When we say family business, the first thing most of
us envisage or visualise is a small or mid-size company with local-market focus
and concentrating on one-business space, at the same time companies having
similar problems such as arguments over succession-planning. Now wait a minute
before you continue with same notion. Think about the top big companies.
Walmart, Ford, Samsung, LG, Fiat, News Corp, Tata Group, Marriott, Reliance
Industries and Cargill – these are few companies tasting success globally and
are family businesses. Few of them have thrived in diversifying selling from
salt to software and from textiles to vehicles.
Let me give few more facts which may reveal more things. Family
firms account for up to 90% of businesses in the world - and in several nations,
these companies are a strong and durable support of the economy. The
contribution of older, long-established family firms to a nation's economy is excessively
greater than that of many public firms. As per BCG, the family firms contribute
more than 30% of all companies with revenues exceeding $1 billion. A
Morgan Stanley study shows that family firms generated Return on Equity of
18.5% as compared to 14.1% from non-family corporations. The sustainability of family businesses is another
feature. Few of the oldest companies are family owned business e.g.
Faber-Castell (8th generation), Moller Group (7th gen),
Kongo Gumi (46th generation, Japanese construction company), Barone
Ricasoli (Italy) – many of these being more than 500 years old. All these
evidently establish the fact that the family-controlled firms have a very
strong and dominant role in the global economy.
Even less than 30% of family-run enterprises are
successful to survive to second generation and the figure comes to a low 10%
from second to third generation. Despite this, these figures are far better
than small businesses not controlled by family. Though family run businesses also
deal with routine issues that emerge around turf battles, they also have
additional problems – such as succession issues, dealing with family discord. John
Kotter in his book “Leading Change” also touches upon the challenges faced by
the people who lead family businesses.
Lets gradually look deeper into the functional operatives
of the family controlled enterprises which have led to their tremendous
success. Family businesses concentrate more on survival than performance. They sometimes
relinquish the excess earnings available during heydays in order to increase
their possibility of survival during rough times. While non-family businesses focus
more on performance that too short-term performance. The family businesses
often invest with a 10- or 20-year horizon, concentrating on adding value for the
next generation. Apropos expenditures, the family run companies have more prudent
and economical cost-structures which explain that most family businesses enter
recessions with leaner cost-structures. This
also elucidates the reason family-run enterprises always maintain low debt
ratio. Family businesses believe in the organic growth and generally do not
prefer acquisitions that too of big companies and into different business. A study reveals the rate of acquisitions of non-family
run enterprises is almost double to that of family-run enterprises. It is
common myth that the owners of family-businesses are conservative people. Well,
the family businesses do always keep an eye on diversification. On one hand
companies such as Ford, Michelin, New Corp and Walmart still continue to focus
on their core-business while on other, there are companies – Cargill, Tata
Group, Hyundai Group and LG – epitomise diversification. A study shows that 46%
of family businesses are highly diversified while the same figure is mere 20%
for non-family businesses.
Honestly, it is really tough to
answer whether any business is more enduring or universal than a family
business. In his book “Centuries of Success”, William O’Hara very aptly
commented ““Before the multinational corporation, there was family business.
Before the Industrial Revolution, there was family business. Before the
enlightenment of Greece and the empire of Rome, there was family business.”
