6 Things We Can All Learn From Family-Owned Businesses

The 6 things I’m going to talk about come from a study of 149 large, publicly-traded, family-controlled businesses.

However, stay with me because we’ve seen the same characteristics in the successful family-owned businesses we’ve dealt with – and none of them are publicly traded.

Another thing – the study looked at 1997 – 2009, covering some good and some very tough times. Guess what? The family-controlled businesses, on average, turned in better long-term financial performance than non-family businesses – in multiple countries.

So what are the 6 things we can learn?

1. Family-controlled businesses are frugal in good times and bad. How? They don’t, for example, have luxurious offices. That’s because they view the company’s money as the family’s money – and so keep a tight rein on all expenses.

2. They limit their debt. The family-controlled companies in the study had, on average, debt levels equal to 37% of their capital (compared to 47% for non-family firms). Why, because if something goes wrong, family businesses don’t want to risk giving their investors too much power.

3. They have lower staff turnover. Only 9% of the workforce (versus 11% at non-family firms) turned over annually. And family firms don’t rely on financial incentives. They focus on building a culture of commitment and purpose, avoid layoffs during downturns, promote from within, and spend far more on training than non-family firms.

4. Capital expenditures are tightly controlled. One owner-CEO said “We have a simple rule, we do not spend more than we earn.” Family businesses not only look at each project’s ROI, they compare projects – to meet their self-imposed budget. It costs them some opportunities but means they’re less exposed in bad times.

5. They diversify. 46% of family businesses in the study were highly diversified, while only 20% of publicly traded ones were. The reason – diversification has become a key way to protect family wealth as recessions have become deeper and more frequent.

6. But they do fewer, smaller, acquisitions. There are exceptions, for example if there’s structural change/disruption in their industry. But generally, family companies prefer organic growth and partnerships or joint ventures to acquisitions.

The simplicity of the 6 things makes them easy for any business owner to implement.

There were 7 things mentioned in the study but the seventh, that family-controlled companies generate more of their sales abroad, applies less to the companies we work with. So I can’t talk to it from personal experience.

By the way, the study’s conclusion is that CEOs of family-controlled firms invest with a longer time horizon in mind and manage their downside more than their upside, unlike most CEOs, who try to make their mark through outperformance.

All because their obligation to family makes them concentrate on what they can do now to benefit the next generation.

You can read the full study, which was conducted by The Boston Consulting Group, here.

 

 

If you enjoyed this post you’ll also enjoy 5 Tips To Improve Margins and the Bottom Line……

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Tags: acquisitions, business owners, capital exenditures, debt, diversification, family business, family obligations, finances, frugal, growth, investments, Jim Stewart, People, performance, ProfitPATH, resilience, sales abroad, strategy, successful, turnover

Comments

  1. Alan Kay says:

    Great post Jim. Family businesses often get in the headlines because the dysfunctional ones (largely caused by poor family social structure vs. business management) get more attention. I wonder what it is about the leadership behaviours and skills of family businesses that we can learn to apply elsewhere. Decision-making is probably a key element. Is there something about the values and culture that helps make a difference?

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