Top Profit-Eaters of Family-Owned Businesses

By Mike Kotsis on July 30, 2018

As we turn the final corner of the last financial year, many family-owned businesses are preparing to become more profitable in the year ahead. When I took the helm of our third-generation family business several years ago, I was eager to boost our profitability. But what I found was that there are a lot of profit-eaters in a family-owned business. And they can be very difficult to get rid of without a robust and objective operating system in place.

Want to have a more profitable family-owned business in the next 12 months? Watch out for these profit-eaters!

Entitlement of Family Members

What happens when the owner's under-skilled son gets ready to take over the company? What happens when the CFO's sister-in-law needs a job? How about the lazy son who gets promoted above a non-family member?

Every family-owned business faces the possibility of having unqualified relatives who are the wrong person in the wrong seat. Relatives aren't treated as normal employees—instead, special rules apply simply because of the familial relationship.

This happens when there's a lack of clear roles and responsibilities for the organisation. But family businesses that run EOS take away any sense of entitlement, because they GWC the seat. In other words, everyone in the company—including family members—must Get It, Want It, and have Capacity for their seat in the organisation.

This is an eye-opener for many family businesses, but it's absolutely necessary for the life and health of the company.

Family loyalties and obligations are powerful forces, but doing a favor for Cousin Joe—simply because he's cousin Joe—can hurt your profitability and the overall health of your company. Remember, every person move you make will position your business for greater success or more frustration.

Special Rules for Family

In some family-run companies, rules get bent for family members, simply because they're family. A double standard develops, and often these businesses don't realise how much it impacts the morale of other people. It sends conflicting messages and it hurts the bottom line at the end of the day, because there's no one single way of operating the company.

As a result, employees lose motivation, which impacts productivity.

Instead, make sure you have written policies in place that apply across the board to every employee. Hold your managers accountable for enforcing them.

High Turnover of Top-Performing Employees

In many family-owned companies, non-family employees see the writing on the wall: there's no room for advancement because those seats are reserved for relatives. Other times, relatives feel threatened by internal competition for top spots, and they make work life unbearable for your top-performing non-family employees.

The high turnover rate can kill your profits, in a few ways:

  • You're spending more time and money on hiring and training.
  • New hires need several months to ramp up to their top capabilities.
  • Less qualified relatives move into critical roles due to their seniority and stability.
  • Resentful employees who don't leave begin to perform at a lower level.

Reward all of your top performers, and use GWC to promote—without exceptions.

Keeping the Status Quo

As some of your relatives in your family business grow older, they may become satisfied with the status quo. They know what worked in the past, and their risk aversion makes them afraid of change. Their "elder statesman" influence could keep your company stagnant and block your growth.

Foster innovative solutions and ideas. Make sure you've got a mix of relatives and non-family employees on your leadership team.

Family Tensions and Loyalties

Family tensions can leak into work life. When that happens, conflict can get in the way of productivity and effectiveness, and your profitability suffers. And it can extend beyond the family with non-relative employees siding with Uncle Bob while others side with Cousin Amy. Now your departments aren't communicating well, and productivity throughout the company decreases. Perhaps your closest customers and business partners notice a difference within the company and they become nervous about continuing with your company.

Address people issues immediately, and completely. Don't treat the symptoms, but get to the root issue. That can be especially difficult in family businesses, but it's essential for team health and profitability.

Running a More Profitable Family Business This Year

For family-owned businesses that don't run EOS, these profit-eaters are incredibly difficult to guard against. It takes a robust, proven operating system like EOS to keep unhealthy family influences in check. Watch out for these profit-eaters as you prepare for a more profitable year!

Next Steps
  • Download the EOS Toolbox
  • Request a free 90-Minute Meeting with an EOS Implementer to get a clear picture of what it looks like to run your company on EOS.
This post originally appeared on the GPS For Small Business Blog