How to Run a Successful Family Business?

Did you know that family-owned businesses account for about two-thirds of businesses worldwide?¹ Some top companies you know, like BMW, Walmart, and Ford, are family-run businesses. These companies are essential to drive a nation’s economy and improve job creation.

Although family businesses come with many opportunities, running one isn’t an easy task. According to Harvard Business Review, about 70% of family-owned businesses fail or sell before the second generation takes over.² Getting into business with your family can be very dicey.

In this article, we discuss what a family business is and share practical tips on how to grow one.

What is a family business?

A family business is any business owned or operated by two or more family members. Family businesses have existed for years, and one of the earliest examples is farms often owned and handled by dad, mom, and the kids.

Two people are families if they are related by blood, marriage, or adoption. For a business to be family-owned, a sole family has to own the majority percentage of ownership.

Family businesses are one of the oldest economic systems, and they are one of the top economic drivers of nations. While most family-owned enterprises are on a small scale, there are also a few giant companies that are family-owned. 30% of firms with over $1 billion are family businesses.³

Some significant characteristics of family businesses include:

• Control: A single family often controls the business decisions since they are the major shareholder.
• Involves multiple generations: Family businesses are often passed from one generation to another.
• Management: Family businesses often require active participation and management by family members.

Advantages of running a family business

Are you thinking of setting up your family business or improving your family's existing business? Let’s explore some of the benefits of running a family-owned business:

Stability

If a company is experiencing problems, employees won’t mind leaving to find better opportunities. However, family-owned businesses tend to stay committed to growing their company even in times of trouble. There is a sense of ownership that comes with family businesses that encourage everyone involved to invest their best in growing it.

Great business performance

Another advantage of family businesses is that they are more likely to become successful when compared to companies with no family ties. Despite some of the risks associated with family business, the chances of becoming successful are higher than businesses with no family ties. A study also confirmed that family businesses often record increased sales, revenue, and employment growth. This can be associated with the commitment usually found among employees and the longevity of leadership positions.

Long term vision

Another benefit of family businesses is that they always have a long-term goal, which helps foster clear decision-making. Also, family members are likely to stick together to work towards the shared vision for the business.

Trust and shared values

Trust is essential for every business and is often a given with family-owned companies. Family members usually have inherent trust in themselves, and this often results in creative business ideas and growth. Also, family members often share the same values and beliefs, making it easy to navigate business together.

Decreased costs

Strong personal bonds mean family members will be willing to make more financial sacrifices for the company’s success. For instance, family members won’t mind working longer hours or receiving less pay if it’s getting the company to its long-term goal. This isn’t to say family members shouldn’t be treated fairly when working in a family-owned business. However, there is a security that comes from knowing that the people you run a company with will stand with you through thick and thin. In line with this, a study noted that family businesses were less likely to lay off workers during financial constraints.⁴

How to run a successful family business?

Here are some tips on how to run a successful business:

1. Treat it like a business

One of the problems family businesses experience is taking the business for granted. It’s essential to treat a family business as a business, employing proven tactics and strategies necessary to grow.

2. Evolve

One of the problems some family businesses have is ignoring inventions, technology, and trends. Instead of embracing new tools and strategies to grow a business, some companies stick to old ways and methods—the top family business examples change with the times. When running a family business, you should embrace new tools, strategies, and inventions so that you don’t alienate your customers.

3. Set boundaries

Setting boundaries is essential to run a successful family business. Ensure you make distinctions between family and business so that you keep family matters separate from work. Mixing business with personal or home life can lead to a volatile situation that might affect the success of your family business. Don’t let the activities and operations of your family business consume every interaction with your family. If possible, don’t talk about work at all once you are outside of the office; just be a family to your family members instead of a boss or employee.

4. Recruit from outside

Successful family-owned businesses don’t keep their employees as family members only. A great idea is to recruit outsiders for skills your family members don’t have. Another family business strategy is recruiting family members with outside experience. This is to ensure they have a perspective on how the business world works and ensure they put in the same work into a family business. Many experts have agreed that family members who work an outside job before joining their family business are more likely to be successful.

5. Establish a clear mode of communication

Proper communication is needed to run a family business successfully. We don’t mean small talk during dinner or an event. In fact, it’s best to keep business discussions outside of the office. Instead, consider setting weekly or monthly meetings to assess progress, share opinions, and resolve disputes.

6. Define role and responsibilities

One of the best tips on how to run a successful business is to have clearly defined roles and expectations. This is especially important for family businesses, where the line between family and business can get blurred. Everyone employed in your family business, including your family members (and you), must have clear roles and duties. In line with this, there should be a written contract to establish individual roles, duties, and shares of everyone in the business. This will help clarify expectations, reduce hard feelings, and emphasize that it’s a business relationship.

Meanwhile, do not provide sympathy jobs for family members. Someone with a proven skill set must fill every role in the organization.

7. Working together is better than partnership

One of the best tips for running a family business is steering clear of partnerships with your family. Say you want to start a family business with your sister; you need to think of the long term. For example, what if she wants her husband to take over and you’re not in agreement, or you two get into a fight?

There is a lot that can go wrong with partnership, which makes working together a better alternative. In this case, you get them to work for your company, and you share the profits.

