Why Many Real Estate Family Businesses and Partnerships Fail
July 20, 2023
When family businesses and partnerships do work, it’s magical. Partners in the business complement each other, support each other, and cover off for each other. But when they don’t work, it’s a nightmare. In the worst case scenario when they’re not working, many family real estate businesses and partnerships will fail.
Much of my coaching work is in figuring out why some partnerships and family businesses are dysfunctional. Until we know the ‘why,’ we can’t work to fix it.
The Six Ingredients for Making a Family Business or Partnership That Won’t Fail
For any partnership or family business to work, there are six key ‘ingredients’ in the recipe for success that must be aligned.
Sharing a vision and a commitment for the future of the business.
Sharing values for the business and for their lives.
Sharing an intent to keep communications open with their colleagues.
Having confidence in each other’s competence.
Building a rapport with each other’s unique personalities.
Being able and willing to have ‘respectful debates’ and ‘courageous conversations’ among partners or family members… and at all levels in the business.
The Seventh Ingredient That You Should Never Add
There’s a seventh ‘ingredient’ that can, and often does, destroy a partnership or family business. Many don’t even know that they’ve added it. What is that seventh ingredient you should never add to the mix?
Refusing to give up control.
Sometimes it happens that, in spite of the competence and commitment of the younger generation, the older generation simply won’t give up control. Adding this is a recipe for disaster.
It’s understandable why it happens: people sometimes refuse to give up control because they are afraid they will have nothing else to offer. They worry about losing their value or worry about having nothing else to do, if they are looking at retirement. The business is their ‘neat fort’ where they feel safe, comfortable and in control… and they won’t let go.
What a Failing Family Business or Failing Partnership Looks Like
When partners or family members can’t agree, one of these three scenarios usually develops:
Scenario #1: Because the partners can’t agree on what should be done, or how to move the business forward, they do nothing. The business struggles, loses momentum and grinds to a halt. The staff becomes disengaged, the good ones leave and, eventually, it all ends badly.
Scenario #2: Because the partners can’t agree on a good course of action, they compromise and end up with a ‘grey’, boring, watered-down one. In a world where we need to be extraordinary, focused and clear in our market positioning and operational decision making, compromise can be deadly.
Scenario #3: The third scenario is what I call the alternating ‘it’s my turn plan.’ Because they can’t agree on what to do, the partners take turns getting their way. “We did it your way last time, so now it’s my turn.”
Sometimes that’s fine, but then it isn’t about what’s right, amazing or best for the business. It’s about whose ‘turn’ it is to get their way. With the universe being as perverse as it is, we’ll likely end up being wrong most of the time… but it doesn’t matter, “It’s my turn.”
If you’ve been involved in a partnership or family business before, you probably have seen or lived through these scenarios. This happens occasionally to the best of us. When it happens often, however, that’s a warning sign you may be on the road to failure.
If partners can’t work well together, and they are constantly falling into one of these three deadly scenarios, they need to face the reality that the partnership isn’t working. The business is going down the tubes whether they are ready to acknowledge it or not. If the business partnership is failing, it’s time to deal with it by writing up the most civilized ‘divorce’ agreement possible… and go your separate ways.
Our last words of advice: These same scenarios can end up happening outside of the business in any partnership. Don’t let this happen either to your business or your life!