Family Business, Non-Family Business, Urban Myths.

Family Business, Non-Family Business, Urban Myths.

After 20 years of working with Senior Executives across the world it’s interesting to see the mistakes when appointing Senior Executives. There can be many reasons why, but one reason is not understanding the differences of working in a Family Business and a Non-Family Business. I’ve recently met several Senior Executives who are unhappy with their employment because of this lack of knowledge and understanding and I’m meeting Business owners who didn’t realise there was a difference. These Business Owners feel that money and title is enough and stick to the Mantra of “Surely experienced ‘C’ level Executives can work in any company?”

Due to the change of economy, I have become more involved with assisting Family Businesses rather than just the corporates in finding ‘C’ level people. To do this successfully I believe that everyone in the process of hiring Senior Executives must understand the differences that separate the two entities. Having worked for an English and Indian Family Business in a past life this has helped me at first hand to see the ups and downs of these Businesses; this with a theoretical base has helped with running my own companies or advising others with theirs.

One recent company I have been involved with was run and founded by a successful New Zealand Entrepreneur. He does not have anybody in his immediate family to hand the reins over to. He has tried (outside the family) executives to fill his ‘C’ level roles and has had three people in three years! What is the problem? Was this a real Family Business? Was the Problem his, or the Executives?

We discussed the reasons for the failures but in terms of assisting the owner I got him to firstly look at where his people came from. All three had been ‘C’ level people in corporates and had done an excellent job in their corporate environment. They all returned to corporate life and continued to do well in their new roles. Why did they fail then in this successful company?

What I needed the owner to do was to identify a “Family Business”. I don’t normally use dictionary definitions but feel that in this instance Wikipedia gives a satisfactory explanation of a Family Business;

“A commercial organization in which decision-making is influenced by multiple generations of a family-related by blood or marriage-who are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack the multigenerational dimension and family influence that create the unique dynamics and relationships of family businesses” Wikipedia 2014.

We looked at his company and although he didn’t have anyone in the immediate family to take over the reins he had people who owned the company in minor leadership roles. We both agreed he did in fact have a Family Business.

He thought that buying in top salaried ‘C’ level Executives from corporates would enhance growth and sustain his business. He had not seen any differences between Family and Non-Family Business.

Urban Myths for Family Businesses;

All are unstable Small to Midsize businesses’.

As an Executive I don’t want to baby sit the junior family members so they can take over my job.

A non-family member will never run the company.

Mother and Father Companies, the only people that matter in the company are family members.

Emotional hard to work places due to family disagreements/arguments.

Incompetent family members in positions of authority.

Are these statements true or are they just Urban Myths?

Family businesses are one of the fastest growing sectors of the world economy and now merit serious consideration by Senior Executives looking to advance their careers. This is an amazing turnaround from 25 years ago when nobody wanted to work for a family-owned business. There now seem to be many positives;

Patricia Epperlein from InterSearch reports that;

In the USA, 90% of businesses are family-owned. They contribute towards 40% of that nation’s GNP and pay approximately half of its total wages.

59% of France’s Top-500 industrial companies are family-owned.

It is estimated that 70% to 85% of all businesses worldwide are family-owned.

Tom O’Neil NZ Herald. Jan 2014 states;

Small to medium businesses are the lifeblood of New Zealand industry. Various sources cite family businesses as representing 75 per cent of Kiwi firms, providing up to 80 per cent of employment and 65 per cent of national GDP.

It’s interesting to note that when companies around the world state that they are a “Family Business” they are trying to reinforce positive family values of, Integrity, honesty, trust and loyalty.

Not all Family Businesses’ are SMEs. Companies like;

Porsche

WalMart

Tata Group.

In New Zealand the Talley Family (Agribusiness) and the Pandey family (Hotels).

Simon Peacocke of BDO Auckland, an accredited Family Business Advisor works with numerous NZ Family Businesses and feels that they do well because of the following reasons;

Family businesses think very long-term and are very resilient, much more so than non-family businesses.

Second and third generation family business members start their apprenticeship at a very young age. At 5 years old they are hearing their parents talking about the business so they have an incredible depth of knowledge to draw on.

Their relationships with staff and communities also tend to be different – closer, more connected, more loyal.

Staff tend to become part of the family business and to stay on as long-term committed employees.

While corporates like to be seen supporting their communities, family businesses generally don’t promote they are doing this – they just do it.

They don’t throw lots of money at things trying to get rich quick.

They also have a powerful focus on building relationships with staff, customers and suppliers.

So is it worth working for a family company? Is it better to work for a Non-Family Business? Is there any difference when the economy is good or is in a slump?

Nicolas Kachaner 2012 in the Harvard Business Review states,

“Results show that during good economic times, family-run companies don’t earn as much money as companies with a more dispersed ownership structure. But when the economy slumps, family firms far outshine their peers. And when we looked across business cycles from 1997 to 2009, we found that the average long-term financial performance was higher for family businesses than for non-family businesses in every country we examined”.

Senior Executives looking for longevity in the work place should look at the Family Business as this would take them through economies varying peaks and troughs. They will need to be aware that this will always be done in a cost effective way.

Business Consultants believe that they can tell easily if the company is Family or Non-Family Business. You just walk into the Head Office. A Non-family office has a very substantial corporate office with a “Wow Factor”. The Family business being more Frugal has very few “Bells and Whistles”. This Frugality is about the Family Business CEO looking to invest in the long term 20 year plan with the business passing down the generations. The Non-Family CEO is looking to make an instant mark and will try and outperform the person they have taken over from. There are many studies that show that Family Businesses did better in the recent Global recession for the above reason. The Family Business is frugal in the good times and the bad allowing them to weather the storms of economic crisis.

This is one of the factors that had been wrong in my client with three ‘C’ Level people in three years. His ‘C’ level people came in with a quick turnaround plan which they hoped would give a quick fix and outspending the last person in the hope that they would do something instantly. No twenty year plan for them as they had never been afforded this way of working in the past.

Do Family Businesses perform differently in other countries?

Justin Craig, PhD states,

“Interestingly, in many aspects family businesses as a sector do not vary much from country to country. There are obvious cultural differences but a business with family involvement is challenging in every country. It is also more rewarding than the ‘corporates’, let’s not forget that. Of course, there are older businesses in Europe, for example, than in Australia and New Zealand and the United States, and the mind-sets of companies in Europe will differ than in the later developed countries. But day to day the differences are not noticeable. Older businesses have more at stake and lots more to lose but they also have advantages. Family leaders still have to manage three independent and interdependent systems being the family, the business and the ownership group”.

Appointing the right Senior Executives is crucial to any company and is a costly acquisition. There are many reasons why hiring at this level goes wrong but getting it right can make a huge difference to your company.

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