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The Pros and Cons of Running a Family Business

Never do business with family, not to be confused with the term, ‘giving someone the family business’ as that is in the tune of doing violence onto someone, the term never do business with family is completely different. We have all heard of that infamous and well-recited proverb before, but why is that? The why is that, over time, many generations of people observed that going into business with family causes a fierce number of problems. The consensus has been for a long time to never turn your business into a family business.

Or should you? Here we will go over what it exactly means to have a family business and the pros and cons for each.

A Corporate Titan that was Once Started Humbly as a Family Business or a Company where One Family Owns the Majority of Shares

Walmart

Walmart is an American multinational retail corporation that was founded by Sam Walton in 1962. The company is currently owned by the Walton family and is the largest company in the world by revenue.

Ford

Ford is an American multinational automobile manufacturer that was founded by Henry Ford in 1903. The company is currently owned by the Ford family and is one of the largest automobile manufacturers in the world.

Samsung

Samsung is a South Korean multinational conglomerate that was founded by Lee Byung-chul in 1938. The company is currently owned by the Lee family and is one of the largest technology companies in the world.

Mars, Inc.

Mars, Inc. is an American multinational confectionery, pet food, and food products company that was founded by Frank C. Mars in 1911. The company is currently owned by the Mars family and is one of the largest candy makers in the world.

Estée Lauder

Estée Lauder is an American multinational cosmetics company that was founded by Estée Lauder and her husband Joseph Lauder in 1946. The company is currently owned by the Lauder family and is one of the largest cosmetic companies in the world.

L’Oréal

L’Oréal is a French multinational cosmetics company that was founded by Eugène Schueller in 1909. The company is currently owned by the Bettencourt family and is one of the largest cosmetic companies in the world.

Marriott International

Marriott International is an American multinational hospitality company that was founded by J. Willard Marriott in 1927. The company is currently owned by the Marriott family and is one of the largest hotel chains in the world.

Levi Strauss & Co.

Levi Strauss & Co. is an American clothing company that was founded by Levi Strauss in 1853. The company is currently owned by the Haas family and is one of the largest denim brands in the world.

The New York Times Company

The New York Times Company is an American multinational media company that was founded by Henry Jarvis Raymond and George Jones in 1851. The company is currently owned by the Sulzberger family and is one of the largest newspapers in the world.

Ferrero

Ferrero is an Italian multinational confectionery company that was founded by Pietro Ferrero in 1946. The company is currently owned by the Ferrero family and is one of the largest confectionery companies in the world, known for its Nutella spread and Ferrero Rocher chocolates.

Most of the Companies Listed Above do have Shareholders, but they are also Family-owned which are Technically a Family Business

This means that the majority of the company’s shares are held by members of the founding family, and the family has significant control over the company’s decision-making and operations.

For example, Walmart is publicly traded, meaning that its shares are available for purchase by anyone on a stock exchange. However, the Walton family owns a majority of the shares and controls the company through their positions on the board of directors. Similarly, Ford and L’Oréal are publicly traded but have a significant portion of their shares owned by the founding families.

Other companies on the list, such as Mars, Inc. and Ferrero, are privately held and not publicly traded, meaning that their shares are not available for purchase on a stock exchange. In these cases, the founding family owns 100% of the company’s shares and has complete control over the business.

The Pros (and yes there are some) in Running a family business

They say that different minds from different backgrounds and upbringings come together to form the best idea. That may be true but they usually face a steep learning curve for months or even years until they find a semblance of harmony. There is also to be said about a shared upbringing as that comradery can directly translate towards a shared vision and knowing each other on a more personal level and rather one that is just strictly business. And if anything if your brother/sister/cousin does something to the business you can tattle on them to your parents or grandparents. It would add a whole new level to awkward Thanksgiving dinners but one that can clear the air

Strong Bonds and Shared Vision for a family business

One of the key advantages of a family business is one that we mentioned already, the inherent strength of the bonds that tie family members together. Trust, loyalty, and a shared sense of purpose are deeply ingrained in the family dynamic, creating a solid foundation for the business. Family members are naturally invested in the success of the enterprise, and their commitment often extends beyond financial gains. This shared vision helps to foster unity and a strong work ethic, resulting in a harmonious and motivated team.

Efficient Decision-making

Family businesses benefit from a streamlined decision-making process, as family members have a deep understanding of each other’s strengths, weaknesses, and aspirations. This familiarity allows for quicker and more efficient decision-making, minimizing bureaucratic red tape and enhancing flexibility. Unlike large corporations where decisions may go through multiple layers of management, family businesses can swiftly adapt to market changes, seize opportunities, and address challenges promptly.

Just keep in mind that not one person has the final say due to seniority or key position like a matriarch or patriarch. 

