The Family Business
The family business is a hallmark of modern society. From the dawn of extended trade networks and integrated markets families were always the first units to go into business together. While family businesses are usually thought of as small some of the largest businesses in the world have roots in a family enterprise. Think of families such as the Rothschild’s who started a family run banking operation in Europe and grew to be the richest family in the world. The Medici is another famous family that comes to mind. The Medici essentially invented the modern banking system in accident Italy. The list goes on. While family businesses are not as practical or as common as they used to be family run enterprises still are a large component of our modern economy. “To many, the phrase “family business” connotes a small or midsized company with a local focus and a familiar set of problems, such as squabbles over succession. While plenty of mom-and-pop firms certainly fit that description, it doesn’t reflect the powerful role that family-controlled enterprises play in the world economy. Not only do they include sprawling corporations such as Walmart, Samsung, Tata Group, and Porsche, but they account for more than 30% of all companies with sales in excess of $1 billion, according to the Boston Consulting Group’s analysis” CITATION Ala12 l 1033 (Alain Bloch). This quote really sums up how important family businesses still are to the global economy; it also hints at some of the downsides. This paper will explore the gains and downsides of the family business.
The major advantage of a family owned business is loyalty and trust. There is no question that this is a major reason that so many family businesses get started. In the business world it is very hard to find people that you can trust and will be loyal. This is usually a major benefit of family run businesses. You can trust your family to a level that you just can’t trust strangers. With large companies the issue of trust is not such a big deal as they have so many bureaucratic processes set up to deal with it; however small businesses often have no remedy for lack of trust. In a small family business setting you often have no choice but to leave someone with access to the till and the business profits. If they steal money you might never know. These situations are very hard to deal with and a small business often simply can’t afford to have someone they can’t trust work for them. Especially when a business first starts, this is a period where you need to be able to trust employees. When a company is bigger and has other processes in order it isn’t so mandatory. In summary: the major gains are trust and loyalty. It is trust and loyalty that makes many small family businesses thrive; at least at first.
“Management problems in a family business owned are somewhat different from the same problems in a non-family business. When close relatives work together, emotions often interfere with business decisions” CITATION Biz15 l 1033 (Bizmove). The above quote sums up the major downsides. Simply put family businesses often lead to conflicting interests. The rate of turnover in family business is much lower than other businesses. This can be a good thing but it can be a bad thing. Imagine having to fire your son or daughter. As you can well imagine it isn’t an easy task; some might say an impossible task. While you get extra loyalty the situation is also rife with emotional tension that can spillover at any point and hurt the business. As the quote in the introduction suggested a major problem can also be struggles over succession. Who gets to take over? Making this decision can lead to serious tension and long run problems. The business might never survive the struggle. The bottom line is that running a business with your family leads to a multitude of conflicting interests.
Another clear, but perhaps, less apparent major downside is a lack of competitive advantage. “Most family-owned businesses—approximately 70%—last just one generation” CITATION Bor14 l 1033 (Bell). The reason most people start any business is because someone is very good at something. However if your dad is good at something it certainly doesn’t mean you are. While the person who initially started the business may have a distinct aptitude for the tasks involved this can degrade generation by generation. You end up with people doing a business that they never would have started in a million years on their own. This leads to many family businesses getting run into the ground. Ideally the business should open up and let outsiders in but this often conflicts with the ideal of the family business. This can start many of the feuds and tensions we just talked about. The reality is a family business can start very strong and run quickly into these problems; this is why only 70% last just one generation; quite an alarming failure rate.
The family business is a staple of almost every culture around the world. It is one of those institutions that are common to just about every society. They offer clear benefits in terms of trust and loyalty but also have many draw backs. While many fail after one generation many go onto become major corporations like those listed in the introduction. One thing is certain there will always be some form of family business. It may be something that is on a slight decline, but it will never disappear.
BIBLIOGRAPHY Alain Bloch, George Stalk, Nicolas Kachaner. What You Can Learn from Family Business. 1 11 2012. https://hbr.org/2012/11/what-you-can-learn-from-family-business.
Bell, Boris Groysberg and Deborah. Generation to Generation: How to Save the Family Business. 10 4 2014. https://hbr.org/2014/04/generation-to-generation-how-to-save-the-family-business.
Bizmove. Problems In Managing a Family owned Business. 8 4 2015. http://www.bizmove.com/general/m6s4.htm.
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