Why conflict is good for family businesses

In the last two weeks, Family Capital has talked to three family businesses, two of them billionaire dollar companies, the other much smaller. All three have admitted to some conflict between siblings, cousins, or in one case, both. But they also have something else in common – they are all very successful.

In fact, the one where conflict between family was the most acute was the most successful of the three in terms of revenues and growth. When pressed on conflict they didn’t want to say too much, and none of them on the record. Fair enough, they have a reputation to protect. But here’s an interesting unattributed quote from one of them: “If everyone (in the family) is slightly unhappy then it’s good”.

The quote implies that a certain amount of tension between the controlling family was a good thing – it kept them all alert and ensured they did their jobs better. Maybe the best way at looking at how conflict is positive is to look at a theory from economics called creative destruction. Associated with the economist Joseph Schumpeter, he described it as: “the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

OK, there are realms of academic treatises on what exactly Schumpeter meant and creative destruction’s application to the real world, but, for the sake of this argument, let’s apply it to the world of business. Here’s some big assumptions, but hopefully not too outlandish – the mutation bit of creative destruction comes about through conflict and creating something new is innovation. So, here’s the logic – without conflict you don’t have innovation in business.

A good example of this conflict was portrayed in the film The Social Network, which tells the story of the early days of Facebook. Much of the film is about the conflict between the co-founders Mark Zuckerberg, played by Jesse Eisenberg, and Eduardo Luiz Saverin, played by Andrew Garfield. True, the conflict cost Facebook a load of money in legal fees and a lot of wasted time, but without it, might Facebook have been as successful as it has become?

What is for sure is that conflict among families controlling businesses is much more common than they would admit to. But that conflict needn’t be as negative as the word suggests – because conflict can leads to greater innovation and more successful businesses. The challenge for family businesses is to acknowledge conflict and realise that it might not be such a bad thing…