Challenges in the Family Business
After a long hiatus, I finally had the time to sit and write another post on the Family Business. This time, we are going through the respective challenges that family business have to face and deal with in order to be successful in the long run.
In my previous post, we deep dived into how family businesses have an edge over their competitors. This is due to one inherently unique trait that family businesses: they tend to take on a stewardship frame of mind towards their business. It usually means they tend to lean favourably toward a long term mindset that seek to benefit all of the business’s stakeholders.
Hence, as a result of the difference in management, it has translated into a competitive advantage for the company in these areas:
- Studies done in a number of countries indicate that family companies perform, on average, significantly better than non-family businesses
- Family businesses are also stronger financially, have higher stakeholder loyalty, live longer, and are more trusted by the public
- Based on a financial indicator (ROA) measuring a firm’s ability to make good use of its resources, research has shown that family businesses perform significantly better as compared to their counterparts
As you go through these findings, you may have the impression that is fairly optimistic picture of the family business. However, they also face unique challenges that its competitors do not. Businesses commonly have to navigate changes in technological markets, challenges from global competitors as well as the rapidly changing political landscape. However family businesses have to deal with this while maintaining trust and unity within the family.
However doing this usually requires a different sort of work as compared to the work required to run the business. It includes developing frameworks for business strategy and succession planning, as well as creating mechanisms to guide the business through conflicts and emergencies while continuously building trust among its family shareholders. In order to achieve this, the family shareholders have to articulate and examine their common values, needs and goals on a regular basis. This is not only essential to the unification of the family, it also deepens the family’s commitment to the success of the business.
Yet substantial evidence show that many family business do not do so. The consequence to it is that businesses rarely survive beyond the second or third generation. Furthermore, this has been known to result in friction between family members and the splitting up of the business.
To summarise, family businesses enjoy an advantage unique to itself. This helps set it apart from its competitors in this increasingly globalised world. However they also face challenges that threaten the very edge they possess. Unfortunately, these challenges have to be dealt with in a way that is different from running the business. This includes having common goals concerning both the business and the family. In conclusion, for family businesses to thrive through multiple generations and continue benefiting from their unique make up, there must be a clear vision of the relationship between the family members and the business.
References:
Interview with Estee Lauder and Puig on the family business. https://www.youtube.com/watch?v=ylLby68M5-U
For an in-depth case study on the family business, an article by a faculty chair of the Families in Business program at Harvard Business School provides a balanced and thoughtful exploration of this. https://hbr.org/2014/08/market-basket-shows-the-best-and-worst-of-family-business
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.553.4020&rep=rep1&type=pdf
