According to the U.S. Census Bureau’s 2021 Annual Business Survey and the Conway Center for Family Business, 90% of the roughly 5.8 million total businesses in America are family-owned or controlled.

While family-owned firms represent the lion’s share of all businesses, the data also revealed that less than 30% of all family-owned businesses make the transition to the second generation (e.g., 70% of family businesses are sold or fail before they can be passed along), only 12% continue to the third generation, and a mere 3% carry on to a fourth generation and beyond.

These facts are especially resounding in the electrical contracting industry, which has an even higher rate of family ownership than the national average; according to ELECTRI International, some 98% of NECA member companies are family-owned. And as industry experts confirm, these entities have unique pros and cons that require special attention and concerted efforts to help ensure their successful operation through the generations.

Understanding the pros and cons

Among the many advantages of family-owned business, “there’s a lot less red tape and a great deal of autonomy in terms of decision-making, so they’re more nimble and able to make changes more quickly,” said Amanda King, owner of Stockton, Calif.-based Wired Leadership, which provides targeted training and coaching for the electrical contracting industry.

“There’s a level of built-in trust and candor when working with your family members that removes the vulnerability of working with strangers who may have different financial goals and/or business objectives,” she said. “In addition, family members are often committed to the company’s success and have a vested interest in protecting its assets, legacy and interests for future family members.”

According to King, who will present “Discovering Challenges and Solutions in Family Business” at the NECA 2024 San Diego convention, family-owned companies can also bring advantages in terms of their positive culture and firm foundation.

“If they’re well-run companies, family-owned businesses can create a culture where employees feel a sense of loyalty and connection to the owners. In this type of work environment, employees don’t feel as though they’re just a number or a cog in the wheel,” King said. “Another benefit lies in any of the preexisting relationships that Dad or Grandpa developed with customers, banks, insurance companies, bonding firms, and more. Starting a business from scratch is hard; being able to simply change the name on preexisting documents and keep the company going is much easier and can be done seamlessly.”

By the same token, family-owned businesses can also bring their share of difficulties.

“Nepotism (or the perception of it) can be an issue,” said Shaabini Alford, director of Maxim Consulting Group, Englewood, Colo., which works with contractors to improve their business performance. In family-owned companies that aren’t sensitive to this concern, “non-family members can feel excluded, like they don’t belong, and that their contributions are going to someone else’s pocket.”

Other issues can also arise.

“Among some family-owned businesses we’ve worked with, there’s been a tendency toward cheapness based on the belief that the more they spend on the company, the less they get to keep in their pockets,” Alford said, who will present “Elevating Your Business for Long-Term Success” at NECA 2024 San Diego. 

“This can manifest itself in a resistance to making investments both big and small, from new technology, logoed/branded items, and company parties, to break room snacks and insurance plans that let employees pay less, which is an important employee perk.

“Family-owned companies can also suffer from a close-minded, ‘we’ve been doing it this way for decades’ mindset and can additionally fail to engage in professional hiring practices,” Alford said. “Back when some of these companies started out and were smaller, owners often hired and/or promoted friends or family members who weren’t necessarily qualified, just to fill the position, which almost reflects a disrespect for the industry,” 

Alford added that many family-owned businesses lack a formal succession plan.

“Familiarity breeds contempt, sibling rivalry is real, and family ghosts in the form of experiences from childhood and events that happened years ago can often make their way into the boardroom,” King said. “These family dynamics often walk right into the business by coloring the lens that family members look through and the positions they take.” 

King said that some family members can feel “guilted” or “pressured” into joining the business on the premise that the family legacy will die with them if they don’t take part.

“Still other contractors we’ve worked with say that they’ve seen some family members jockeying for positions and favor in the family-­owned business because they carry the family name and feel a sense of entitlement,” she said. “And some other family businesses suffer from a lack of clear policies,
well-defined roles and respect for those roles.”

Operating a successful family business

King and Alford offer tips for running a strong, long-lasting family business.

• Transparency is key—“Being open and honest with employees is of the utmost importance, whether it revolves around sharing growth plans, profit projections, succession, or other vital messaging,” Alford said. “I’ve seen situations where key company data is kept close to the vest and no financial information is shared, but it should be no secret that the company had a good (or bad) year, is making a profit (or underperforming), and what next year’s growth goal or plan is. It’s important for family-owned businesses to share key company information and strategies so that employees feel like they’re part of the journey; otherwise, they can become disengaged.”
• Mind your mission—“The success of a family-owned business starts with a clear mission and vision for the company’s goals in terms of where you want to go, the type of work you want to do, and the impact you want to have on the community you serve,” King said.
• Create a winning culture—“Without as much capital to invest in technology or to build full-blown departments like larger contracting firms can, it can be challenging for smaller family-owned businesses to attract and retain the best talent,” King said. “The goal is to create a culture that’s so desirable that it attracts qualified candidates who are willing to forgo some other bells and whistles just to be in an environment built on a sense of trust, belonging, and respect. It’s a culture where employees feel part of a team, challenged, and given the tools to succeed, which include training, education, mentoring, and quality feedback.”
• Avoid the “us and them” dilemma—Make sure that you foster a solid relationship between the people working in the field and those in the office, Alford advised. “Don’t just celebrate or recognize the office personnel/family members; help your [field] employees feel included by getting involved.”
• Standardize your processes—According to King, it’s important to formalize procedures. “Create a playbook that people can follow,” she said. “No one wants to be micromanaged, but establishing a structure is key to successfully managing your workforce.”
• Clearly define roles—“Don’t force family members into the business if they don’t want to be there, because it can create resentment and lead to underperformance,” Alford said. For those who want to be involved, “go where their skills and interests are and put them in an area of the business that they’re passionate about.”
  
  “It’s important to put the right people in the right seats so that everyone is rowing in the same direction,” King said. “Be sure to clearly define roles and responsibilities that are determined by each individual’s talents, strengths, interests, and personalities.”
  
• Listen to and develop employees—“Find the nuggets within your company—e.g., people you see with potential—and take a chance and move them forward,” King said. “Make sure you invest in training and developing them, because you must be intentional about reproducing leaders.”
  
  “Don’t be an absentee owner who’s unaware or not present,” Alford said. “Care enough to listen to your team and vest authority in them.”

• Engage a third party—“If people sitting in one or more of the family-owned company’s main seats are working against the culture that the rest of the company is trying to build, it’s always good to engage outside help in the form of an objective, third-party consultant or advisor,” King said. “Having that outside support, direction, and person you can bounce ideas off or ask questions of is so important for a healthy, well-run company. 

“Identify people who have already gone where you’re trying to go and connect with others who have been successful and can show you how to move forward and avoid pitfalls. NECA offers access to peer groups comprised of noncompeting contractors across the country; there are so many great contractors out there who are happy to help each other, which will both make individual companies stronger and the industry more resilient overall,” she said.

King encourages leaders to educate themselves and do their research.

“Learning has to be ongoing because change is constant,” she said. “If you’re running a family-owned business or considering starting one, it’s imperative that you have the hard, up-front conversations to discuss expectations, goals, and a common vision. In addition, talk about the ‘what ifs’ regarding succession and develop an exit strategy.

“You also need to identify what you value most so that you don’t end up sacrificing or destroying family relationships for the sake of the business,” King said.

Wired Leadership / Maxim Consulting Group