By Stanley Moore
Family businesses, including family farms, create opportunities to build relationships, accomplish goals together, nurture skill development in the next generation and see the business continue beyond the current generation. Family businesses can also challenge work-vs.-home life balance, conflict resolution skills, communication and succession of the business.
According to a 2012 Harvard Business School study, the top three reasons family businesses fail are: lack of clear leadership structure, inability to separate business from personal issues, and inadequate preparation to handle complex issues, such as succession, exit or death of a partner, and growth of the business.
Family businesses can improve their chances of success by thinking through some critical areas before they bring on new family members as employees or partners. These areas for consideration include hiring, management or ownership opportunities, and exit strategies.
Hiring family employees can often look different from hiring non-family employees, but should it? As a Michigan State University Extension educator, many farms that I work with insist on a formal break between the time where a son and daughter see work as “chores” and when they are formally hired. This break could be college, or it could be a period of employment outside of their family farm. The break also creates an opportunity to set a more formal working relationship, including an interview.
“Interview,” you say, “but they’re family!”
Family members deserve an interview by the farm owners. By not giving them interviews, it perpetuates an idea of entitlement, rather than earning an opportunity. It’s a disservice by ignoring the question of whether this hire makes sense for both the employee and the business. Is there a need for another employee, or are we just creating a spot for them? Do the family member’s skills meet the need, or can they be trained?
Ideally, farm owners should have a job description for the position they wish to fill with the family member. Job descriptions help the farm management think through what is needed to be successful in this position, and what you expect from the employee. Job descriptions also help communicate to other employees the role of the new hire.
The third area that we want to succeed in, is getting employees off to a good start. Bringing family members onboard should still include making their first day memorable, setting expectations and goals, assigning a mentor employee, and meeting with them more frequently to give feedback on expectations and goals. We want them to be successful, so do not be shy about providing encouragement or redirection when necessary.
What if you believe a family member may be ready for a management or ownership opportunity? Family members should get management opportunities if they are a good fit for the business, the business has a need to be filled, the business can grow to bring them in, and the family member has earned the opportunity.
• A good fit. Again, we are not doing the next generation a favor if we bring them into a position they are likely to fail in. Does the family member have the people management skills that are so critical to today’s businesses? Do the family members show a desire to learn about management and improve their management skills, or are they better suited to remain as a non-management employee of the business? What areas do they excel in, and how can the business benefit from their skills?
• Business’s need for management. Where is the management team weak, and how could this new hire help? What goals could be achieved with this additional management team member in place? Looking ahead to farm succession, how could this individual fit into the future of this farm business?
• Business growth. When we are bringing in additional family members to the business, the business income needs to grow to accommodate the extra draw. Experts suggest that each new management team member needs to bring in at least an additional $100,000 net farm income into the business. Can the farm accomplish this through a simple growth in size, or will it need to diversity? Will someone have to leave for this person to come in?
• Qualified to join team. Has this family member earned the right to join the management team? The family member should have proved his or herself as a good employee first and earned the right to become a management team member. This process doesn’t need to take a long time. I’m a big proponent of the next generation gaining some farm management or ownership in their 20s, and if proven, having most of the business controlled by them by their 40s.
Bringing on family members as employees — and eventually as managers or owners — can be a great opportunity for both the individual and the business. We can improve the success of that new relationship by being clear in our expectations, maintaining separation between work and family, making sure it’s a good fit both the short and long term, and planning exit strategies before the employment begins.
Moore is an Michigan State University educator.