The Family Business Model: What Can We Learn from It?

Over 80% of private sectors companies in the UK are family businesses, with the majority of them being small – micro in some cases – and medium enterprises. Even though they represent an important source of revenue for the country’s economy and they are the backbone of its productive system, we sometimes underestimate their importance because, unlike their bigger counterparts, they often fail to make the headlines.

Over the last few years, many family businesses have demonstrated their ability to face the challenges presented by the financial crisis and its aftermath; in many cases, showing more stability and resilience than non-family owned organisations.  As a result, we are increasingly looking at the family business model as a source of best practice in the attempt to create a strong organisational culture and a high-performing, motivated workforce.

All else being equal, which are the key strengths of a family business that other organisations should try to reproduce to get more sustainable results, especially during negative economic conditions?

Strong identity. When it comes to family businesses, the company culture is usually deeply linked to the values and beliefs of its owners. The achievements and reputation of the company are the success and legacy of the family. This alignment – which, at times, can go as far as one or more family members embodying the vision and philosophy of the business – positively affects customers’ perception and engagement with the brand and its products. Family businesses are rarely seen as impersonal organisations only aimed at increasing their bottom line and keeping shareholders satisfied.

High level of engagement. Even though levels of family involvement can vary considerably within the family business segment, these companies often benefit from the dedication and commitment of one or more family members who take pride in developing a successful business by investing both their time and money

to encourage its growth and improve its performance.  Seen as a sign of reliability and strong management, this level of commitment has a positive impact on the perception that both internal (employees) and external (customers, suppliers and the wider community) stakeholders have of the business.

Continuity and long-term strategic planning. At their best, family businesses can count on a stable management that benefits from the skills, knowledge and experience of multiple generations. In most cases, older members of the family prepare the next generation and provide them with the support and tools they need to guarantee a smooth transition, the retention of essential knowledge and the leadership continuity needed. Being more aware than other organisations about succession issues, family businesses usually make sustainable, long-term plans to minimise the impact of future leadership transitions and of any other disruptive change.

However, not all family businesses are success stories. They also present a unique series of challenges that could threaten the survival of the company. Unlike other organisations though, they are affected by problems that, being mostly linked to their nature, are somewhat predictable. The same elements that create their success can turn into their worst downfalls. If not identified and addressed in a timely manner, issues like family feuds, emotional management and lack of structured governance can all affect the running of the company and damage the relationship between its stakeholders, both internally and externally. Similarly, some family businesses are unable to cope with organisational changes like growth and leadership change due to a lack of governance or of an appropriate succession planning.

This means that, even more so than for other organisations, it is essential for family businesses to count on a strong leadership that is able to identify and find the right balance between the interests of the family and those of the wider business, especially when they are not aligned. Though highly important for the stability of a company, the involvement of family members adds an additional layer to the management approach: due to the deep correlation existing between the fortunes and reputation of the family and those of the business, decisions can sometimes be made in an emotional way that ultimately might clash with the success of the business.

So, when it comes to leadership, what are successful family businesses doing well?

Use a lead-by-example style. The traditional family businesses leadership style is often associated with a hands-on approach. When not taken to the extreme of micromanagement, the ongoing hard work and commitment of family members is a great source of motivation, loyalty and increased productivity among employees. It also generates a sense of belonging and shared values. In such an environment, employees are treated like trusted members of the ‘family’ and feel deeply involved in the success of the company.

Combine innovation and a cautious business approach. Family businesses are the result of the vision and entrepreneurial spirit of its owners; this usually means that they continuously look for new product ideas and services that can strengthen their identity and make them stand out from their competitors. On the other hand, even though they understand the importance of innovation, family businesses generally adopt a more cautious attitude towards change. Low risk, incremental growth and focus on long-term results are preferred to disruptive, revenues- driven strategies.

Create structured processes but without sacrificing their flexibility. One of the benefits of the direct involvement of family members – especially in small and medium organisations – is the creation of leaner decision-making and implementation processes. This results in an improved response time to market changes and, as a consequence, in a powerful competitive advantage. At the same time, family businesses also need to create well defined roles and responsibilities at all levels of management and put in place clear plans and processes in order to avoid the lack of a structured governance system and high levels of informality when it comes to processes.

Welcome non-family members at governance level. The involvement of non-family members provides a less emotionally-involved perspective and becomes key when the interests of the family and those of those business might differ or there is no agreement within the family. It also helps increase motivation and commitment among employees because it shows that decision making is not exclusively reserved to the family members.

As an independent project manager and consultant, Valentina Lorenzon helps companies implement change and advises clients on strategic decisions like, for example, the development of new products, markets and propositions. Valentina is experienced working with companies of all sizes across different sectors and, has specialist expertise in supporting SMEs and family businesses.  Get in touch here.