A great deal of my business life as an advisor and business coach has been working with family businesses.
I enjoy working with them and I will share my four main reasons why. Note these reasons can equally be viewed from the perspective of a non-family employee. There are powerful lessons here for business owners on how to harness the benefits of a family business within any business structure.
Firstly, before I give my reasons, I should by way of balance say that everything is not always rosy in the family business garden. But in my experience the weeds are far less frequent than the blossoms!
The situations I have seen over the last 16 years include:
- Favourable and bias treatment given to family members.
- At times overbearing nature of the founding members, including their desire to hold onto power and not let go.
- Being slow to make decisions and change when it is clearly required.
- Failure to successfully address succession issues in a timely manner.
However those issues can be overcome providing they are addressed in a practical and sensitive manner. It’s also vital to take into account the views of all major stakeholders including spouses who may not be working as company employees.
To give perspective on the pros and cons of owning and operating a family run business I have coined this phrase:
The ties that bind family businesses together are stronger than the threads that wear thin and threaten to weaken the seams. ~ Steve Clark
My top 4 reasons family businesses are the preferred company structure
1. Emotional Ownership
There is lot of blood, sweat and tears that families put into their businesses. I witnessed first hand my best friend at the time Greg, whose family owned a substantial business in Victoria, be on a virtual 24 hour stage of readiness to answer the call should the business need it.
He would think nothing of leaving a party early to check in on one of the many cool stores that had on their property as purely a precautionary measure. And, he did so willingly and enjoyed every moment, it was never contrived or put on simply to keep his father happy. I respected that and being in a very mundane accounting job at the time I often wished we could trade places.
He and the other family members knew that ‘failure was not an option’ for they had their houses and numerous other body parts on the line should the business fail. The future generations of their family were at stake and they took that responsibility very seriously indeed. I admired and respected that.
I have found family business owners to be very direct and open with their opinions and feedback around what is happening in their businesses. If they don’t like what is going on they are likely to tell you direct to your face, ‘calling a spade a spade’.
I have been on – and still are on – a number of family businesses boards as their advisor and/or coach and have seen other family members receive a direct spray from the founders and sometimes each other, plus I’ve received one or two myself.
There are fewer ‘political footballs’ being kicked around the room, with the prevailing attitude being “Let’s own up, face up, and get on with what we have to do”. I like that, I like to know where I stand and that the reality of the current situation is being addressed and not simply being swept under the carpet.
3. Longevity & Succession
1) Profitability & Success
On the whole family businesses are more profitable and create more jobs than non-family firms, according to a study undertaken in the USA over a ten year period from 1992 to 2002. The study, which compared S&P 500 and Fortune 500 companies based on net profit margin, employment, revenue, and gross income growth concluded that those started by families are more successful than their non-family counterparts.
It is therefore not surprising that family business owners place a high level of importance on retaining key staff for longer periods of time and in particular direct and extended family members. They are the glue that tie generational success and continuity together.
2) Inspiring loyalty & trust
It would not surprise most people to know that on average people will change jobs at least 12 times during their working career. There are a number of reasons for that with one major one being the lack of loyalty and trust from both sides of the employer and employee spectrum. Many family businesses have a decided advantage due to the often higher ratio of direct and extended family staff members to total staff. Even though family members do argue and bicker, when push comes to shove ‘blood is thicker than water’ and that loyalty rises the surface when the family and/ or family business is threatened.
3) Generation Next
It is certainly not guaranteed that siblings of parents who own family businesses will join them to work as part of the succession plan. In fact in today’s world with so much choice and avenues to find and express one’s true self it is becoming harder to attract sons and daughters into family run businesses compared to several decades ago. A close business colleague of mine recently said “I’ve seen how much time and effort Mum & Dad put into this business and frankly I want to have a life and not be working and worrying 24/7”.
Family businesses owners are having to work harder (or should I say smarter) to entice family members to join and remain in the family firm. In recent years I have seen a softening of the approach from the founders from the traditional ‘it is expected of you’ to ‘we need to encourage you’ and I’m confident that is by far a better approach.
4. Family Values
One of the greatest feelings we can have in life is to feel part of a loving family, to feel secure, wanted and to share those family moments together. On the other hand we spend almost one third of our lives working for a living so how great would it be if we could be employed in environments that resembled a form of extended family?
