Incompetence in Family Businesses

I would not be exaggerating when I say that I face and deal with incompetence in various family businesses on a daily basis. If there is one thing that I learnt is to analyse family businesses with an open mind and to build my own conclusions on the facts I see rather than what I am told. By doing so I have learnt to realise where incompetence is coming from and please believe me when I say that the source of incompetence can actually be where one would least expect it.

Here are some insights I have learnt with regards the first signals I sense about incompetence in a family business:-

Not just the new generations: There is the notion that incompetence in family businesses is likely to be found in the new generations that have taken up or about to take up the leadership of the family business. The notion is built on the premise that it is unlikely that there was incompetence in the “old guard” that made it possible for the family business to survive so far. I personally do not agree with such a clear cut notion. I find alot of incompetence in people who have been managing family businesses for a long time – many times because they have not updated themselves with the environment in which their family business is operating. I get shivers down my spine when someone, especially from the “old guard” tells me “I know everything about my business”. Normally the case is they think they do, but then you discover that they actually do not. They have a shaky reporting system, with no real KPIs or sometimes not even basic management accounts. You realise that what they know is notions they hold dearly, which they believe is the reality of their business.

No middle management: I do see a considerable amount of family businesses, which do not really have any middle management. With family members at the top and operators or labourers at the bottom, many times certain managers are completely missing. The end result is that no one is not only managing the business well, but no one is analysing matters to understand why certain things are done or why certain opportunities are not even being considered. There could be many reasons why this is the case. The reasons range from:

(i) the family leadership thinking it cannot afford having such middle management – without realising the huge costs of mismanagement their family businesses is made to go through as the family leadership is way over stretched to deal with all on its own

(ii) the family leadership thinks it is better to keep control within the family circle rather than trust any external non-family person

No roles or structure: You realise that you are on a different wavelength when you start speaking to the family business leadership on corporate governance to then realise that such family businesses do not even have a clear organisational structure. Roles are not well defined and workers do not actually know whom they should report to. This leads to cross lines, miscommunications and internal conflicts as workers end up between family business leaders who think that they can all call the shots on anything under the sun and end up not agreeing with decisions either one of them has taken.

No Planning: There was never the notion of planning in the family business. No discussions on business strategy or budgets or business plans and no performance management system. The family business was and is still based on doing what it always did and the only real discussion that happens, amongst the family leadership, is how to solve the daily operational problems and challenges. At best one of them might see a good idea and development taken up by another business and they try to emulate it. Nothing more than that.

A weak or bad culture: A weak or negative culture, where mistrust is the order of the day. Where workers try their best to get through the day unscathed and hence try to survive with doing the least possible as trying to do more will likely land you with more work and responsibilities or worse still, in trouble.

Many times family businesses come to me when they hit a major problem. They apply for a bank loan and this is refused, as the performance of their business seems to be on an unstoppable decline or they are having major cashflow issues. Another common problem is huge employee turnover or the inability to find a way or a plan as how the business is to pass from one generation to the next. What makes the situation even more difficult is that once I start advising them, they expect magic. Suddenly all the issues and problems that have been allowed to grow like massive stumbling blocks for years, if not decades, are expected to be sorted in a matter of days. Some go as far as they expect me to run their business. My standard reply is “My name is Silvan and it is true that I carry the name of a famous magician but I am not in the business of doing magic. My only medicine is smart and hard work.”

One thought on “Incompetence in Family Businesses

  1. Pingback: A Successful Succession – Silvan's Business Insights – A Business Blog for SMEs & Family Businesses

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