Whilst the phrase “family business” may suggest a small local business, the powerful role that family businesses play in the global economy should never be overlooked. 90% of businesses in the world are family-owned, including some of the largest and most successful companies; Walmart, Tata, Samsung, and Porsche. However, less than one third of family businesses survive the transition from first to second generation ownership and another half do not survive the move from second to third generation. Alan Barker believes that ‘families are from Venus, businesses from Mars’; so can family and business every truly work in harmony?
Endaba take a look at the pros and cons of family-run businesses:
Culture – Culture is crucial to a business and maintaining a solid and unified culture can be key to the success of a company. A family culture often creates strong loyalty among employees and increases retention rates. According to the 2013 Survey of Family Businesses, the average tenure for non-family employees at US family businesses is 12.3 years, significantly longer than the national average of 4.6 years.
Long-term – Family-run business are usually about securing a livelihood for a family, meaning there is a vested interest in the continued success of the business. The desire to pass a company onto the next generation protects against the short-term issues that publicly owned companies are often susceptible to, and decisions will always have the long-term vision in mind. At a time when it is estimated that only 16% of businesses in the US will survive a generation, family-owned firms survive twice as long
Financially cautious – Family businesses tend to opt first for self-financing, and before looking at loans, and finally opening up the opportunity of equity to investors as a way of generating capital. There often underlies the internal feeling that the company’s money is the family’s money, so finances are kept under tight control!
Company perception – In October, the Institute of Family Business found that 68% of people thought that family status reinforces the perception of quality, and two thirds agreed that it improves corporate reputation
Brand recognition – Families are the embodiment of their brand; they are the face that consumers recognise, creating a strong identity and brand awareness. The Kardashian family have an incredibly strong brand after harnessing their famous lifestyle and opening their own boutique, DASH, run by 3 of the Kardashian sisters, Kim, Khloe and Kourtney. They are the face of their company and its branding, even selling collectable water bottles with their faces on
Nimble and agile – With the fast-paced and ever-changing market of today, businesses must be able to respond quickly and effectively to their environment. Family-run businesses often don’t have the vast corporate structure and complex matrix that other businesses must adhere to, enabling them to be more agile when doing business
Limited internal growth – Family members are often prioritised for promotions, which limits internal employee’s growth and can cause frustration and tension. In the family-run business Swarovski, to be on the Executive Board, you need to be a member of the family; their Board currently consists of five fifth-generation family members, limiting the growth of their internal employees who are not part of the family
Business growth can be stunted – With a personal investment in the company, family members can want full control and involvement in all aspects of the business and decision-making process. This creates frustration amongst very talented senior people in teams, who feel they are not being listened to or don’t have autonomy within the business. It can also limit the growth of the business because every key decision must be made by a family member, slowing down decision-making
Family feuds – Disagreements within families can find their way into the workplace, and tensions arise that are not always business-related; it can be difficult to separate business and personal lives. Feuding can be down to a number of reasons, including varied interests of each family member, personal egos or personal rivalries that spill into the business environment
Role confusion – With both immediate and extended family working within businesses, roles can be hard to define and confused. When working with their children, parents must switch from parent to boss to mentor which can often strain communication and relationships can deteriorate both inside and outside the business
Whilst family-run businesses can present significant business challenges, they can also be some of the most successful and exciting companies. It is important that the family personalities are understood throughout the business, and how as an embodiment of the brand, they must create the culture of the business. A cohesive atmosphere must be created to ensure employees and family members both understand each other’s position and focus within the business; communication and learning through experience are both key to this!
“The main challenge of family-run businesses is the ability to grow and reach certain scales as a business. However, family-led businesses can use the strength of their relationships to overcome challenges they face. They are driven with emotion and passion, with incredibly strong brand values that are reflections of the family,” Patrick Egan, Managing Director, The Endaba Group