The wonderful world of family businesses

Regular readers will know that I hold a deep fascination with family businesses. Somewhere in a desk drawer I have an outline for a book that I want to write on the topic. And it is not just any old angle. I want to think about family businesses’ ability to manage change, to make best use of their culture, and to engage their employees.

As a result, today I am going to write about family businesses as a concept, and what they do, and don’t do, well.?

There are so many interesting things going on in and with family business. Here are some of the companies you might not have known are family businesses. We most likely don’t know about them because they really don’t need us to know about them. Public companies need their shares to have value. They need people to talk about them in ways that family businesses really don’t.?

Of course there is both good and bad to that. As I’d like to discuss here.?

I don’t have an agenda. Except to say that I have worked with quite a few family businesses in the past 20 years and they have each been exhilarating — without exception.?

In the spirit of fairness let’s start with the areas of concern for family businesses. There are a few. But keep in mind there may also represent some incredible opportunities that family businesses have. We’ll come to those in the second half.?

The Challenges Family Businesses Face?

Since early in my consulting assignments, whenever I give examples of the challenges that businesses often face, my clients will often say “yea... but we’re not like that.”?So I suggest you suspend your disbelief for a few minutes as you read this.

Here are some of the issues I tend to see in family owned businesses.?

Irregularity

This one word could potentially cover all the issues arising. However, in this case I mean it to say that family businesses can be very unpredictable. Listed businesses are driven to have a lot of processes in common: reporting, promotions, performance reviews, leadership coordination, strategic planning, operational reviews… this is not to say that private companies don’t have these. They just don’t face the same pressures. They don’t?have?to have these.?

The upshot of these differences is that these businesses can be less responsive, less agile, and occasionally hard to manage.?

Insularity

Often private companies see themselves as a category of one. They’ll say they invented the segment, or they have unique patent, market or geographic attributes which mean they are unique.?

Of course we are all unique. But that doesn’t mean that we cannot learn from others. It doesn’t mean that what we did yesterday is still good to do tomorrow. Being too self-absorbed, and not actively worrying about competition, or new consumer, or customer needs, can be a real problem.?

Infighting?

One reality of modern life is that families grow. This is particularly true of families who own a successful business. In real life very few families can gather for a holiday meal without an altercation or two. Imagine all day together, trying to make decisions.?Yes, that's scary.

Family owned businesses are condemned to always need to be aware of the risk of internal strife. When commercial organisations, like we now recognise as businesses, started to be developed in the late 1800s it was specifically in response to the limitations of the farm, shop, circus that had to rely on the limitations of a single family.?That seemed a masterstroke in the 1800s.

Infighting is a reality in family operated businesses. That cannot be ignored.?

Regulation

The involvement of regulators is a painful reality for many organisations, including regulated private operations. But family businesses don’t face as much as public businesses. They are less likely to need to report on their DEI numbers, on their culture, on the workings of their Boards, on their gender pay gaps, on their contributions to environmental standards, etc. While this could easily be argued to be a way in which they can be more agile, however, in my experience, the opposite is true. The lack of regulation means that decisions that might have been made some time ago can be slow to attract the (family) leaders’ attention.

Canada’s grocery stores have recently had their pricing practices in the news. The sector has a large percentage of private ownership. That private ownership may be behind the issues. It can mean that their approach is less transparent and less frequently analysed.?

As a great person once said: You need to take your ideas out into a public square and have them beaten about every now and then.

The Opportunities for Family Businesses

Some readers may already have looked at some of the challenges and seen how they could also be opportunities. The reverse will potentially be true for the list that follows. However, below are aspects of the being a private, family business that I very much admire. I believe these concepts allow the companies to do exciting things that their private counterparts cannot.?

Investment

Family businesses can look at things differently from public companies. They can make better investments in the business: in people, in customers, in operations. When they choose to put money into something, and be comfortable that they won't have to answer questions the next quarter as to how it is paying off. They can decide more easily on the merits of medium-term and longer-term investments. Investments can be made on their merits alone.

Timelines

No surprise then that timelines are more favourable for private companies. Sometimes these firms can even think about making generational investments -- investing in things that won't pay off until their children are running the business. In our daily lives we make so many decisions like that. It is sobering, and a bit frightening, to think that businesses cannot. There are many, many examples of big bets that didn't kill it at launch. (Apple? Airbnb? Spanx! Starbucks.) Time gives everything more opportunity to grow.

Most businesses are not an over-night-sensation. Private companies -- and interestingly, Private Equity -- can take a longer view.

Strategies

I like to make strategy very simple. There are lots of opportunities to make things complex, so why not start simple? A strategy answers three main questions:

1. Where are we now?
2. Where do we want to be?
3. How are we going to get there?

If you think about what we have just discussed in terms of investment and timeline, it is clear that strategies are much, much easier to set and follow in private businesses. It makes me happy just thinking about how much easier they are.

Implementation

Having the resources to invest, taking the time to do it right and following a solid strategy means that the implementation of change programmes in private, family-run businesses is just easier. And so it should be.

So much so that you might argue that Frederick?Winslow?Taylor has a lot to answer for when he opined about Scientific Management more than a century ago.

Dividends

I do need to be careful how I say this. It's not done to be anti-markets these days... and I am not saying that. But another great joy of private, family-owned businesses is that more of the people involved in making the money actually get to keep it. That is a vote-getter, I suspect, for owners and employees alike.

I will leave it to you to decide what this all means. It is probably obvious, but in in a wide-ranging career, in which I have been lucky enough to work with some great family businesses, I have never found them anything less than fascinating. The construct, and the way that they operate, is refreshing in many ways.

I'd like to do more work with family businesses.

Maybe I need to dust down that book outline again.

All the best.

/df