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Cape Town - Studies show that over a complete business cycle family businesses outperform other types of businesses.
Abu Bakr Cassim of Next Generation Lab, looks at why family businesses last longer and why they are the most common form of business.
"Family business people will tell you that there is no other way of doing business," said Cassim.
"Our perception is often that family businesses are small to medium sized enterprises run by an entrepreneur, who is assisted by a child or two that didn’t fancy the corporate world," he explained.
"The truth is that some of the biggest businesses in the world are family businesses, including: BMW, Walmart, LG Group, Carrefour and Samsung."
Family businesses are so popular that they are estimated to account for between 70% and 90% of global GDP.
"Sure, family businesses have their flaws, nothing is perfect, but they are built on common values," he said.
"Family values are adopted across the business, anchoring the structure built on top of it."
Cassim said good foundations are a start, but there are also a number of other areas that family businesses excel at.
Social capital
Also known as “family” capital.
This is a phenomenon in family businesses where everyone in the business is "family", irrespective of your last name.
The result is that family businesses have lower employee turnover rates.
"The 'family-ness' extends to customers, the community and society too. Clients are business partners that work through business cycles side-by-side," said Cassim.
"They share ideas freely and form a community in the sector they are operating in. Their ears are closer to the ground and they are more in tune with the beat on the street as a result."
Patient Capital
Family businesses are built and run for the next generation. Long-term strategic plans go the extra mile.
"The emphasis is on resilience and this is prioritised over short-term performance," said Cassim.
"Business dealings are conducted with a level of prudence that is rarely found, knowing that income has to increase steadily to support a growing family."
In a recent article, Harvard Business Review reported that family business debt averages only 37%, versus 47% for other firms.
"These lower levels of debt are an indication of the conservative management style found at family businesses," said Cassim.
"The result is in an inherent stability and sustainability."
There is no better example of this than the world’s oldest family business, The Hoshi Ryokan, which was founded in 717AD and is listed in the Guinness Book of World Records.
The same family has been operating The Hoshi Ryokan hotel for forty-six generations.
Human capital
The family name and the business are one and the same. Some businesses, like Ford and Mittal Steel, even have the family name on the front door.
"Local communities paint the business and the family with the same brush," said Cassim.
"Business success and misconduct are attributed to both, almost as if the business is a family member. It is one of the reasons why family businesses tend to be more ethical in their approach."
Knowledge transfer between generations is also fast tracked in a family business.
"There is less a sense of protecting your self-interest and a greater willingness to equip the next generation (and the business) with the skills necessary to excel," he said.
"Fathers are far more willing to share a trade secret with a family member than corporate managers concerned with building their ivory towers."
Ownership structure
Family businesses are run by entrepreneurs. In most cases they remain privately owned, in the hands of the family.
"There is no pressure from external shareholders that might affect the strategic direction of the company," explained Cassim.
"There's complete alignment of management and ownership, which allows the company to pursue its objectives without interference."
Conclusion
Family businesses do need to avoid the potential pitfalls of nepotism and internal disputes, according to Cassim.
They need to find the correct balance of competence and responsibility and it is often good practice to bring external skills in to assist the business’ development.
"Given the global track record of family businesses, these pitfalls are but detours on a treasure map," he said.
"If you don’t own a family business or are not part of one maybe you should ask yourself the question, why not?"
Abu Bakr Cassim of Next Generation Lab, looks at why family businesses last longer and why they are the most common form of business.
"Family business people will tell you that there is no other way of doing business," said Cassim.
"Our perception is often that family businesses are small to medium sized enterprises run by an entrepreneur, who is assisted by a child or two that didn’t fancy the corporate world," he explained.
"The truth is that some of the biggest businesses in the world are family businesses, including: BMW, Walmart, LG Group, Carrefour and Samsung."
Family businesses are so popular that they are estimated to account for between 70% and 90% of global GDP.
"Sure, family businesses have their flaws, nothing is perfect, but they are built on common values," he said.
"Family values are adopted across the business, anchoring the structure built on top of it."
Cassim said good foundations are a start, but there are also a number of other areas that family businesses excel at.
Social capital
Also known as “family” capital.
This is a phenomenon in family businesses where everyone in the business is "family", irrespective of your last name.
The result is that family businesses have lower employee turnover rates.
"The 'family-ness' extends to customers, the community and society too. Clients are business partners that work through business cycles side-by-side," said Cassim.
"They share ideas freely and form a community in the sector they are operating in. Their ears are closer to the ground and they are more in tune with the beat on the street as a result."
Patient Capital
Family businesses are built and run for the next generation. Long-term strategic plans go the extra mile.
"The emphasis is on resilience and this is prioritised over short-term performance," said Cassim.
"Business dealings are conducted with a level of prudence that is rarely found, knowing that income has to increase steadily to support a growing family."
In a recent article, Harvard Business Review reported that family business debt averages only 37%, versus 47% for other firms.
"These lower levels of debt are an indication of the conservative management style found at family businesses," said Cassim.
"The result is in an inherent stability and sustainability."
There is no better example of this than the world’s oldest family business, The Hoshi Ryokan, which was founded in 717AD and is listed in the Guinness Book of World Records.
The same family has been operating The Hoshi Ryokan hotel for forty-six generations.
Human capital
The family name and the business are one and the same. Some businesses, like Ford and Mittal Steel, even have the family name on the front door.
"Local communities paint the business and the family with the same brush," said Cassim.
"Business success and misconduct are attributed to both, almost as if the business is a family member. It is one of the reasons why family businesses tend to be more ethical in their approach."
Knowledge transfer between generations is also fast tracked in a family business.
"There is less a sense of protecting your self-interest and a greater willingness to equip the next generation (and the business) with the skills necessary to excel," he said.
"Fathers are far more willing to share a trade secret with a family member than corporate managers concerned with building their ivory towers."
Ownership structure
Family businesses are run by entrepreneurs. In most cases they remain privately owned, in the hands of the family.
"There is no pressure from external shareholders that might affect the strategic direction of the company," explained Cassim.
"There's complete alignment of management and ownership, which allows the company to pursue its objectives without interference."
Conclusion
Family businesses do need to avoid the potential pitfalls of nepotism and internal disputes, according to Cassim.
They need to find the correct balance of competence and responsibility and it is often good practice to bring external skills in to assist the business’ development.
"Given the global track record of family businesses, these pitfalls are but detours on a treasure map," he said.
"If you don’t own a family business or are not part of one maybe you should ask yourself the question, why not?"
