The 2023 EY and University of St. Gallen Family Business Index states that, if the 500 largest family businesses together formed a separate country all their own, they would comfortably come in at a third place in the $19 trillion-dollar club (behind the U.S. and China). There is no denying the role that a family business plays in powering economies—and we’ve got the staggering figures to prove it.
Also, family-owned businesses account for 64% of the U.S. GDP and have a hand in creating 78% of new jobs. Those are clear markers of their impact, and the need to ensure they continue to thrive.
Fighting the Odds
So, in a fraught business landscape where 66% of new businesses fail to hit the two-year mark, what is it about family-owned enterprises that seem to defy the odds? Facts do suggest a certain staying power, the ability to endure, and survive over generations. Family businesses have long dominated lists of the world’s long-lasting companies. Think Michelin Tyres, Estee Lauder, Citigroup, Walmart—the list is packed with powerhouses that last over decades if not at least a century (maybe more). That’s no mean feat. The U.S. alone has over 150-year-old family enterprises spryly moving into the 21st century.
But what is it that gives the family business the proverbial elixir to survive successfully? How do they do it?
The thing to understand about the family business is that it is just one spoke in the wheel, albeit the most important one. Professor John Davis, an academic, author, and pioneer in the field of family enterprises, described it clearly. A family enterprise consists of the entire range of activities that the family is engaged in. That includes the business, of course, but other aspects as well—philanthropic activities, sustainable initiatives, community initiatives, etc. This ties members together. And this also drives home the point that family business, an established one at least, extends beyond just family. It drives communities, powers economies, and even builds cities and towns. And that is what makes a family enterprise significantly singular for countries across the world. For them, it’s about creating value, not just for immediate family, but in the larger scheme of things.
How do Family Enterprises Survive Over Generations
And that means that the bottom line or that big lucrative deal is just one part of the bigger picture. Family businesses play the long game—it isn’t so much about the next quarter as it is about the next generation. Thus, they create an enterprise of deep value capable of growth over several years. To do that, building strong roots is what matters. To cultivate and groom the next generation, evolve with changing times, stay relevant, and contribute to society are equally important.
This makes sense in the face of the optimism displayed by family business owners during the pandemic. A December 2020 Harvard Business Review survey of family businesses had them speak to 140 people from five continents spanning over 25 industries. Of the respondents, 68% were optimistic that operations would improve post-Covid.
What’s unique and noteworthy is that a family business emphasizes creating a business culture based on values—where business, family, community, and society are all important.
All for the Family
Given the outsized role of family businesses in elevating economies and generating employment, it is in everyone’s interest that they flourish. Even the quartet of the world’s foremost financial companies acknowledge their role. So much so that all four—EY, PwC, Deloitte, and KPMG—have a department dedicated to family-owned enterprises. They do everything from providing advice on succession-related issues and governance to the best-suited structure for the company to thrive.
The EY Family Enterprise DNA Model offers a comprehensive look at the various features of family businesses that need to be solidified and strengthened to help them succeed.
The endeavor of all these departments lies in acknowledging the unique challenges that family businesses face and customizing solutions that help business owners address these factors. Moreover, the idea behind these specialized wings is to help family businesses navigate everything from growth and governance to wealth management. Therefore, the aim is to ensure a seamless transition of ownership from one generation to the next, and nip potential risks in the bud.
Not Without its Difficulties
None of this is to say that family businesses never fail. They do. Moreover, the challenges they face have an emotional dimension; that makes things more fraught. Feuds, resentments, and jealousies can certainly crop up and often run deeper in a family business. In essence, that could be a reason why only 12% of family-owned enterprises survive from the second to the third. A large reason for this could be that 47% of business owners who expect to retire in five years don’t have a successor in place.
How to Run a Family Business Successfully
To replicate the success of a Ford or an Estee Lauder, therefore, there are some key areas that family businesses should adopt.
1. Have a Succession Plan
The transition of power to the ‘heir’ is vital to the health and continued success of a family business. Helping them learn the ropes, get the hang of leading a company, and get everyone used to the presence and leadership of a new person at the top of the pile is very important.
2. Open Communication
Talk to each other, air doubts and problems, and find solutions. Open channels of communication are probably underrated, but their value is undisputed. It can help clear misunderstandings and build a healthier working environment.
3. Innovate and Adapt
‘Change being the only constant’ is a common refrain for a reason. Simply because it is. Adapting the way that you do business, embracing technology, and staying in step with the rapid pace of change is essential for a business to flourish.
4. Establish Good Governance
This requires that you appoint leaders from outside the family pool to get an objective perspective on the running of things and ensure impartial oversight. This generally means putting in place a board of directors, an advisory, or a supervisory board, with non-family representation outstripping family reps.
5. Be Employee-Oriented
Paying attention to the needs of the employees, looking after them, and being invested in their success engenders loyalty.
6. Bring in Outside Talent
There’s a lot of talent out there, and giving skilled professionals an opportunity is essential for a company to succeed, and sustain itself over the long term.
7. Customer Perspective
To be fair, this reason for business success has more to do with customers than family business owners. An interesting study by the Psychology and Marketing Journal stated that one of the reasons for the success could also be attributed to customers, who, it seems, tend to trust family businesses more!
Keeping Family Businesses Afloat with Emeritus
It may seem unlikely, but it is, in fact, possible to learn what it takes to persevere and succeed as a family business. If you know where to go, that is. The Columbia Business School’s Family Enterprises and Wealth Program, in collaboration with Emeritus, offers an online platform for participants to learn just this. You find ways to navigate the delicate network of interactions within a complex family enterprise, learn integrative thinking, and how to implement policies that ensure long-term success. Additionally, the six-week course also looks at strategies that help preserve and grow family wealth. Also, you get to explore ways to make a lasting, positive impact in the community. Meant for family members, advisors, and those who wish to advise such family businesses, the program is discreet, focuses on soft skills, and traverses complex matters with acuity and insight. Essentially, it’s meant for those invested in the family business.
By Gauri Kelker
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