The How-To: Building A Successful Family Business Your family business is what you inherited or created, it is also what you aspire into building further, and carrying it forward for the generations to come.
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Family businesses can be found all over the world, and they comprise of small local businesses, small- and mediumsized companies that typically are the backbone of many economies, as well as well-known large global listed players. According to market surveys, family businesses represent two-thirds of all businesses worldwide, generate over 70% of world GDP, and account for 50–80% of jobs in many countries. The European Family Businesses Organization states that family businesses account for between 60-90% of all companies in various countries within Europe, and for 40-50% of the region's private employment. In the UAE, family-owned businesses represent a large part of the local business community, and contribute significantly to the growth of the economy across the GCC countries.
What are the main characteristics of a successful family business?
"If it is good for the company, it is good for the family too," said André Hoffmann, Vice Chairman of Roche, and fourth generation descendant of the company's founder. Entrepreneurs create or acquire a business, develop, grow it, and transfer it to the next generations as a legacy. While the growth of the business is underpinned by its family values and governance, aligning family values and management culture is often a rather challenging task. Family-owned businesses, regardless of their size or industry and geographic region they operate in, tend to have some common characteristics which include:
- Long-term vision, strategy, and commitment to stakeholders
- Wealth creation, and preservation over generations
- Family values, and family governance
- Alignment of interests between business and family
- Combination of ownership, control, and management
- Concentration of the family wealth in the company
- Good relationships with stakeholders, and trustworthiness to build a good reputation in society
- Challenges include governance issues, family conflicts over money, succession, and nepotism.
The most successful businesses incorporate strong family values, and have established firm family institutions to manage the family's interests. Family governance helps to protect guiding values and mitigate conflict. This helps when non-financial, emotional goals influence the actions of the family, for example, if they want to keep the control over the company. At the same time, family businesses that address succession and family wealth planning early can reduce risk, and ensure a smooth succession through fair and clear family internal planning, and by welcoming external advice from trusted friends and professional advisors. So, how can entrepreneurs ensure a successful and sustainable family business? Here are seven key points to keep track of:
It is important that the values, interests, and visions of the family are aligned, as their reputations are interwoven. Fair employment practices and support for social efforts prove both family and business are engaged and care. Demonstrating commitment to stakeholders can help businesses keep good employees, find new talent, and develop sustainably.
It is more vital than ever to focus on innovation, and consider partnerships that are of mutual benefit, given elevated disruption risks, for example from digitalization.
3. BUSINESS PLAN AND GOVERNANCE
As a company grows, and gets passed on to the next generation, it is essential to document both the business plan and governance properly. Keeping these in the head of the founder may work only in the early years of a company's existence.
A succession plan should be well documented and prepared early to avoid stress, company breakup, or even bankruptcy in a worst-case scenario. Although most entrepreneurs want to build a legacy, they tend to undermanage their succession. This may happen abruptly in the case of an accident or the death of the head of the family, which may lead to a dangerous leadership vacuum or family disputes.
5. DELEGATION OF RESPONSIBILITIES
Build and expand the organizational structure as the business grows, and delegate responsibilities to enable and motivate the workforce, and to free up sufficient time to manage the firm.
It is important to keep nepotism in check to sustain a strong reputation, as well as high management and workforce capabilities.
7. CAPITAL INFLEXIBILITY
Family businesses need to spend wisely and maintain financial flexibility in the balance sheet, given more limited access to liquid financial markets, and to keep control over the company.
It is said that, if you can raise a family, then you can build a business. Similarly, to your family, your family business is what you inherited or created, it is also what you aspire into building further, and carrying it forward for the generations to come.