Family businesses are the bedrock of the American economy. At least 80% and as many as 95% of all U.S. businesses can be described as "family controlled." These businesses employ more than 60% of the American labor force, generate about half the total wages paid and account for almost half the annual gross national product.

As powerful a force as the family business may be in the U.S. economy, it is also a strikingly vulnerable one. Almost three-fourths of all family businesses are either liquidated or sold following the retirement or death of their founders. Fewer than 65% make it into the second genertion of family ownership, and only about 10% to 15% survive into a third generation.

What accounts for that high mortality rate? The truth is, most family businesses are faced with a very special set of problems related to the nature of their ownership structure. This is something of a paradox, since that very ownership structure is often one of the business's most important strengths.

If you are like the majority of new business owners, your plans include involving other family members in your venture either now or in the future. If so, there are some specific steps you should take to increase the odds that your family business will be one that prospers and grows for the long term.

Family businesses are the bedrock of the economy and a major source of jobs.

Start by recognizing what makes a family business different from other types of businesses. Of course, there are more similarities than differences between family businesses and other businesses. Both make products or provide services to customers. Both employ workers and generate revenues. Both share the goals of getting and keeping customers and making profits.

SHARED RELATIONSHIPS

Where the family business differs most notably is in one unique aspect: The owners and, often, the employees of this type of business share a family relationship as well as a professional one. While the special bonds and common behavioral patterns inherent in a family relationship can be an asset in running a business, they can also create special problems and increased tensions in the management hierarchy.

Existing patterns in the family relationship are almost always reflected in the business setting. If those patterns are healthy and mutually supportive, that can be a big boost to the company's business prospects. If they are negative or dysfunctional, they can create stumbling blocks that may be virtually impossible to overcome without intervention by outside professionals.

How do you deal with this reality in running a family business? Some people think the answer is a total separation of family and business concerns. This is not only unrealistic to the point of impossibility, in most cases it is also not desirable.

Attempts to create such an artificial separation are attempts to deny reality. They also preclude any chance of capitalizing on the many positive aspects a family relationship has to offer a business--things such as loyalty, trust, shared goals and a willingness to make individual sacrifices for the greater good of the group.

A more realistic and workable answer is to accept the simultaneous existence of business and family concerns, and to strive to achieve the optimum balance between the two. Family business consultant Henry Mancuso advises taking four steps to reach those goals: Run your business professionally; take a proactive approach to problem-solving; allocate resources and authority carefully; and anticipate changes.

All those steps require advance planning if they are going to be executed effectively. The relative importance of planning is different at various stages of the business life cycle.

In the early days of a new business, most activities are product-or service-driven. The business founder identifies a market for a particular product or service and develops a system to deliver it profitably. This delivery or distribution process is further developed in subsequent stages of the business life cycle.

Planning plays a major role in guaranteeing the future success of a business.

As the business approaches maturity, it must become planning-driven in order to maintain its success. Planning plays a major role in standardizing the company's various business activities, identifying new markets and opportunities and laying the groundwork for future growth.

In order to reach the planning-driven stage, a family business must survive the first two phases, and that can only be done if the business is run in a professional manner and with strategic management. That requires a number of elements, such as: written business, management and operating plans; competent management at all levels of the company; clear performance expectations balanced with an appropriate reward and compensation program; formalized management and communications systems; and help from outside professionals.

A proactive approach to problem solving is the "preventive maintenance" aspect of running a family business. it is much more efficient to identify a potential problem and prevent it from happening than to try to come up with a solution to the same problem after it occurs.

The Wharton Applied Research Center identified four main categories of problems likely to occur in family businesses. They include family issues and concerns, individual and personal issues, management issues and succession.

Some of the potential trouble spots under family issues and concerns are relationships between parents and their offspring; compensation levels for family members; rivalries and differences of opinion among family members or between different generations of the family; power sharing; who works, who doesn't; training; separation of family and business issues; and growing the business.

PERSONAL ISSUES

A number of questions can be raised about an individual's role within the business under the heading of individual and personal issues: Is what I am putting into the family business worth the pay-back? Do I have an outlet for personal expression? Are my own needs being sublimated to those of the family? Are my goals the same as those of the family business?

