Family businesses tend to bring to mind small mom and pop enterprises that make a profit but aren’t necessarily industry leaders. True, you can find mom and pop at the helm in many family owned and operated businesses. But an analysis done by Boston Consulting Group found family controlled businesses account for more than 30% of all companies with sales over $1 billion. So, mom and pop are doing pretty well for themselves.
What contributes to their success? Is it family values? A strong work ethic?
According to an analysis done by research analysts with the Center for Management and Economic Research at École Polytechnique and the Harvard Business Review, there is much more at work behind the success of family-owned businesses in the U.S. and globally. Their analysis showed family businesses have many unique attributes that set them apart from their other corporate counterparts and contribute to their success.
Here’s a brief review of what they found
- Family businesses think and act in terms of longevity, making investment decisions looking at a minimum 10-20 year horizon and thinking multi-generationally, instead of just what’s needed right now.
- They make prudent financial decisions often forgoing big returns available during good times in order to increase their odds of survival during downturns.
- They are more conservative when it comes to their investments seeking only strong investments that are almost guaranteed on their returns, again sometimes forgoing the big wins in exchange for consistent smaller wins.
- Family businesses take on less debt, 37% on average v. 47% for non-family business endeavors. Note this doesn’t mean no debt, but they tend to be less leveraged.
- They diversify. The analysis found that family businesses diversified more than those with traditional corporate structures. Diversified businesses are more flexible and tend to pull ahead in leaner times.
- They embrace global expansion. This brings vulnerability as well as potential. Family businesses tend to be more international, and that pays off in the long run.
- They have a lower employee turnover rate. Talent sticks around, productivity increases, company culture strengthens, and the feedback loop continues. Employees really believe in the power of the team effort. Most importantly here, they don’t rely on financial incentives to keep team members. Instead they focus on creating a culture of commitment and purpose, avoiding layoffs during downturns, promoting from within, and investing in people.
These attributes complement each other and when combined have an effect that is greater than their parts. Resilience is the key over performance when it comes to family businesses. Whether family owned or not, your business may be able to adopt some of these attributes for success. If you want to prudently plan for your business’s growth, start by sitting down with us. As your Creative Business Lawyer®, we can help your business integrate some of these traits for success.
We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.