It is possible to find such environments in non-family businesses and in that context the main emphasis is on ‘creating family like conditions’ and values. I have identified seven values that I find naturally occur in most family businesses.
When you are first employed as an external advisor to a family business there is little or no implied trust until you take the time to build and earn it. That could be a result of a combination of factors ranging from consistently delivering on promises, quality of the advice provided and always acting in the company’s interests. The main point is that once you build that trust they feel confident to share more and accept you to some extent as part of their extended family. That’s a nice feeling and one that rarely comes when dealing with a large private or public company.
Trust an loyalty are like brother and sister to each other, they go hand in hand. Once you have demonstrated your loyalty to a family business then you will definitely find it’s repaid back to you in abundance.
I’ve seen that particular loyalty demonstrated during the tough economic downturn of 2008 to 2010. A company I was an advisor to suffered loss of sales and cash flow as a consequence and could have easily made the decision to cut staff. Instead they decided to retain all staff and the owners took salary cuts and forego dividend payments instead until the economic circumstances changed. Even today when I visit that company several of the longer serving employees recall what the owners did with great thanks and admiration.
Every business needs policies, procedures and rules to ensure quality and consistent patterns of acceptable behavior. However that does not mean being so totally regimented and rigid that there is no room to move, no compromise or flexibility. This can be a trait of very hierarchical organizations like the Defence Forces or large corporate structures where the culture is driven more around process and systems rather than people.
Family businesses on the whole are more open to listen to individual concerns and requests which may be outside the norm and require some flexibility in terms of the traditional decision making processes. These requests may vary from requesting to take leave to coincide with school holidays or accommodating those experiencing some form of personal crisis that requires special dispensation.
The other good news is that decisions can be taken very quickly and rarely require a ‘oh, we will have to wait until the next board meeting to review and decide that’.
The environment within a family business and in particular one that has a strong female matriarchal presence can be described as nurturing. Nurturing in the sense that people are willing to listen and share their thoughts and feelings within a safe environment knowing people do genuinely care about each other. In today’s often disruptive and changing business world that’s rare in many organizations.
For many of the reasons listed above a family business environment can provide a true sense of belonging, in a lasting sense. It’s not simply being part of a team that comes together on a project by project basis and then moves on. This is a team that works together and often socializes together over an extended period of time. In that sense you feel part of a family, part of a tribe which provides a great sense of camaraderie and shared purpose.
Family businesses and its members are generally in it for ‘the long haul’ and are committed to the cause and to the family. That is not to say that’s going to be an automatic recipe for success as that certainly that requires a combination of factors but it is one of the most important. At a personal level if I see people highly committed people then it inspires me to follow suit and want to be a part of it; role modelling at its best!
All businesses can be fun but I particularly like the joking, levity and frivolity that occurs around family businesses. Don’t get me wrong though – I know the ‘business of business’ is serious stuff but within that context there is still plenty of time to joke, laugh, reminisce and enjoy the ride. I find family businesses do that well.
Perhaps it’s a reflection of the fact that there often is a larger representation of family members working in the business who have often grown up together. They will have history and stories to tell of the struggles, successes and sometimes mildly embarrassing but fun moments to share.
On several occasions I have been invited to attend (and have enjoyed) family outings and social events. It’s a nice way to learn a little more about family life and history in a relaxed atmosphere. As a family business advisor if you do the right thing and earn their trust and respect then you certainly can earn the right to be regarded as a small part of the extended family. Not every advisor would be looking for or need that but I find it an important part of the overall family business advisor journey for me.
Can a non-family business acquire some of the attributes of a family business and enjoy the benefits such as increase in feelings of belonging, commitment and loyalty?
The answer is a qualified but optimistic yes, which is why I encourage all of my non-family business clients to have ‘family values’ as a key pillar of their overall culture.
How to implement family-like values in your non-family business:
- Define ‘family values’ in the context of your overall business culture; its meaning and purpose.
- Identify the 4 to 5 core values that most closely identifies with those outcomes.
- Identify 3 to 4 desirable and specific behaviors that support each core value.
- Embed those behaviors in the day to day operations and performance management systems.
If you would like to understand more about how to encourage family values in your business you are welcome to contact me for a complimentary discussion.