Management issues that can be raised include finding, hiring, keeping and compensating employees who are not members of the family; managing for growth and change; and sharing equity with non-family members. Many businesses also face the question of how to deal with long-time employees of the company-both family and non-family members-who no longer fill a real business need.

Perhaps the thorniest problem arising in most family businesses is the question of succession. Who is going to take over for the founder after retirement or death? How will the transition be accomplished? How will ownership stakes in the company change? Will the founder(s) of the company continue to play a role in the business after retirement from active management? If so, what will that role be? When is the right time to pass the torch to the next generation?

Total separation of family and business issues is an unrealistic approach.

Two techniques that can help family businesses anticipate and avoid these types of problems are the development of a mission statement or creed for the business and the scheduling of regular family retreats or brain-storming sessions.

The mission statement for a family business should acknowledge both family and business values. it should identify the areas that are most likely to cause conflict and those that are most crucial to the ongoing success of the business, and it should include detailed policies and procedures on how to deal with those issues.

Formulating a mission statement is a task that requires planning and good communication among family members. Input should be obtained from all family members who are affected by the business, not just those actively participating in it. A well designed mission statement can play a major role in preventing many potential problems before they arise and in minimizing those that do crop up.

As important as formulating a mission statement is, it can be a painful process. You must ask-and answer-some hard questions. Which takes precedence in your life, family values or business values? How will you handle the case of a son or daughter found to be incompetent in his or her job? Fire them? Find another place within the company to put them? These are tough issues, and they must be confronted and dealt with honestly.

Relationships between family members and compensation can be trouble spots.

A family retreat can be an excellent setting to develop a mission statement. However, that should not be the only occasion for such a gathering. Continue to hold such retreats or similar meetings on a regular basis to promote ongoing communication among family members about the business's current state and future direction. The retreats should provide all family members a chance to air their views in a non-confrontational environment.

Most of the really important decisions in a family business come down to the allocation of resources and authority--in a word, power. These decisions revolve around three central points: Who has the power right now, what must be done to protect it for the future, and how it will be transferred to the next generation.

A common mistake made by owners of family businesses is focusing too narrowly on the present. It is important to realize that how these issues are handled today will affect the company's chances for future success--even survival.

THINGS TO AVOID

The three biggest mistakes family business owners make in the areas of power and resources are placing too much emphasis of family issues, placing too much emphasis on financial issues and failing to make any decisions at all.

Too great an emphasis on family issues can cause a business owner to allocate future ownership of the company equally to all family members, regardless of their level of involvement in the operation of the business or their competency. That can lead to situations where significant parts of the business end up in the hands of the divorced spouses of children or grandchildren or in the hands of relatives or inlaws who have no interest in the business's ongoing existence and success.

Too great an emphasis on financial issues-such as taking measures to minimize taxes or diluting equity through the issuance of new stock to raise growth capital-can also result in power and-or resources ending up in hands other than those intended by the founder.

Making no decision at all does not make these problems go away. It simply means that someone else-perhaps someone less qualified to deal with them-will have to handle these problems after the founder's departure.

Some finesse is required to develop a plan to deal with these issues. A management succession scheme should be prepared that will result in the value of the business being maintained while at the same time recognizing the different concerns of various family members. Ultimate control of the business should be left to those whose interest in its ongoing success has been demonstrated beforehand.

Anticipating changes is something often easier said than done. However, there is little doubt that change will occur over the life of a business. Changes will occur to the business itself, to the industry in which it is involved and to the people involved in running the company.

Formulating a mission statement is important but can be a painful process.

Early on in a company's history, much of the founder's focus is on creating products and services, identifying markets, lining up financial backing-basically, getting the business off the ground. The focus in the first few years of operation is often on survival, which can be followed by a period where growth becomes the primary concern.

Later in the life cycle, fine-tuning the business and training the next generation of management become important tasks. The final step for many entrepreneurs is insuring a smooth transfer of power when the time comes to step aside.

Clearly, building a family business and positioning it to survive and succeed over the long term is a very challenging endeavor, but it is one that offers as many rewards as challenges. Plan carefully for the future, and those rewards can be reaped on many levels.