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Adult siblings in family business: dreams defer to reality

Drew Mendoza is the managing principal of the Family Business Consulting Group.
Renata Bernhoeft is a principal with Bernhoeft Consulting in Brazil.

Running a business with siblings can be rewarding – but is often hard and stressful, too. Entrepreneurial parents can smooth the path by clarifying rules early on, and entrepreneurial siblings must set their own rules as well, explain Renata Bernhoeft and Drew Mendoza

While there are no statistics available on the number of family businesses with multiple siblings owning and/or managing a firm begun by their ancestors here in the Americas, the attributes of what makes such a business successful fortunately are easy to pinpoint. Virtually all family businesses require some basic building blocks and fundamental actions to achieve successful passage to the next generation. The responsibility for a sibling team's success rests not only with the siblings, but with the parents as well.

Parent's job
As a founder, your dream of someday handing down the business to children may indeed come true, although it will take a lot of work to achieve. It is not easy to run a business, pay the bills, and survive the stresses of child rearing while amassing sufficient retirement savings for you and your spouse (and perhaps two sets of elderly, needy parents as well), keeping the marriage healthy and, if you are lucky, squeezing in a few rounds of golf. Eventually, you retain the services of advisors who can manage the technicalities of ownership transfer, and your children are admitted into the family business.

In your dream for the family firm, you now feel you have done as much as you can. The next generation is guiding the business to new heights, eagerly supporting you for the rest of your life in a style to which you have become accustomed. Of course, you also continue to have a role in the business for as long as you wish, and your advice is appreciated by all.

Then reality hits home and you realise that this transition will be nowhere as easy as you had hoped. Reality, however, is not necessarily a nightmare: family business dreams do come true with the help of preparation, discipline, and an honest, clear-headed sense of the job which lay before both parents and children.

Although the ultimate responsibility for your children's successful careers as co-managers and co-owners will lay with the siblings themselves, there are steps the founding parents can take to raise the odds in favour of the next generation's success.

To best position offspring siblings for success in business together, look for opportunities for the children, when they are youngsters, to collaborate with each other. Let the kids select the location of a family holiday, for example.

Let them resolve their own differences sometimes, too. While it is normal and predictable for a parent to want to step in, the more instructive method is to insist the kids work it out on their own. Too much parental involvement in resolving childhood disagreements may produce adult siblings incapable of solving their own problems and conflicts without mum or dad's intervention. Once you're out of the picture, the siblings are going to have a very difficult time resolving their differences. When there is a business involved, the stakes increase considerably.

Entrepreneurial parents should never compare children with one another. Doing so only producing siblings who spend a lifetime competing with each other – a difficult hurdle to overcome when attempting to collaborate to run a business.

Looking for ways to build each child's self-esteem is critical for rearing self-aware young adults able to support themselves outside of the family business. We strongly believe that members of the next generation should work outside the family firm for at least three years, to gain self-confidence and fresh ideas. Setting the rules that will govern the next generations entry into the business before the children are even in college is equally important.

Last, seek ways to keep your own sibling relationships co-operative and loving. If you consistently remind your children about how much you love your own siblings and how proud you are of their accomplishments, your offspring may pick up on that as appropriate behaviour. Conversely, avoid saying disrespectful things about your siblings in front of your children. Doing so sends the message that such public displays are acceptable, and they are likely to mimic such behaviour when the time comes.

Sibling's job
Rule number one for the next generation: know thyself. This requires work – and lots of it.

Summer, holiday, and part-time work in the family firm is fine, but do not try to make your career in the business if it is not your passion. Take a good, long, hard look at the business and the parents and siblings with whom you will work and own. Not the place you want to spend your life? Then select another path. While being in business with a sibling is potentially very rewarding, there are easier and less stressful ways to earn a good living.

Conversely, if you and your siblings are not dreaming and are wide awake about your relationships (it is worth confirming your perceptions with an objective party or two), you will be hard pressed to find a better business partner. You probably will share similar, if not identical, values. Your childhood and life-long shared experiences will produce an intuitive and trusting relationship with your business partner that will translate into a valuable competitive advantage.

Before you and your siblings take the reins of management and ownership, make sure you fulfil some prerequisites. Start with these two questions. Why do I want to be in business with my siblings? What is the purpose and/or the vision of our enterprise? If there is no shared sense of purpose, the potential for disputes is unlimited. Talk about and clarify methods for future compensation; complete estate plans, letting your siblings in on the details; and hammer out an agreement on the hurdles your generation's children will need to clear before entering the business themselves. Create a written shareholder agreement with agreed-upon liquidity and exit plans.

Siblings commonly complain that they are tired of waiting for their parents to let go and hand over the reins. There comes a time when the next generation needs to step up and take the lead, take charge, and accept the consequences of their actions. Winning businesspeople are not afraid to lead – they are more likely to seek forgiveness than permission. Siblings between the ages of 30 and 50 who are still waiting for permission are unlikely ever to be successful in business.

Do not expect your spouse to do your job in the business. Avoid choosing a spouse because you feel, perhaps even subconsciously, that he or she will be able to defend you before your siblings. Business disputes should be resolved among the siblings, not by their spouses. Make the spouses feel part of the family and part of the business, but do not ever put them in the unwinnable position of having to defend their wife or husband to their in-laws.

Explain to them the rules by which you and your siblings have agreed to play. Since in most cases the children of entrepreneurs do not marry the children of entrepreneurs, your family and business dynamics will be new to them. The spouses generally do not at first understand the tacitly accepted rules of most entrepreneurial families – such as when it is and is not appropriate to note discrepancy in salary between a husband or wife and his or her sibling, for example.

You will not only deal with the changing dynamics caused by spouses, but by the founders as well. You may be tempted to keep a parent informed of difficulties between the siblings. An evening call to dad or mum to complain about siblings is tempting, and the problem is compounded because parents will likely welcome such calls. After all, that way they are kept informed and involved and made to feel needed. The parent may even attempt to call your sibling to resolve your problem. Do not fall into this trap.

The better path is for siblings to always present themselves in public and to all members of the family, including in-laws, as a unified team whose members respect and love one another. To do otherwise invites triangulation, communication mishaps and, almost always, an escalation of the problem as more and more family become involved in attempting to impose a solution. That is a situation that would turn any dream into a nightmare.  

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