Bookmark this page
Send to a friend
Print this pageSuccess factors
What helps family businesses to succeed?
A number of surveys show that family businesses tend to outperform. What factors lie behind their strong relative performance?
First, some facts on performance. In Europe, only 8% of all firms in 2003 had a turnover greater than 2 million euros and more than 10 employees*. Yet the 2007 FBN Family Business Monitor found that the percentage of family businesses with a turnover greater than 2 million euros was generally higher, particularly in Italy (18%), UK (16%) and Finland (15%).
Worldwide, family businesses generate large proportions of Gross National Product (GNP). They account for between 65% and 82% of the GNP of Asia, between 50% and 70% of the GNP of Latin America, and about 40-45% of the GNP of North America**.
The following factors for the success of family businesses have been identified by Peter Leach in his book 'Family Business - The Essentials':
Long-range thinking
Shareholders in public companies often want short-term results. They want their $6 stock to turn into a $10 stock so that they can feel richer and sell at a profit. If their $6 stock turns into a $4 stock, they feel upset and may give up on the company. So public companies have an interest in making the next quarter's results look good.
In contrast, privately-held family businesses are often better at thinking long term. The time horizon is not the next quarter but the next generation. There is no panic when dividends are lower because of higher reinvestment. Also, the family may well be happier to hold on to investments that show a loss on paper, trusting that in the long term they will become even more valuable than before.
They may choose to take
no money at all during tight periods 
Flexibility in work, time and money
'Normal' families have a fixed income - often a salary - and their choices are around how to spend that income. In contrast, entrepreneurial families can be flexible about how much income they take from their business. They can choose to take more in good years and less in bad years. Maybe they will not take any money at all during particularly tight periods.
This flexibility is a great advantage over other types of companies. A public company may feel the need to maintain high dividends whatever happens, in order to maximise total shareholder return. In doing so, they have to ignore once-in-a-lifetime investment opportunities that a more flexible family business could grab with both hands.
Flexibility in time is also a valuable advantage. Family members are often happy to put in extra time when needed because, as owners, they will gain benefits in the long term.
Knowledge
When people stay longer in the same business, they can build up greater knowledge. This is to the advantage of family businesses where the average family CEO is in charge for an extended period.
Knowledge can also be acquired in a different way in a family business. Children know about the business from an early age and so, even early in their career, can have a deep understanding of how their family business works.
Speedy decisions
In some family businesses, just one or two people have the power to make decisions. For example, a CEO who also owns a majority of the shares has a great deal of power within the business. As a result, decisions can be made faster than in other companies where power is split between different functions and board committees.
This may well be an advantage where speed is vital in maximising competitive advantage. On the downside, sometimes decisions can be too speedy and reflect the whims of the leader, not the considered strategy of the whole team.
Family business culture and values
Entrepreneurial families with clear values, principles and goals give their business a strong foundation for long-term competitive advantage. This is particularly important in periods of change, such as economic downturns or changes in leadership.
Predictable problem resolution
If you know the future, you can prepare for it and gain a competitive edge. In family businesses, the same type of issues keep coming up again and again - so it's possible to prepare for them well in advance. This offers an advantage compared to other types of business with less predictable problems.
Owners are happy to commit far more time and effort
For example, the retirement or death of the first generation is entirely predictable in the long run. So it's possible (though not always easy) to resolve issues about succession years in advance, helping ensure the health of the family business.
Predictable issues fall into three areas:
- Personality - conflict between individuals undermines the business;
- Structural - there are no effective structures for the family to take decisions about the business;
- Business - performance is suffering and no-one knows if it's due to commercial or family factors.
Commitment
It's easier to feel passionate ownership for a business if you really do own it. Owners are happy to commit far more time and effort to the success of their business than they would to a normal job.
If the family are enthusiastic about the business, it encourages similar commitment from other workers. The culture becomes one where people care about their work and feel part of a team, working towards a shared vision.
Reliability and pride
People who are proud of their family name will also want to be proud of the business that carries their name. If your name is on the door, you want to live up to expectations. Not to care about the business would be like not caring about the family name. Small wonder, then, that family businesses put great value on being reliable and take pride in their work.
A stable culture
If a family business is in its third, fourth or even tenth generation, there has been plenty of time to develop a strong and stable culture. People know how things are done; people know each other (and perhaps knew their parents too); people value the traditions and continuity.
A stable, long-established family business has an advantage that is difficult to copy: it has a great heritage. Customers can buy into the heritage of a 100-year old business and feel they are getting something extra.
Of course, public companies can try to build a similar heritage - but it will take them 100 years to do it!
Find out more:
For further data on the strong relative performance of family businesses, please visit the online library at www.fbn-i.org. This includes the FBN Family Business Monitor 2007 which provides figures on turnover and number of employees of family businesses in eight European countries.
*Source: 2003 Observatory of European SMEs, published by the European Commission's Enterprise Directorate General.
**Source: International Family Enterprise Research Academy, 'Family Businesses Dominate' (2003)
In this issue
Yin and Yang
How siblings with opposite personalities can work together
Catch them young?
Involving children in the family business
Fair dividends?
The balance between dividends are reinvestment
Father-son rivalry
The story of GROHE AG