Four reasons why family business is big business

This long-term approach to investing is often referred to as “patient capital” and it can have huge pay offs, as many of the businesses in the top 500 Index can testify.

Around 44 per cent of businesses in the index are run by fourth-generation family members and the average age of the top companies is 88 years.

The most successful family businesses move beyond the “dangerous” third-generation trueism that they often fail, and build sustainable management and governance processes which are way beyond the often held view that nepotism prevails and damages the business.

(3) Knowledge and expertise

True expertise is endemic in a family business because knowledge gets handed down and from generation to generation, not just in training session or product manuals.

The greatest violin maker of all time – better, many would argue, than Stradivari whom he trained – was Nicolas Amati, who learnt his craft from his father, who’d been tutored by his father.

The same is true of today’s family firms, where in-depth product and sector knowledge is part of growing up in a family business.

The most successful family businesses complement this knowledge and expertise with sound and solid business and financial management and training to ensure that they can last the test of time and the very many changes in cyclical businesses and economies.

(4) Challenges – but they can be overcome

Running a family business is, however, not without its challenges. With every positive that comes from the emotional bond of the family, there is a negative.

We are often called in to family concerns where the sudden death of founder and no obvious successor has left the business floundering. The informal and instinctive processes used to run the business simply disappear as they are rarely documented.

There is often a dangerous assumption that a younger relative will take up the reigns, so succession planning is not deemed necessary. The baton is simply passed on at death or retirement.

But the massive swing from manufacturing society to a knowledge-based economy does present challenges for family business as many of the natural candidates for leadership simply don’t want to follow in the parents footsteps, or are often not the most able to do so.

In the case where there is no clear succession, we have to bring in a leader from outside who has to quickly become part of the family and learn the unwritten rules of the business while building the sustainable systems, processes and skills which are critical to future success and sustainability.

Anyone of you who has had experience of a new step-parent in the family will appreciate the challenges this brings! Yet, when you get it right – such as Walmart, which combines family members with the best outside talent – the results can be spectacular. The retailer has 15 board members but only two are now Waltons; a fact that has not stopped the family from amassing a fortune estimated to be a cool $147bn.

Steve Benger is managing partner for Accelerus.

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