As family-business owners make plans to close out the second half of 2018, avoiding overconfidence should be at the top of the list. The captain of the Titanic infamously said, “I cannot imagine any condition which could cause a ship to founder … Modern shipbuilding has gone beyond that.”

Clearly, we are sometimes blind to the risks we face. With that in mind, we point to five key risk factors cited by David Tate, assistant clinical professor of psychiatry and management lecturer at Yale University, along with examples of our own regarding how to keep your business from suffering the Titanic’s fate.

Beware of overconfidence, Tate advises. “Don’t deny or minimize risks that could trigger the need to sell your business or a portion of it, such as death, disability, divorce or embezzlement. Develop your talent and “bench strength” to enable your business to adapt and innovate.”

Overconfidence can also manifest as not having a succession plan. Sometimes, CEOs cannot imagine giving up control of the business. According to a 2016 Family Business Survey by PwC, 77 percent of family businesses surveyed do not have a succession plan for senior roles in their business. Succession planning does not mean giving up the baton — it involves sharing the baton by sharing knowledge about the business, how you make decisions and how the business operates.

Ineffective leadership can leave a management team rudderless. Tate informs us the captain of the Titanic was unable to provide strong leadership during the crisis and was sluggish to give decisive orders. “Family-enterprise leaders may need courage to ask hard questions, face volatile situations — such as firing a family member — or take measured risks, such as embracing new technology or innovation,” he says.

Poor preparation was evident on the Titanic, as there were not enough lifeboats, and no communication or evacuation plans, Tate points out. Sometimes family-business leaders are so busy running the business, they feel as though they do not have time to mentor the next generation. We’re seeing members of the next generation going to other businesses to get their experience and then coming back. One family created a policy that required the next generation to have five years of experience before working in the family business. So they are not just coming back as the kids in the family — they have grown up a little bit and have richer experience to offer.

Frail architecture is yet another risk. Tate observes the Titanic’s iron rivets were of poor-quality materials, resulting in failure when they hit the iceberg. “For family businesses, architecture refers to governance structures, such as boards of directors or family councils, shareholder agreements, and procedures that help hold the system together when it comes under stress,” Tate adds.

Fragmented teams can create perilous disconnects. Tate says, “Wireless operators on the Titanic played a potentially vital role in providing information relevant to navigation and safety, but being separate from the navigation team, they failed to respond appropriately to more than one ice warning. Families may experience team fragmentation based on generational differences or sibling rivalry, or based on position, such as family versus nonfamily employees, or owner-managers versus nonmanaging owners.”

With these five risk factors in mind, family-business leaders would do well to embrace these strategies offered by Tate to promote success:

• Balance optimism and confidence with humility and risk awareness.
• Be open to new information and input; use advisers and others with key experience.
• Create forums and processes for ongoing planning.
• Overcommunicate, not only to express your intentions or vision, but also to listen. Listening to others helps us become more influential and effective in developing buy-in and support.

Remember, seemingly small issues may be the tip of the iceberg, signaling that deeper issues likely exist. Take action now so your business can experience smooth sailing.

Nancy Amick is senior director of the Institute for Family Culture at Abbot Downing.