Tom and Harry Magnuson, with license plates 2 and 1.
Tom and Harry Magnuson, with license plates 2 and 1.

Why family business can be either a dynasty or disaster

Have you ever dreamed that your small family company could someday be the next Hilton or Marriott? Well, I’ve grown up in a dynasty (with its share of disaster), and here is what I have learned.

Historically, all great companies are started by a powerhouse individual who stops at nothing to build a great company. To chase the American dream. The founding locomotive dreams of providing more for their kids than they had.

But love and idealism can cloud business judgment, effectively causing harm in the end. When the company starts getting traction, the profits and benefits are disbursed, along with family jobs. Just because a son or daughter or in-law is related does not mean they are the best qualified for the job.

Often, responsibility and ownership shares are not clarified in writing, which allows entitlement and resentment to seep in. Family feuds over money are not just for the Fords, DuPonts and Pritzkers. They happen in every class. When the money and power struggle begins, any love and trust that held a family together can be replaced by suspicion and hatred.

Many family fortunes are lost in 3 generations. Rags to riches to rags. Moneymaker, caretaker, undertaker.

Some family fortunes have withstood fighting, entitlement and family war. Good examples are the Houghton family who founded Corning Glass in 1851, Wal-Mart, Kohler, Bechtel, Ford, and Mars Candy.

Unfortunately, we don’t know many family companies who didn’t make it. Some that have fallen are Lionel model trains, the Rigas brothers and Adelphia.

Here are some foundations to making sure that your family business becomes a dynasty,  and not a disaster.

  1. Transparency and honesty is the most important element, everywhere. No individual or subject is too sacred to escape open discussion.
  2. Clarify all ownership in writing.
  3. Clarify all job descriptions and performance metrics.
  4. Jobs are given to the most qualified, family or not.
  5. Utilize a board of senior management and independent outsiders. Can you make sure they are not beholden to key individuals who control them?
  6. Every decision needs to serve what is best for the company.

Dynasties are not just something started before our time by someone else.  We each have all the tools we need to become the next Hilton, Ford or Rockefeller. Everything we do starts today, in this moment.

If you are starting a family business, start it with clarity, transparency and trust. Because when it works, there’s nothing like it on earth. You rise together, you fall together, and then you rise together again.

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