Professionalizing the Family Business

February 3, 2016 | Roger and Susie Engelau

Or “Why Winging It Won’t Work” 

While I’ve headlined this article Professionalizing the Family Business, it’s applicable to any small business.

 

Do any of these conditions exist in your business…

  • A casual attitude toward office or shopfloor processes and procedures
  • Running the company mostly yourself without a formalized management team
  • Little investment in management skills development
  • Flying by the seat of your pants on the financials; no formal budget
  • Haphazard customer processes vs. procedures and scripts

 

What Is Professionalizing the Family Business?

What we don’t mean by professionalizing the family business is “corporatization.” It’s not about making your company static or bureaucratic. Nor is it about changing from family management to outsider management. The difference between a “professionalized” company and a “personalized” company is based on decision making: “Personalized companies make intuitive decisions, while professionalized ones make analytic decisions.  Professionalizing the family business means transitioning the informal to the formal so that decisions are based on objective data. Professionalizing the family business is taking the business to the ‘next level.’” (ESADE)

 

Why Professionalize Your Small Business?

This is how a PwC advisor put it:

“If you become more professional you become more efficient,

If you become more efficient, you become more profitable,

If you become more profitable, you can grow,

Then you can stay ahead of competition and hire the right people with the right skills.”

And this all enables you to give back to your community in a big way.

 

When’s the right time for Professionalizing the Family Business?

All businesses benefit from professionalizing any time, so start right now. You especially want to take steps to start professionalizing the family business if:

  • You’re experiencing rapid growth
  • You bring on a partner or investor
  • You hire a high-ranking manager to help you run a significant portion of the company
  • The baton is being handed over to the next generation, or at least being discussed

 

How do we go about Professionalizing the Family Business?

We can divide professionalizing into 3 categories:  administrative, operations, and strategic (ESADE).  Here are the key areas to formalize and some ways to go about it:

  • Administrative
    • Create an organization chart.
    • Get people in the right jobs and have them document their job descriptions
    • Set company salaries, including those of family members, against external, formal salary guidelines
    • Create a leadership team, set a regular meeting rhythm for it, and institute a process for ongoing development of management skills.
  •  Operations
    • Sales and marketing
    • Customer service
    • Delivery systems
    • Financial systems, including creating and running by a budget
    • Back office, shop floor, or operations processes
  •  Strategic
    • Create your vision, WHY, mission, and goals. Use the 1-Page Strategic Plan document (download here)
    • Create a corresponding company-wide action plan that you update every 90 days (download here)

 

The Importance of Trusting Family and Non-Family Members Alike

A family in business cannot professionalize unless they trust family and non-family employees to make important decisions.  You’ve created an organization chart containing both family and non-family names… now respect it.  Often, family members have extraordinary access to one another through home and work and, so, to company information. If family members respect the hierarchy, meaning they don’t go around one another or go against one another’s decisions or have inappropriate discussions based on their extra insights, the business will thrive.

 

But if family members share privileged information without a business need, if they give direction to employees not in their hierarchy, or if they’re heard directly or indirectly being unsupportive, the business moves back to a “Personalized company” making intuitive decisions instead of analytic ones.  As Professor John A. Davis, Founder and Chairman, Cambridge Institute for Family Enterprise; Faculty Chair, Harvard Business School, put it, “The lack of trust at the root of this practice can kill a business today.”

 

Throughout, guard your values like a hawk.   Stay true to what made your family special, to what your family legacy is, to what first inspired the business.