One Big Risk For Family Businesses

by: Stratford Group Ltd.

Family businesses enjoy a number of advantages when compared to their more widely-held counterparts. Advantages like agility, values-based decision-making and a long term perspective are built into the very structure of a family business. At the same time, this structure can also lead to complacency.

Agility Advantage

It’s easy to understand how the short decision tree of a family-owned business provides a an agility advantage over more more widely-held businesses. The capacity for faster, better decision-making is built into their management and governance model. After all, in a family-owned business there’s no need to “convene The Board in-camera to hear the sub-committee’s application to the Committee of the Whole’s Shareholder Value Matrix”!

Decision-Making Advantage

A less well-understood strength of the family business is its ability to make sound, values-based decisions. Even a long-term transformational decision can often be comfortably settled with a simple values-check of “what would Dad and Uncle Jack have done?”  Most business leaders are forced to ask themselves “what delivers the most shareholder value in the near-term?”, and get an answer that may be good only for those shareholders eager to sell their shares!  Similarly, the term “Corporate Social Responsibility” is foreign to a family-owned business because being socially responsible is built-in when your name is on the door! Family businesses can make better decisions because they enjoy a genuine culture that has evolved out of their founder’s own family values.

The Big Risk For Family Businesses

Family-owned businesses display one major competitive disadvantage however: they tend to defer planning for the future.  Too often they just let planning slide until a family crisis or conflict forces a response. Why rock the boat if nobody is complaining?  What they should do, of course, is plan strategically, by anticipating environmental and competitive forces, adaptively, by changing direction based on the market, and reactively, by following their competition.

The family business structure offers some very real competitive advantages. But families, just like any complex organization, do require more strategic planning as they grow, to exploit their natural competitive advantages and coordinate their thinking, participation and action.  My advice?  Start planning, my friends!

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