The family businesses are important for the global economy as they live longer than the companies like those in S&P 500. A third of them are handed over to the nest generation so they have decades in which the business can grow and have a bigger impact on society, as the analysis made by Florentina Susnea, Founder & Managing Partner, PKF Finconta shows.
Globalization increases competitiveness. The world is getting smaller. Businesses thousands of miles away are in direct competition for a share in the global market. Companies with a tradition of decades disappear to take their place unicorn. The ever more dynamic economic and social landscape requires adaptation to change. The predominant mantra is “the future belongs to those agile”.
All of these aspects are well understood by family businesses around the world since 30 percent of them are handed over to the second generation, 10 percent to the third, and 3 percent to the third generation. Not the same thing can be said about S&P 500 companies whose average lifespan has fallen from 67 years in 1927 to just 15 years today.
The loyalty of family businesses
Family affairs demonstrate its value in time and thanks to the creation of an agile culture that cultivates innovation and rewards unconventional thinking. More than any other type of business, family businesses have their entrepreneurial component in their DNA, allow for mistakes that aim to improve, use social media and quickly integrate the latest technology into their business model. What is the proof? The efficiency of all these actions. The average growth expected by the International Monetary Fund for Gross Domestic Product globally is 3.6 percent, while the average increase in family business revenue in the world in 2018 is more than 9 percent.
It is worth mentioning that this growth is registered without the need for investment from external sources. Owners prefer to control not because the whole family takes care of the “child” called company and does not want to leave it to the kindergarten of an investor’s portfolio, but because home business education responds faster to change. For example, in potential market segments, landlords make quick decisions, with medium and long-term impacts, because of rapid business changes without going through complicated decision-making mechanisms and privileging short-term investor benefits.
In family affairs, investments are targeted at growth areas just to capitalize early on what appears to be a trend or to counteract the disruptive effect of new technologies. Studies show that areas of investment interest for family businesses currently are the launch of new products and services, technology, human capital, and production capacity.
What contribution do the heirs have?
Assimilated to the generation of digital natives, heirs have the eye formed to identify the potential of gaining or threatening technology or disruptive innovation. They are some kind of “galaxy guardians” in identifying trends that can remodel the market where they operate the company they will inherit from their parents. That is why their role is very important. To the extent that they are integrated faster and more involved in business, the founders and senior leaders ensuring that successors can take over their responsibilities, the family business will have continuity, increased family cohesion and a better operational performance.
Key actions to have an agile family business
- Educating the successors at the most renowned and reputable schools so that the business is not subject to any risk and is left in good hands.
- Cultivating a working environment where the mistake is not penalized but rewarded when it is aimed at improving processes, products or services
- Organize joint working teams, both hierarchically and functionally, to generate innovative solutions and responses to what competition is doing, or businesses in other industries
- Apprenticeship of heirs within the company alongside parents helps them understand the company’s financial statements and make sound financial management relevant to decision-making
- Involvement of heirs in the company’s operations by collecting their digital native talents and their transition from the role of “owner’s child” to the future CEO
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