What are some of the motivating factors in people setting up a family business as opposed to a non-family business?
When you setup a business, I don’t necessarily believe it is with the intention of setting up a family business, as opposed to setting up a new business. There are thoughts are around, “it could provide for the family”, however this doesn’t make it a “family business”.
Thoughts could also be around, “perhaps one day the kids could take over”, however, who knows what the kids are going to do; right now it is about providing for them. It really becomes a “family business” when you have multiple family members working/managing/owning it and potential generational succession issues.
A brother and sister going into business together, doesn’t necessarily make it a “family business”.
A husband and wife in business together, doesn’t necessarily make it a family business. Why is this any different to two friends going into business together? When spouses and children get involved, that is when things start to transition into the “family” space.
When ownership, management, and family intersect; when family communication, expectations, values, competencies, dynamics (family component) are inputs and influences in the business, then it starts to enter “family business” territory.
Having said all this, why would I want to setup a family business?
Well, FB’s can outlast non FB’s. Statistically, only 10% of FB’s last until the 3rd generation. Not a great statistic, however when you consider three generations is approximately 70 years; this is not a bad run and how many non FB’s last this long?
FB’s can differentiate themselves from non FB’s; gaining a competitive advantage because of the family component (DNA Culture).
Consumers perceive them as more friendlier, more caring employers and these perceptions attached to the business’s products and services.
The labour pool (multi-generational family members), tend to be more loyal and committed to the business. Family members also tend to be more flexible in taking on different functions in the business.
Strong bonds are often formed with key employees; treating them like extended family.
Having “patient capital” can assist through the difficult times i.e. FB’s are more willing to sacrifice short-term financial results for longer term strategic priorities.
Financial returns can be provided to both working and non-working family members.
Ability to provide career opportunities and the opportunity to be a business owner to future generations can be motivating and rewarding.
FB owners have the opportunity to mentor the next generation on their business and personal values; the work culture they create will often be a reflection of these values.
Organisation wise, how are successful family business that different from non-family businesses?
In addition to managing the issues and complexity of business, they have had to manage the family component of their business. Successful FB’s are not that different than successful non FB’s. What has made the FB successful is the “professionalization” of their FB. They may have some or all of the following (similar to successful non FB’s):
• Board of directors or advisory board.
• Shareholders agreement.
• Succession plan.
• Business and strategic planning processes.
• Corporate governance.
A family business may also have (separately or incorporated above):
• Family Council.
• Family Constitution.
• Family Business rules.
• Estate planning.
Like non-FB’s, FB’s have similar concerns:
• How to grow – where are new customers and increased revenue coming from?
• Succession of ownership and management.
• What are our competitors doing.
• How to attract and retain talent.
• How do we manage our costs.
• Working capital and reinvestment requirements.
• Increased pressure to innovate.
• Debt funding requirements.
FB’s however have a significant greater level of conflict resolution requirements because they also have the personal element of the family to deal with.
Why do FB’s perform better? Is it the DNA?
Prima facie I don’t believe it is the DNA, it is how the DNA is managed. The successful management of the DNA potentially embeds the family values into the culture.
And it is this “managed” DNA culture that promotes loyalty, “patient capital”, passion and desire to contribute from other family members; significant contributors to business success.
DNA culture however can be the downfall of a business because if this culture is only inward looking and rooted in the past, the business will surely fail.
In times of difficulty, it can be the DNA culture which can be the difference between survival or demise.
Family members can provide support and guidance to the working members at a level that independent shareholders, investors, clients or business partners would never consider.
Family members will forgo remuneration, offer capital, and pull together to do what is required for the longevity of the family business.
The willingness of these collective personal sacrifices are what’s imbedded in business culture; albeit it is not visible, but during a crisis it can help the business survive.