8. Get outside advice

Sure, it’s a family business, and business decisions can be made within the family unit. However, it’s best to seek advice from people outside the family. Non-family members can give you valuable business insights, help you see through blind spots, and navigate your business professionally.

How to Grow a Family Business? Key Strategies

An advantage to joining a family business is that you get to work with people who share similar values and commitment as you. Meanwhile, like with other companies, you need strategic planning for the family business to grow. Here are some key strategies on how to grow a family business:

Analyze the market

An excellent strategy for success is evaluating your industry and company’s current standing. This will help you understand the industry and family business opportunities you can harness. You can analyze your family business by conducting marketing research and using tools like SWOT (Strengths, Weaknesses, Opportunities, Threats). It’s also advised to conduct regular market research to understand industry trends and consumer needs.

Leverage technology

One great tip to run a successful family business is leveraging technology and innovation to make your operations easy. Thanks to digital tools, companies can streamline manual operations, automate repetitive tasks, reach a wider audience, improve customer experience, and increase sales.

Set clear expectations

Is your brother better at numbers? Working in the financial department is a reasonable idea. What about marketing or hiring? Who’s a better fit to handle the roles? A good strategic plan for the family business is assigning roles and having clear expectations from people. Identify who has what responsibilities and set clear expectations to boost workflow and productivity.

Have a digital marketing strategy

Digital marketing is a must for every family business that wants to grow. Invest in a digital marketing strategy and explore mediums like social media, SEO, and Paid ads to boost your company's standing.

If you’re an online business, you should invest in taking your business to an e-commerce channel like Alibaba.com to boost your reach. This is very important as online shopping has become a preferred method of shopping by most people.⁵

Keep good financial data

Money is a big deal for every business, including a family business. A great family business strategy is having financial data to understand how to manage your finances. Implementing a solid financial management practice will ensure the profitability of your business.

Form strategic partnerships

Partnership is a mutually beneficial approach that helps you and your partner boost your market reach. Partner with businesses with similar client bases to reach a wider audience and make your offering more attractive.

Diversify your business

One of the winning strategies to run a business is expanding your business or developing new offerings. Find new needs your audience may have and invest in a new category, market, or industry. Diversification is essential to stay afloat in economic fluctuations and foster a culture of innovation in your company.

Establish a great company culture

The success of most businesses lies in human power. Your employees are essential members of your company, and establishing a great company culture is a crucial strategy to motivate them. Understand your team expectations with their roles, remuneration, and work culture to boost your retention rate. You should also invest in developing your workforce through skill-building initiatives and training programs. Companies with happy and satisfied employees are more likely to survive and achieve success.

Invest in communities

One of the ways to expand your family business opportunities and growth is by giving back to the community. The top family businesses invest in their fortune by providing and championing the needs of their community. For example, Eagon Industrial, a family-owned business in South Korea, invested in planting trees in their community to replace those cut down. This company also provided locals in the community with medical and educational facilities.

Family business examples

Running a business requires effort, but running one with your family can be even more difficult. This doesn’t mean it’s impossible to run your own family business; many people have succeeded after all. Some notable family business examples in the world are:

1. Walmart

Country: USA

Walmart belongs to the Walton family. The first Walmart store was established in 1962 by Sam Walton, and when he died in 1992, he left 50% of the company’s shares with his wife and kids.⁶ Today, Walmart is a huge retail giant with many members who have worked in leadership roles.

2. BMW

Country: Germany

Founded by Gunther Quandt in 1916 with a different name, BMW is currently one of the top luxury family-owned businesses in the world. Although the company has gone through a series of rebranding and name changes, the majority of the share is owned by Quandt’s family.

3. Dell

Country: USA

Dell is an old name in the gadgets industry. This company was first started in 1984 by Micheal Dell, and the family still owns a 75% stake in the company.⁷

4. Reliance industries

Country: India

Reliance Industries was founded by one of the wealthiest families in India, Ambani. Today, Mukesh Ambani is the CEO of this company founded by his father and has his family members, including his wife and daughter, on the board of directors.

5. Samsung electronics

Country: South Korea

Samsung belongs to the Lee family. Lee Kun-Hee is the current chairman of this global conglomerate, while his son is vice chairman and his daughter is an executive within the firm.

6. Hoshi Ryokan

Country: Japan

Fun fact: Hoshi Ryokan is one of the oldest family-owned businesses. It is a hotel business that the same family has owned since 718 and 46 generations.

7. Novartis

Country: Switzerland

Novartis is one of the biggest pharmaceutical companies in the world. This company was initially founded by a partnership between Edouard Sandoz and Ciba-Geigy. Today, Novartis is controlled by the descendants of Sandoz, who own the company’s largest shareholder.

FAQs

What are the key steps to successfully manage a family business?

Some critical steps to successfully manage a family business include treating it as a business, maintaining professional business operations, setting boundaries, and establishing a clear mode of business communication.

How should roles and responsibilities be divided in a family business?

It’s best to assign roles and responsibilities in a family business based on an individual's skills, experiences, and interests. It is essential to clearly define everyone’s role to ensure great performance and professional boundaries.

What are common challenges that family businesses face, and how can they be overcome?

Family businesses often experience challenges such as conflict between family members, poor succession planning, nepotism, and reluctance to adapt to changing market trends. You can address the challenges of a family business by establishing clear inheritance plans, setting boundaries between personal and professional life, and embracing innovation.

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