The Two Systems That Make or Break a Family Business

Posted by Rock LaManna

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We’ve stated in a previous post that a well-functioning family business can outperform a Fortune 500 company.  But that only happens if you’re aware of the two systems at play within your business and how to manage them.

What are the two systems? Tom Hubler, our LaManna Alliance specialist in the family business realm, explains.

The two systems, as you might guess, are the Family System and the Business System.  Tom published this fantastic comparison between the two systems back in the late 80s, but as is usually the case with human behavior, it’s proving to be timeless.  Here’s his description:

The Family System

The Two Systems that make or break a family business.

  • The family system is emotion-based.  The people in the system are bound together by their family emotional ties.  (Being “bound together” can result from either positive or negative feelings; the opposite of being “bound together” is not repulsion but genuine detachment.)
  • The family system is oriented inward towards the security and nurturance of its members.  The family system places a high value on loyalty and protection of kin.
  • The family system operates to minimize change in the status quo.  It is designed to resist disturbance of the balance and integrity of the system.

The Business System

The Two Systems that make or break a family business.

  • The business system is task-based.  It is comprised of people who are organized around their common interest in the work product of the system.
  • The business system is oriented outward toward production of goods and services.  It places a high value on the competency and productivity of its members.
  • The business system operates to exploit change in the interest of growth and survival.  It is designed to understand and cope with ever-present and unavoidable change.

Comparison of the Two Systems

  • The family system is emotion-based while the business system is task-based.  The two systems are, thus, fueled by two different primary types of energy.
  • The family system is oriented inward toward nurturance while the business system is oriented outward towards production.  Consequently, the focus of the two systems is quite different.
  • The family system resists change while the business system exploits change.  As a result, each of the systems acts and reacts much differently to the ongoing change which exists in the external environment.

Interaction Between the Two Systems

  • Some overlap between the two systems is natural and desirable.  For example, the fact that some family members are in the business by virtue of their family membership represents a minimal unavoidable overlap between the two systems.
  • Both systems often become dysfunctional when the overlap between the two is so great that they lose their distinct qualities.  This situation frequently undermines both family harmony and operation of the business.”

Overlap Can Send You Over the Edge

As you can see, the two systems have completely different orientation.  

The family system does not want change.  It’s oriented toward protection and loyalty.  The more change occurs, the more the family dynamic gets upset.  Roles get blurred, and that sense of security erodes.  That can be tough on a family.

On the other hand, the business system thrives on change -- it has to change in order to grow.  To succeed, a business must adapt, innovate, and reinvent.  Look at the businesses that survived the last recession:  Most of them look very different than pre-2008.

The Two Systems that make or break a family business.

Remember, the culture the family system brings to a business is the secret sauce that can make an organization really takes off.  But the push for change from the family system is critical for a business’s success, particularly in tough times.

Problems arise when the overlap of these two systems is too great.  That’s when business and financial issues will start to erode the family culture.

The Parent Hat and The Owner Hat

It’s hard to be a family member and run a family business.  As Tom notes, “You love, cherish and are connected to each other emotionally and spiritually.  Then you have to go down to the office and talk about money and competency.  It’s very difficult.”

One story serves as a prime example.  The owner of a prominent family business had a son who was under-performing as an employee.  The son had struggled through several poor job performances, and finally, it was determined that he needed to be let go.

The father invited him over to his house, and said the following:  “Son, you’ve had several poor performance reviews, and I’ve talked to you about this repeatedly.  I’m afraid I have to let you go.”

He cleared his throat and continued.  “Now I’m going to take my owner’s hat off, and put my father’s hat on, and say that I heard you lost your job, and that I feel terrible for you and I want to do what I can to help you.”

The story illustrates a family business owner’s clear understanding of the two systems, and how they must remain as separated as possible.

How to Keep the Systems from Overlapping

The Two Systems that make or break a family business.
We mentioned in a previous post how important formality is in these situations.  Having formal processes in place to review job performance is critical.  In the case of the under-performing son, the father’s hand was forced by the poor job reviews.  It was easy for him to separate the two worlds, because formal systems were in place to enable clear triggers.

Without those systems, the father would have had to make continuous excuses and allowances for his son.  Everyone would have suffered as a result.

Tom left me with a great analogy in regards to a family business, and how the two systems need to interact.  

He told me to think about the solar system.  This is a system with a series of rules and guidelines.  If you take a planet out of that system, it can have a profound effect on the rest of the system.

A family business is no different.  You need to understand how that system works.  In many family operations, there are a series of implicit rules you can feel simmering under the surface.

To be successful, you need to make your rules explicit, so that the consequences are known up front and roles are clear.  That way the two systems operate in harmony.  The business thrives, and the family lives happily ever after.  

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Topics: Family Business