Posts tagged: fail

Why Family-Owned Businesses Fail

Business litigation attorney Edward T. Kang — Managing Member of  Kang Haggerty & Fetbroyt LLC in Philadelphia — recently appeared as a guest columnist in the September 2014 monthly edition of Philadelphia Business Journal.  His article, “The three big reasons family businesses fail . . . and how to avoid them” is right on target.

Four of my uncles worked in my grandfather’s healthy business, which he built from scratch.  My grandfather had a fur cleaning, alteration and storage business, and also created custom fur coats.  He raised a family of seven through the depression with that business, and managed to save for retirement as well.  Although the Philadelphia neighborhood which housed his 7-story refrigerated warehouse changed for the worse over the years, the building was unique and maintained a healthy market value to the end.

When my grandfather retired and left the business to the next generation, his lack of planning and know-how caused him to make all of the mistakes Kang writes about in his article. Departure of two unhappy sons over a relatively short number of years left the remaining two in an uneasy arrangement. Ultimately, those errors were magnified when the following generation took the reins, and sadly, the business closed.  Lots of hard feelings all around.

Kang points out that a family-owned business failure is inevitable because

  1.  Family feuds are inevitable when owners have equal status
  2. Emotions get out of control. When the owners are family, there is no “just business,” it’s always personal.
  3. Owners are ill-equipped to deal with complex business issues.

True, true and true.  Kang offers three simple steps to take to avoid these issues.  I won’t spoil the ending for you.  His writing is too enjoyable for me to deprive you of an opportunity to read it on your own.

Does this have anything to do with law firms — aside from the care and feeding of its business clients?  You betcha!  A lot of the small firms I work with are family-owned.  They struggle with the same issues.  These issues become more pronounced when the next generation wants to have their “turn” at running the firm.  Transition isn’t always peaceful or well executed.  Many times the younger generation leaves, with bad feelings all around.  If there are multiple family members running the firm, especially if of (fairly) equal status, there will frequently be impediments to growth and change, strong disagreements, and damaged relationships. And the issues become even more complex when a non-family member is added to the mix.

My take-away, based on personal observation, and many years of hands-on work with firms, is that a family-owned firm must take extra steps to avoid the landmines inherent in the working environment.

 

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