Family-owned and managed businesses are known for their resilience and their ability to weather tough economic periods and changing business environments. But, just because a business is family-run, does not necessarily mean it will be resilient to challenges.
In today’s rapidly changing business environment, it is more important than ever to be aware of what exactly it is that makes a family business resilient.
When we speak of resilience as it relates to a family business, we are talking about the ability of that business to bounce back from challenging periods, whether they relate to succession, economic conditions or mistakes made within the business. These are not always events that are planned for, and even when they are, they can become challenges when things don’t go according to plan.
Family businesses that bounce back from setbacks are those that have the right culture in place — one that balances long-term thinking, the ability to adapt and effective succession planning. The relationship between these three facets of a business is crucial to the resilience of the business.
One of the advantages enjoyed by family-owned businesses is their ability to focus on the long term. Most other types of businesses are either publicly listed or funded with venture capital or private equity, leading to a focus on short-term profits rather than long-term sustainability. Family businesses can instead focus on creating long-term value by carving out a niche for themselves and managing their finances responsibly.
The ability of a business to attract, manage and retain talent is a good indicator of whether it will be resilient to challenges. In general, family businesses are better able to do this than most — but it is not the case for all family businesses.
Developing a company culture that results in low staff turnover will help a business during those periods when loyalty is required.
Resilient businesses enjoy a virtuous cycle — their ability to endure gives them the opportunity to build market share when competitors are struggling. Long-term thinking allows them to participate in this cycle.
However, that long-term thinking must be balanced with the ability to adapt to new technologies and new competition. They should not become so fixated on one particular long-term vision they fail to notice a changing business environment.
Market trends, new technology and globalisation mean businesses are forced to constantly adapt. While businesses need to focus on the long-term when it comes to capital allocation, they also have to be flexible and ready to adapt when required to do so.
When it comes to the resilience of a business, family members also need to be flexible. They may need to take on more than one role in the business and they may need to be flexible with regard to compensation. One of the characteristics that make family businesses more resilient is the fact during difficult periods family members are prepared to make sacrifices that ordinary employees would not.
Often the generation running a business create the company they want to manage, which unfortunately may not be the type of company the next generation want to manage. If that is the case, the business may not be resilient to future challenges.
Succession planning should always consider the realities of the personalities involved and the skills required. The long-term vision should be created with the aspirations and strengths of the next generation in mind — or, alternatively, the appropriate skills need to be brought into the business from outside.
For a business to endure, it’s also crucial it is in strong shape when it is passed from one generation to the next. The last thing a new custodian needs is to take over a business that is already struggling. Business leaders should be cautious in the period leading up to a transition, while at the same time, not leaving the transition until it’s too late.
In 2017, Stewardship Asia Centre conducted a study of 200 successful and enduring family businesses in the Asia Pacific region. Their key take away was a list of seven leadership and organisational traits common to these businesses. These traits were purpose, community awareness, long-term vision, trustworthiness, adaptability, social responsibility and care for employees.
These traits expand on many of the ideas already mentioned. The common theme here is resilience has less to do with profits and more to do with culture. And culture starts with the family running the business.