Long-term Perspective

Family businesses tend to have a long-term perspective, focusing on generational wealth and sustainability rather than short-term gains. This mindset encourages careful planning and strategic thinking, as family members work towards building a legacy that can be passed down to future generations. By prioritizing long-term goals, family businesses often have the patience to weather economic fluctuations and make decisions that benefit the company’s future viability.

Some companies that were in decline after the founding family sold their majority share once the company went public include Polaroid, Anheuser-Busch, Atari, and Ben & Jerry’s.

A company that was once a leader and even monopolized its industry at one point was Carnegie Steel. During 1892, it was practically the biggest company in the United States, after Carnegie sold his leading share then that is when it began to decline. Now that could be attributed to other things of course like competitors, new innovations to the steel process, but there’s something to be said about losing the leadership and the vision that Andrew Carnegie had. The long-term generational wealth was stunted if not outright gone.

Unique Company Culture and a Family Business Foundation

The family aspect of a family business often translates into a distinct company culture. With shared values and traditions at the core, these businesses foster a tight-knit community and a sense of belonging among employees. Family values, such as honesty, integrity, and loyalty, often permeate the organization, creating an environment that encourages collaboration, open communication, and mutual respect. This unique culture can contribute to increased employee satisfaction, productivity, and lower turnover rates.

Agility and Flexibility

Family businesses are known for their ability to adapt quickly to changing circumstances. Without the burden of complex hierarchies or rigid structures, these businesses can be more nimble in their decision-making processes and swiftly respond to market trends. This agility allows family businesses to capitalize on emerging opportunities, pivot their strategies, and navigate challenges with relative ease.

Personalized Customer Relationships through a Family Business, so many companies are Named After the Namesake

Family businesses often excel in developing personal relationships with their customers. With a deep understanding of their clients’ needs and preferences, family members can provide personalized attention and tailored solutions. This high level of customer service fosters trust, loyalty, and repeat business, setting family businesses apart from larger, impersonal corporations.

Succession Planning and Legacy Building

Unlike non-family businesses, family enterprises have the opportunity to groom successors from within the family. Succession planning is crucial for the continuity of the business, ensuring a smooth transition of leadership and the preservation of the family’s legacy. By instilling a sense of pride and responsibility in the younger generation, family businesses can lay the foundation for sustainable growth and continued success for years to come.

However, there are a lot of potential cons to consider for a family business. Like many that concluded to that proverb in the beginning

Blurred Boundaries and Emotional Turmoil

One of the most significant challenges in a family business is the potential for blurred boundaries between personal and professional lives. It can be difficult to separate business decisions from personal relationships, leading to emotional conflicts and strained family dynamics. Disagreements that arise at work can quickly spill over into family gatherings, creating tension and resentment. These emotional complexities can make it challenging to make objective decisions for the betterment of the business.

Lack of Professionalism and Meritocracy that can make a Family Business Go Bust

In a family business, there may be a tendency to prioritize family ties over professional qualifications, that concept is called nepotism. This can lead to a lack of meritocracy within the organization, where less qualified family members hold key positions, stifling innovation and growth. Nepotism can discourage talented non-family employees, leading to demotivation and a decline in overall performance. Additionally, promotions and rewards based on family connections rather than merit can create resentment among employees, harming team dynamics.

A study found that over one-half of recent college graduates use their family’s resource network as a way to secure their first job through that connection.

Limited Pool of Skills and Expertise

Family businesses often suffer from a limited pool of skills and expertise. Succession planning can become a challenge if the next generation lacks the necessary skills or interest in taking over the business. With limited external perspectives and experiences, family businesses may struggle to adapt to changing market trends and industry developments. This can hinder innovation and impede the business’s ability to compete effectively in the long run.

Difficulty in Implementing Change is Difficult to Implement in a Household let Alone a Family Business

Introducing change can be an arduous task in a family business due to resistance from long-established family members who may be resistant to new ideas. Tradition and the fear of disrupting family harmony can prevent necessary adaptations in business practices and strategies. The lack of a clear hierarchy or a robust governance structure can further complicate decision-making processes, resulting in delays and missed opportunities.

Succession Planning and Family Dynamics

Planning for the succession of leadership within a family business is a crucial aspect that can be challenging. Balancing the desires and expectations of family members while ensuring the long-term sustainability of the business can be a delicate task. Differences in opinion, conflicts of interest, and sibling rivalries can complicate the succession process, potentially leading to family disputes and even the downfall of the business if not managed carefully.

Conclusion

While running a family business offers unique advantages, it is important to acknowledge and address the potential negatives. Blurred boundaries, emotional conflicts, lack of professionalism, limited skill sets, resistance to change, and succession planning challenges are just a few of the obstacles that can arise in a family business setting. However, by implementing clear communication channels, establishing professional practices, fostering a culture of meritocracy, and seeking external expertise when needed, it is possible to overcome these challenges and create a thriving and sustainable family business for generations to come.

Though if it’s too much you might be interested or at least learn about how to go at it solo.

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