What changes when a family business brings in outside management

Mar 9, 2023

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What changes when a family business brings in outside management

Bringing in a manager from outside the family is a common step and a frequently unsuccessful one. The failures follow a recognisable pattern, and most are avoidable at the point of appointment.

Authority has to become explicit

In a family business, decision rights are understood rather than documented. Everyone knows who decides what, and nobody has ever needed to write it down.

An outside manager has no access to that understanding. Without a written statement of what they may decide alone, what needs the owner, and what spending limits apply, they will either overstep or — far more commonly — decide nothing, and be judged passive for it.

Decide what happens when family disagree with the manager

This is the question that determines the outcome, and it is almost never addressed in advance.

If a family member working in the business can be overruled by the new manager, say so, and tell the family member. If they cannot, the manager needs to know the real limits of their role before accepting it. What destroys these appointments is discovering the answer during the first conflict, in front of staff.

Keep the owner’s involvement, but channel it

Outside managers are often told the owner will “step back”, which rarely happens and usually should not — the owner holds knowledge and relationships the business depends on.

Better to define the involvement than to pretend it will end. A fixed weekly meeting, a clear list of matters reserved to the owner, and an agreement that operational instructions go through the manager rather than directly to staff.

Agree what success looks like, with numbers and a date

Absent explicit measures, performance gets assessed against an unstated expectation, which the manager cannot meet because they cannot see it.

Three or four measurable objectives, reviewed on a stated date, protect both sides — and make it possible to end the arrangement cleanly if it is not working.

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