Family Bussiness (Part 1)

Family businesses are the oldest type of business organization. In most countries and 70% of the total business belong to them also play a key role in economic growth and job creation. Family businesses range from small or medium-sized enterprises to large corporations operating in multiple industries and countries.

The ownership structure of family companies has caused differences with non-family companies, which has made it necessary to examine different dimensions and concepts in family companies. On the other hand, due to the existence of a significant number of family companies in Iran and the Tehran Stock Exchange, it is very important to examine the various aspects of these companies in Iran, which has recently been researched in the field of accounting.

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There are two primary approaches to running a company: in founder mode ?or manager mode, as outlined by Paul Graham in his article Founder Mode. These two approaches differ substantially in how leaders engage with their organizations and make decisions.

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In manager mode, the CEO or leader interacts with the company primarily through their direct reports. This is akin to modular design, where departments are treated as independent units. The CEO gives instructions to department heads, who are trusted to execute them without much interference. The CEO does not involve themselves in the detailed execution of tasks, as this would be considered micromanaging, which can stifle creativity and initiative.

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In contrast, founder mode allows for more direct involvement. The founder or CEO might hold skip-level ?meetings, directly engaging with employees across multiple levels of the organization. This hands-on approach helps founders stay connected with the company’s day-to-day operations, even as the company grows. However, as the business scales from a small startup to a larger enterprise, the founder must balance their involvement with delegation. The level of autonomy they grant their managers can change over time, making founder mode more complex than manager mode but often more effective. Companies like Apple and Amazon demonstrate how successful founder-led organizations can be when they adapt their leadership approach as they grow.

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Founder-led companies often reflect the vision of their founders long after their initial growth phase. Founders typically stay involved in day-to-day operations for longer periods, reflecting their deep personal connection to the business. Those who build companies without external funding are known as bootstrapped founders, and they exemplify resilience, having built their businesses with limited financial resources.

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Family businesses, in particular, face unique challenges, especially as they pass from the first generation to the second and third generations. Research into family businesses has identified three common types of founders—proprietors, conductors, and technicians—each of which faces specific challenges, particularly when it comes to succession planning and managing the dynamics of family involvement.

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The Three Types of Founders

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1.?????? Proprietors view the company as an extension of themselves, exercising tight control over all decisions. They are highly reluctant to delegate, especially to non-family managers. Their leadership style is paternalistic, often treating employees and even their children with the same level of oversight. Children in these businesses are typically expected to join as a matter of loyalty, with sons taking on key roles while daughters often focus on family life.

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?? The challenge with this model arises during the transition to the second generation. Because the founder dominates all decisions, it is difficult for others—especially the founder’s children—to assume leadership roles. This creates tension within the family. If the founder cannot relinquish control, succession becomes a major issue. In cases like Henry Ford’s, the founder’s refusal to share authority or allow others to lead nearly destroyed the business. Succession planning is critical, and without it, a company risks losing momentum when the founder steps down or passes away.

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2.?????? Conductors also maintain control but are more focused on preserving family harmony. They actively involve their children in the business, often assigning them roles in different departments (e.g., finance, sales, or production). This approach fosters loyalty, but the challenge lies in succession. As the children grow more experienced and ambitious, they may want more control. This can create tensions as the founder struggles to decide who will take over leadership. The founder’s reluctance to choose a successor often leads to internal conflicts and frustration, which can disrupt both the business and family dynamics.

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?? By the second or third generation, these tensions can escalate. Siblings may begin competing for control, or they might feel excluded from decision-making. If succession planning is unclear or delayed, this can result in power struggles, with family members either leaving the business or being forced out. Without a clear plan for leadership transition, the family business may splinter or even fail.

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3.?????? Technicians build their businesses on a specific skill or talent. They are often geniuses in their field but dislike the administrative side of running a company. The business relies heavily on their specialized knowledge, making it difficult to transition leadership to the next generation. Technicians are often reluctant to teach their skills to their children, fearing that they might one day take over their role.

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?? The second generation in these businesses may feel overshadowed by the founder’s expertise. Children often pursue roles in areas where they don’t have to compete with the founder, such as marketing or operations. However, this can lead to a disconnect between generations. The business’s future may become uncertain if the founder fails to share their knowledge or set up proper structures for succession. As the company grows, the lack of knowledge transfer can stifle innovation and limit the business’s ability to evolve under new leadership.