Why are they becoming more successful? While managing family businesses is challenging, it is also rewarding thus the future looks bright – is it true?
The impression we usually get from family run businesses is more negative than positive. Things such as these companies being less formally run, common power struggles and impositions, being profit centered, and similar issues come to mind. However, many of the big businesses that have been profitable for years are actually run by families. Most family businesses are geared towards growth and expansion. A lot of them have attained optimal economies of scale in a single generation. That success remains true now.
In the UK, 1 in 10 large companies are run by families. The number of small and medium scale companies run by families is growing in number, too. Family run corporations contribute a significant amount to the nation’s domestic product and to the economy. These families are well respected and praised because of the large number of jobs that their companies offer to people, giving them stable salaries and security in pension plans. The numbers for family corporations are expected to go even higher; with a relatively higher percentage of jobs provided compared to other companies and the higher employee turnover associated with the latter.
Future prospects for family businesses include improving the quality of their workforce, investing in new machinery, regional expansion, and diversification.
There are a few factors common to family-run businesses that may help attain these objectives.
Outside investments bring with them a certain pressure for any company invested in to bend or compromise with the interests of the outside investors. In any case, investments are not free but come with a price that must benefit not only the recipient but also the donor, so to speak. This is not so applicable to family companies, because the way these businesses think is in terms of prolonging a business to span generations. They build enterprises that must last generations to benefit their children and grandchildren. Thus, they are very wary in attracting additional investments as they not only lessen their ownership of the company they have worked hard for, but also forces them to relate to people with whom they are not comfortable working.
With regards to the employees, working for family corporations also has its marked advantages. With better standards of living, people nowadays no longer aim just for survival. Many people can live comfortably across different jobs. What makes a difference now is whether they are happy working for a company or not. A lot of research relates job satisfaction to an employee’s ability to contribute to a noble purpose. This is now a plus for family businesses because the leaders of the company espouse common family values that are imparted to employees.
Further, family corporations tend to run flat organizations and employees have a more direct connection to the business leaders. There is less bureaucracy, thus decisions are also made faster. Their companies do not have to fix the schedules of numerous investors in order to arrive at important decisions. Response to market conditions is thus faster for family-run companies. Moreover, family members take care of business strategies, most of the time. The company executives are then focused on dealing with their operational tasks while the owners of the business strategize to protect their family’s investment.
In relation to values, family-run businesses are more likely to make more environment-friendly and community-beneficial decisions than other corporations. All their business decisions reflect on their personal reputation in their social circles and the place of their residence. Any negative image attributed to the company is also attributed to them personally. Therefore, families who own businesses tend to weigh in the interests of stakeholders in their strategies more than other businesses.
Family business, nevertheless, must always evaluate their way of doing business. They should be careful not to be trapped in the same pitfalls associated with family-run enterprises. Some owners of family corporations tend to stay in leadership too long and as a result their more conservative approach shuns innovation and new technologies. They do not want to be dictated to by the younger generation, who in turn are also very respectful and submissive given the success of their predecessor. At times, it is also hard to separate family matters from business decisions. Decisions in family businesses tend to be more personal and subjective, at times, at the expense of favouring less deserving employees over the more talented ones.
It should take a healthy balance between these advantages and disadvantages to push family corporations forward.
Beata GREEN is Director of HeadChannel Ltd., London based bespoke software development company. She is responsible for overall strategic direction and overseeing the company’s continuing growth, building closer client relationships and maintaining best working practices. She enjoys brisk country walks with her red fox labrador and then relaxing in front of a TV crime drama with a glass of red wine.