Why Business Families Fail (and what advisers can do to prevent disaster: 5 key strategies that can really make a difference).
Facilitator: Jon Kenfield, The Solutionist Group
(FBI Founder and author of “The Solutionist Guide to Family Business”).
Our first Network meeting in the new La Trobe Street premises was a sell-out affair, with both old and new supporters in attendance.
The evening turned into a lively discussion about why business families fail, starting with a quote from David Smorgon:
“If a family is having problems with their business there is no end to the number of lawyers, accountants, tax experts and other consultants they can turn to for help. But most family businesses that fail, do so because of personal family issues rather than commercial reasons.
A healthy family business needs a healthy family.”
After explaining why nobody should go into a family business, due to a fundamental incompatibility between what makes families and businesses work well, we identified some of the most common causes of, and contributors to, failure:
- No Clarity or Commitment to Purpose (the “Why?”)
- Weak Leadership and ineffective Management.
- Poor Family and Business Practices.
- Commercial and Financial Challenges.
- Weak Problem Solving and Decision Making Processes.
- Family Conflict – Toxic Cultures and Relationships.
Noting that few of these issues are technical or commercial in nature, it follows that adviser responses should often be more focused on human, than business, factors. Accordingly, the 5 Strategies are:
- Increase quality of trust relationships with clients:
- Acquire broad and deep personal / family information.
- Consider family goals along with business analysis and advice.
- Help client to identify all significant issues and concerns.
- Become Agile: expand professional skills through individual training and professional capabilities through collaborative adviser networks.
- Act Agile: facilitate the implementation of Family Business Best Practice and revise scope of work to include broader solutions.
- Remain Trustworthy: guide, coach, mentor and support clients over the long term.
- Build collaborative adviser networks – increase diversity and capacity.
Forecast: within 10 years, 80% of professional fees will shrink to a quarter of their value – down to 20% of current fees. This is inevitable, given the unstoppable penetration of increasingly sophisticated expert systems into professional procedural and advisory work. Automation is commoditising, and reducing the perceived value of many, previously secure, professional services.
Advisers must respond with better personal front and back end services (diagnostics and implementation support), AND leverage maximum benefits to clients from the “inhuman” automated work being performed by their new computer “colleagues”.
This works best when delivered through a comprehensive Best Practice Framework, that lays out proven pathways to achieve family business sustainability.
Summary: advisers need to become more agile and collaborative to deliver the broader range of integrated services clients need, but don’t currently receive, from traditional advisory practices. Business models and professional skills must evolve quickly, and profoundly, in response.