How Understanding Your Family Business Culture Helps Ease Ownership Transitions

When it comes to your family business, culture plays a critical role. The business’s values, habits, and structure significantly shape its productivity, decision-making, profitability, and community impact. The complex culture that undermines your company can have a major impact, good or bad, on what happens when it’s time to sell your firm or transition ownership to your successor.

Every family business is unique. However, there are four main types of family business cultures. Understanding what type of culture persists in your company can help you make decisions that lead to a more profitable transition. Here’s a closer look at the four types:

Paternalistic Culture

This structure relies heavily on family members, especially the company’s leader. These businesses value and reinforce the internal hierarchy. They are top-down focused, and the leader’s opinions not only take on tremendous weight but are usually expected to be followed with little to no pushback.

Family – the name, the legacy, the history – tends to shape many of the decisions in these types of businesses. While at times, paternalistic businesses may be proactive in exploring new markets and products, they are just as likely to stick to a particular market niche. On the plus side, decisions can often be made quickly as the power and authority often lie with just one person.

Transitions within a paternalistic company can be difficult, especially if newer generations do not have the talent or charisma of their forebears. Or, if there is too much owner dependence, it could decrease the value of the business if looking to sell to an outside buyer.

Laissez-Faire Culture

This culture is similar to that of a paternalistic company but less hierarchical. It allows for employees who are not members of the owning family to have more input and authority. Here, all employees are seen as trustworthy, although ultimately executive decision-making often still resides with the family itself.

Laissez-faire businesses are more willing to consider business growth, especially when a family is not as involved in day-to-day operations or leadership. The risk with a laissez-faire business culture is that employees may act in ways that do not always align with the company and family’s core values and assumptions.

Participative Culture

This culture is rarely seen in family businesses. In these models, family members and employees work together to advance the business collaboratively. The hierarchy of a paternalistic culture is nonexistent. Family members are not considered above or more critical than employees, and employees are encouraged to share their opinions freely.

There are several advantages this structure creates: Morale is usually higher, and there is a more proactive workplace where collaboration is emphasized and innovation is more accepted.

Professional Culture

A professional culture often emerges when a family has run a business for multiple generations and then turns over management to unrelated professionals. Those people bring new perspectives, ideas, and assumptions about how the company is run.

Outcomes and relationships are often much more bottom-line driven in these businesses. The importance is around achieving business goals and not on adhering to family traditions, historical ways of running the business, or the needs and wants of a founder.

Competition, profits, and performance matter most in these companies. Often, the owning family’s influence, perspective, and history grows smaller or disappears. At times, outside professionals are brought in when the family recognizes that changes need to be made. In some cases, family businesses that move to this culture often see improved efficiency, cost reductions, and higher profits.

What Does It Mean?

Why is family business culture important? Understanding your company’s culture is critical at all times, but especially if you’re planning a business transition.

Recognizing your firm’s leadership approach and its strengths and weaknesses can realize generational differences in mindset and approach to realign company values and empower change.

If your business is considering a transition, especially a sale, it’s critical to have a deep understanding of these dynamics. Such close introspection will make it easier to make any changes before putting a business up for sale to limit potential value loss from a buyer’s eyes.

Prometis Partners helps businesses with these complex transitions. To help identify your company’s family business culture and discuss with you how it might affect a transition in leadership, contact us today.

VINCENT MASTROVITO

vincent@prometispartners.com
(616) 622-3070
250 Monroe Ave. NW, Suite 400 
Grand Rapids, MI, 49503