Owner-Employees (Advantages and Risks)

In last week's article we looked at the benefits and risks of having family members as employees and offered three recommendations to proactively address challenges associated with family employees: clearly establish roles and responsibilities of the job; establish expectations for professionalism; and clearly establish the compensation will be based on the job being performed.

This week we explore some of the unique characteristics of owner-employees and the complications and opportunities this duplicity creates.

Advantages:

First, an owner-employee often will have a long-term view of the business. Rather than managing the expectations on a quarter-by-quarter basis, as many public companies are forced to do, owner-employees of privately held organizations can take a long-term perspective making decisions with 1, 5, or 10-year time horizons. This advantage allows owner-employees to shape long-term strategies for maximum value creation for decades and/or generations.

Secondly, few employees are more vested in a business than an owner-employee. Many have a substantial amount of their wealth tied up in the business, and when circumstances dictate extraordinary effort and sacrifice the sense of pride for the organization and a sense of self-preservation can generate incredible motivation to create organizational sustainability.

Thirdly, the knowledge and skill an owner-employee can bring is invaluable. Many, owner-employees are generation 2, 3 or 4 and have cumulative knowledge unattainable in one lifetime. This perspective of company history and heritage is an incredible asset to the organization.

Although the advantages may seem obvious, often the risks are more subtle.

Potential Risks:

First, many owner-employees have their lives so intertwined with the business that they cannot envision a life without working in the business. This creates challenges for succession as these employees are reluctant to surrender control by empowering the next generation with even the most mundane tasks. When the market or family circumstances dictate major strategic shifts, this monarchial management style can become a significant risk to the sustainability of the organization.

Secondly, owner-employees need to be conscious of inadequate amounts of work-life balance. As the organization and the life of the owner coalesce an owner-employee becomes susceptible to burnout. In order for an employee-owner to be impactful, they must be at their best and that requires the ability to unplug, see things from a different perspective and come back with a renewed sense of vigor.

Thank you for reading and please feel free to reach out with any questions or comments at [email protected].