding you can start to make improvements. 

Another term that can be misunderstood is “ownership.” What is ownership? Does this relate to shares, real estate, intellectual property, all of these or something else?  And who owns what? In our experience working with family enterprises for decades, often family members, especially in the next generations, do not know what they own, much less how ownership might change in the future. How is ownership handled across the different components of the family enterprise? What happens to your ownership if one owner wants to leave the family business (or some other part of the family enterprise) or dies?  Learning what you do and do not own, both now and in the future, is critical to planning for success. 

A final phrase to consider is “continuity planning.” The phrase seems obvious - you make a plan to continue.  But how is continuity planning done? And more importantly, why?  One of the top reasons that family businesses fail is due to a lack of proper continuity planning.  While continuity planning primarily involves transitions of leadership, governance, and ownership to ensure stability in all parts of the family enterprise, it should encompass other factors as well.  For example, part of continuity planning may include disruption planning.  Family enterprises that had planned for short-term and long-term disruptions to service would have been better prepared during the pandemic than those who did not plan.  Understanding how to plan for all aspects of continuity is key to ensuring a prosperous multigenerational family enterprise.

How a family uses words matters. If a family only discusses the “family business”, then it leaves out every other important component of the “family enterprise” from family discussions, they are missing out on the bigger picture. A family who only uses “continuity” to mean who will be the next CEO of the family business or uses “ownership” only in terms of who owns shares in the family business, is defining these terms so narrowly that their daily communications leave out aspects that are critically important to the multigenerational success of the family enterprise. Learning to speak a common language which encapsulates the full scope of the family enterprise has many benefits, including:

• it eases communication

• it builds culture and a sense of community and harmony

• it saves time

• it exposes risks that can then be managed

To learn more, try Module One “Getting to Know Your Family Enterprise” of our first course for free.

Thanks for reading!