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Attributes of a Family Business

Attributes of a Family Business

Big businesses run by wealthy families are a dominant organizational form worldwide. Over 75% of all registered companies in the industrialized world are family businesses (OECD). In the United States, about 83 percent of Small and Medium Enterprises (SMEs) are family-owned.
BusinessZeal Staff
Well-known Groups

Fiat Group (Italy) - Agnelli family
Grupo Modelo (Mexico) - Diez Fernandez family
IKEA (Sweden) - Kamprad family
L'Oreal (France) - Bettencourt family
McCain Foods (Canada) - McCain family
Samsung Group (South Korea) - Lee family
Tata Group (India) - Tata family
Reliance (India) - Ambani family
The Gap (USA) - Fisher family
Wal-Mart (USA) - Sam Walton family
Distinguishing Features
  • A cohesive force usually exists behind the management of these organizations, providing a strong sense of mission and a shared vision ideally cemented by loyalty and commitment.
  • The benefit of low capital costs allows them to adopt long-term business strategies or to exploit market niches, which are not sufficiently profitable for larger businesses.
  • They own long-term perspectives, saving and reinvesting capital, and viewing the business as a legacy of heirs. Hence, pressure for short-term profit is reduced.
  • Their attitude is inward looking. Decisions are based on emotions rather than commercial grounds.
Family System vs. Business System

Inward looking vs. Outward looking
Emotion based vs. Task based
Unconditional acceptance vs. Unemotional
Sharing vs. Reward performance
Lifetime membership vs. Perform or Leave
Averse to change vs. Embrace change
To nurture vs. To generate profits

Birth and Initial Expansion

Worldwide statistics show that the mortality rate among small and middle-size businesses is about 15 % at the end of the first year of existence, and 23 % after the second.

A newly created company demands a great deal of effort, time, energy, and devotion, just like a newborn baby. New companies have a propensity to have high operational costs and low profits, while the turnover is rather modest and still unpredictable.

The growth of the company depends on its promoter's attitude. As the driving force of the company, he or she takes all the decisions and assumes all the economic responsibilities. As the company grows, more employees are hired in its dynamic team. Values like trustworthiness and loyalty are imparted as their belongingness with the company grows.

Growth and Complexity: Development Through Generations

A crucial period for a family business is during its expansion. There will come a stage when the family or existing management does not have either the skills or sufficient time to manage the business effectively. At a crucial time like this, external management should be introduced. In this stage, the promoter must delegate tasks, allow others to take over vital functions in the company, and hand over the power of decision-making on to others.

The typical stage of development for a family business, as it passes on from generation to generation, is when the founder passes the business on to his or her heirs. The founder must be prepared to gradually let go of his direct influence, in exchange for indirect influence through his leadership.

Maturity and Sibling Rivalry

As the business 'matures' and the promoter grows older, the next generation has to take over some of the responsibilities. During this shift, it is very vital that there is no conflict between siblings, as to who is awarded with what position in the business. However, primogeniture, the phenomenon of favoring the first born is often evident in big business families.

Conflict may arise from a parent's wish to treat children equally. The founder has to then consider a fair distribution of property and the delegation of the management among all the heir's, in such a way that the continuation of the company is not endangered.

The basic rule that should be followed is: what is good for the company is good for the family.

Principles of Managing a Family Business
  1. Family business does not necessarily mean unprofessional business.
  2. Accept emotions and personal relationships as unavoidable elements in the rational world of your company.
  3. Accept the synchronicity of the family and business life cycle.
  4. Keep family and business separate, whilst knowing that they are both sides of one coin.
  5. Accept help in order to avoid blindness for family and business affairs.
  6. Respect the loyalty of 'non-family family'.
  7. Give the company a chance.
  8. Succession is a coin with two faces: hereditary succession and management succession.
  9. Succession preferably implies a (mental) de-familiarization.
  10. What is good for the company is good for the family.