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7 Reasons Why What Makes Family Businesses Weak Also Makes Them Strong

In her presentation at the annual LIFT conference for technology and design in Geneva, Ramia Marielle El-Agamy, Editor-in-Chief of Tharawat magazine, showed just how prevalent and how important family businesses are around the world.

Across Europe and Asia, the percentage of family-owned businesses in an economy ranges from 60-90 percent (see: Family Businesses Around the World).

Why such high numbers? El-Agamy explains that there are a range of family businesses. A family business can be a publicly listed company, but controlled through shares by a single family (see: The 10 Largest Family Businesses In The U.S.). On the other hand, a family business can be one which is owned and controlled by the same family who founded the business. Each family interacts with their environment and industry to build a business around its traditions, value and talent, in their own way. Yet despite their uniqueness, El-Agamy highlights seven strengths and weaknesses family businesses have in common and what we can learn from them.

 

7 Reasons Why What Makes Family Businesses Weak Also Makes Them Strong

1. Family businesses are more international

El-Agamy would make us suspect no less. She is a Dutch-Egyptian living between Switzerland and Dubai. On average, 49% of family business revenues come from outside their home region, versus 45% of revenues at non-family-owned businesses, a study found. While this is a positive attribute, it may lead to challenges in balancing local versus international expansion, and, depending on the industry, adapting the local brand to an international audience.

2. Family businesses are known to have a long-term orientations

This can be a negative attribute, raising companies’ risk-aversion and making them insensitive to short and medium-term opportunities. On the other hand, thinking long-term may make companies more sustainable (see evidence from Harvard Business Review and Ernst & Young: Do family-owned businesses have a sustainability advantage?, and remarks from World Wildlife Fund’s Director General: Five Levels of Environmental Action). One study found that family-run businesses are more likely to have leaner cost structures, higher bars for capital expenditures and avoid leveraging as much as other non-family-business-run firms. El-Agamy also highlights the advantage of having a more stable company strategy which takes into account the next generation of workers.

3. Family businesses are driven by their reputation

In their struggle to maintain a rock solid reputation, family businesses may limit access to company information and establish strict policies reducing company transparency. In today’s uber-connected world, which strives for authenticity, showing a human side is essential for growth and connection (see Brené Brown’s TED talk on The Power of Vulnerability). If family businesses can maintain the benefits of uniting all stakeholders under a single goal of protecting the business’ reputation, while still being vulnerable and open from time to time, they have struck a good balance.

4. Family structure defines decision-making processes

If the family structure is very patriarchal and strict, El-Agamy warns that decision-making within the firm can quickly become a one-person game. However, if there is healthy interaction and push-back between the family members, existing family structures can be a sound foundation for decision-making. Companies invest time and money into training managers to gain trust and build an engaged team. If a family business already has these elements then their business is a step closer to effective decision-making and execution.

5. Family businesses require high emotional commitment

Family businesses require high emotional commitment (see previous infographic on Emotional Ownership); it is no secret. Often expressed as love for the business and for the family, high levels of emotions can prevent members from seeing the truth about a situation. “Love is blinding,” El-Agamy says. However, as she explains later on, the amount of love her father has for her, and the amount of trust within her family, enables her to go beyond what she thought she was capable of achieving. Perhaps this explains why one study found that family-businesses retain talent better than their competitors do.

6. Family-businesses are value-driven and internally orientated

El-Agamy says family businesses are value-driven and internally orientated, which can sometimes prevent the firm from adapting to external, market conditions. As a whole, family businesses tend to acquire less and smaller companies, supporting the idea that a values-fit is highly important for families. If families can balance an internal and external outlook, then they will be better able to leverage the full benefits of being a values-driven brand.

7. Adopting new technology or choosing to forgo change can make or break a family business

Technology can be both an opportunity and a challenge, but as El-Agamy argued, it is vital to adopt in a quickly changing world. Technology is usually seen as something which can deepen existing gaps between the generations, go against tradition, and, depending on the society in which the business operates, pose cultural challenges.  On the other hand, technology is important for innovation, growth and creating employment for the next generation, a highly important consideration for family businesses.

Watch Ramia Marielle El-Agamy’s presentation at the 2014 Lift Conference: Translating the Family Business.

 

Nettra Pan is a blogger for The Entrepreneurs’ Ship. Her research interests include entrepreneurial education, meaningful work, and sustainable development. She can usually be found in Lausanne, Switzerland, thinking about sustainability, or on Twitter @nettra.

3 Comments join the discussion

  1. […] 2. The Reputation of A Family Business Cannot be Separated from the Family’s Reputation When it’s your last name emblazoned on company headquarters, cars, shops, uniforms, the reputation of a family business is inextricably tied to the people behind it. The founder is often the face of the brand. As a result, family business owners do not have the luxury of ignoring the interdependence between business and society, and are naturally incentivized to think beyond the mere legal requirements for polluting, or for treating their staff. Their impact on society as a business and as a family are one (see item 3 on our previous blog post What Makes Family Businesses Weak Also Makes Them Strong). […]

  2. […] 2. The Reputation of A Family Business Cannot be Separated from the Family’s Reputation When it’s your last name emblazoned on company headquarters, cars, shops, uniforms, the reputation of a family business is inextricably tied to the people behind it. The founder is often the face of the brand. As a result, family business owners do not have the luxury of ignoring the interdependence between business and society, and are naturally incentivized to think beyond the mere legal requirements for polluting, or for treating their staff. Their impact on society as a business and as a family are one (see item 3 on our previous blog post What Makes Family Businesses Weak Also Makes Them Strong). […]

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Nettra Pan

My name is Nettra. I am a doctoral researcher and teaching assistant at the Chair of Entrepreneurship and Technology Commercialization, led by Professor Marc Gruber at the Swiss Federal Institute of Technology in Lausanne (EPFL). My research focuses on organizational identity, innovation communities, and entrepreneurship in emerging markets.

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