Family Businesses Matter
By Dr. Brad Bechtold
Family-owned enterprises are the backbone of the American economy. Studies have shown about 35 percent of Fortune 500 companies and 90 percent of American businesses are family-controlled and represent the full spectrum of American companies, from small business to major corporations. Family-owned enterprise accounts for 64 percent of U.S. gross domestic product, generates 62 percent of the country's employment and accounts for 78 percent of all new job creation.
A family business is as American as baseball and apple pie; however, it is unlike all other forms of business ownership. A family business has remarkable strengths and advantages, but inherent challenges they face can unleash turmoil within the family. Mixing blood and business can be a recipe for success, or the demise of the business and family harmony.
Whether large or small, a family enterprise is the oldest form of business and is generally defined as “any business in which two or more family members are involved and the majority of ownership lies within the family.” The very essence of the definition, “family,” is what makes running a family business so complicated and challenging.
A family-owned enterprise is a commercial organization in which decision-making is influenced by multiple generations of a family, related by blood or marriage or adoption, who have both the ability to influence the vision of the business and the willingness to use this ability to pursue distinctive goals.
Owner-manager entrepreneurial firms are not considered to be family businesses because they lack the multi-generational dimension and family influence that create the unique dynamics and relationships of family businesses.
Whether it’s a newly formed family business, or one that has been around 100 years, a study into the psychology surrounding the family and the unique set of obstacles and challenges they face reveals unique strategies and opportunities which, when carried out by each new generation, increases the odds for lasting success.
The challenges of owning and running a family business are subject to some of the same challenges of non-family owned businesses, as well as many challenges unique to family businesses. Oftentimes family businesses rely solely on the individuals within the company, though this lack of outside opinion, impartiality and expertise can lead to bad decisions and even greater conflict within the family.
10 Questions Every Family Enterprise Should Ask
1. What are the common traps of working in a family business?
2. Does your family have a succession plan?
3. Why does the family business need to find the right level of conflict?
4. How do you survive in a family business if you are not part of the family?
5. Does your family business have an independent director?
6. How do you decide who can join the family business?
7. What are the signs you’re losing control of your family business?
8. How do you deal with work-life challenges in the family business?
9. How do you manage an underperformer in a family business?
10. What role should a family business play in its community?
Recent research has shown that continued family control is important because of the ability to apply a long-term perspective allowing for unique strategic positioning. They also have a significant community and economic impact, fewer human resources problems, higher firm values and they drive new entrepreneurial activity.
It is estimated that 40 percent of family business owners expect to retire in the next five years, creating a significant transition of ownership in the U.S.; however, fewer than half of those expecting to retire in five years have selected a successor. Furthermore, though nearly 70 percent of family businesses would like to pass their business on to the next generation, only 30 percent will actually be successful at transitioning to the next generation.
In response to these needs, Anderson University has launched the Family Enterprise Institute of South Carolina (FEISC). The mission of the institute is to provide research, education, networking and support resources to help family businesses maximize the overall sustainability of their organizations, including transition planning for the next generation of ownership. The FEISC is the only ongoing professional organization specifically designed for family businesses in South Carolina.
The Family Enterprise Institute of South Carolina at Anderson University will play a critical role in addressing the needs of family-owned businesses in South Carolina and have a significant positive economic and community impact across the state. The insight and objectivity that outside advisors, coaches and mentors provide can prove to be critical to the growth and success of the business. The ability to bring in outside expertise, such as accountants, attorneys and university experts on issues or areas that the current employee workforce lacks is important for the growth and development of the family business.
Additionally, the societal benefits generated from family-owned businesses reach far beyond the numbers because family businesses play an influential role in society and because of their commitment to community.
The idea of “family,” which is ingrained in the members of a family business, is based on a partnership and a responsibility, rather than the idea of solely making a profit. This mentality and high level of integrity benefits the community. The success of each family business influences future generations, the communities they serve and the U.S. economy in its entirety. There is great significance in helping this lifeblood of the economy succeed because family businesses matter.
Dr. Brad Bechtold is director of The Family Enterprise Institute of South Carolina at Anderson University and an associate professor of business.