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Four reasons why family business is big business

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Yes, there are millions of SMEs run by families, but the reality is that family-run businesses are amongst the biggest and most successful in the world.

A recent report by the Center for Family Business at the University of St. Gallen, Switzerland, reveals the true scale of family business across the globe.

The 500 top firms in their Global Family Business Index employ nearly 21 million people and produce combined annual sales of $6.5tn, enough to be the third-largest economy in the world.

Firms like Walmart, VW, BMW, Ikea and Aldi are all family businesses with the majority of shares being held by members of the family or, in the case of Ikea, 100 per cent.

Barclays Bank says Britain now has more than two million family-owned businesses and that first-generation companies are growing sales at a rate of 22 per cent a year. The bank reckons family-owned businesses generated revenues of £540bn last year and that this figure is set to hit £661bn by 2018.

Leading that growth are companies like The Pentland Group, which is owned by Stephen Ruben and his family. Founded in 1932 as The Liverpool Shoe Company with little more than £100 base capital, the organisation has evolved, over eight decades, into a global family of sports, outdoor and fashion brands like Berghaus, Speedo and JD Sports generating global sales of over $3bn.

What is clear from all the evidence is that family business model is generating huge value for its shareholders and should never be dismissed solely as a way of organising small scale economic activity.

So what is it about the family model that produces such sustainable businesses?

(1) Loyalty

The fundamental principle that runs through every family business is the concept of loyalty – the emotional bond that ties together all participants in the business with an unquestioning duty to achieve the best for each other.

It is a powerful force which most manager-run businesses would dearly love to replicate but are unable to achieve with purely financial incentives.

Loyalty is not just a soft management concept – it does have a tangible value and its impact on a business can be easily measured. In recruitment costs alone, family businesses often have an advantage over their managed business counterparts because they tend to keep their staff longer, not least because junior members are likely to take more senior positions in the future. Many of them become trusted confidents and this plays to the heart of the loyalty factor

(2) Long-termism

Family businesses have a luxury that many firms dream of – the ability to plan for the long term. Knowing that shareholder pressures for a quick return are simply not there, family businesses can better align the deployment of resources with their strategic objectives.

Continue reading to discover how family businesses can harness knowledge and expertise to keep the business thriving…

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