10 reasons why we need family businesses

Family-owned firms play a vital role in the global economy, an undisputed and internationally recognized fact. Going a step further, I would like to highlight 10 ways in which family firms positively impact the world based on my firsthand observations of how they operate and confront challenges.

1 – They drive and sustain employment
I’m always excited when entrepreneurial families talk about their non-family employees using the phrase “they work at home.” This expression reflects a strong bond between family and non-family members, which is imperative to overcoming economic adversity with mutual resilience and loyalty and protecting jobs.

At the outbreak of the pandemic in 2020, one president of a family-owned firm made more than 300 phone calls over the course of a few days. He wanted to talk to each and every employee to reassure them their jobs were safe. In 2021, this company record its all-time best economic results.

2 – They don’t follow or fall for economic fads   
Economic-financial environments reflect certain fashions throughout their life cycles: diversification, vertical or horizontal integration and corporate M&A operations.

In most cases, business families act independently and with their own criteria. They believe in “sticking with what you know” rather than branching out and trying newfangled operations. In this sense, they follow Warren Buffet’s renowned maxim: “Risk comes from not knowing what you are doing.”

3 – Financial prudence   
Family firms generally have low debt levels because they continuously reinvest their profits back in the business and offer limited dividend policies. They also typically stay clear from “financial engineering” and when they do need to resort to acquisitions, they do so in situations of high liquidity and without risking the company’s solvency.

At times, I must admit it was hard for me to understand why they refused to invest outside their business model, which I attributed to excessive caution. But after digging deeper with the owner families and their firm’s economic ratios, reinvestment turned out to be the best alternative to boost ROI and economic profitability.

It is interesting to see this reflected in a comparative index created by a Swiss bank. In a recurrent way, it shows a better evolution over time of family firms over global indices.

4 – They apply the owner family’s values
The family transmits its values to the company: ethics, commitment and loyalty, among others. Sometimes, the family name also serves as the brand, drawing a direct line between family and corporate values. In most cases, the company is a value in and of itself that must be protected and cultivated: the culture of stewardship.

A few months ago, I was called to an extraordinary meeting of an owner family to discuss the possible sale of their company. They had received a purchase offer for a surprisingly high amount. At the start of the meeting, I was amazed that the first topic of discussion was the health of their employees amid the Covid19 crisis before deliberating the terms of the purchase offer.

After extensive debate, it was decided by the majority to reject the sale because the purchase offer didn’t ensure the preservation of the current workforce and even contemplated a possible relocation of manufacturing operations.

The strength of these decision criteria is impressive: values applied before my very eyes in real time!

5 – Long-term vision  
The concept of legacy makes it easier to have a clear purpose generation after generation, a concept that is so in vogue today. A shared mission and vision aligned with shared values allows them to stay the course, even in choppy waters.

As evidenced by the global pandemic, family owners are used to making long-term decisions. In the midst of confinement with levels of uncertainty and fear like never before, I had the privilege of joining several family businesses in online meetings and witnessing all members of the owner family analyzing, debating and taking long-term strategic decisions.

The reining uncertainty would have been a great and legitimate excuse to postpone them – but in many family firms, purpose is not deterred by a global pandemic.

6 – Deep roots in their communities and environmental commitment     
Business families are rooted in their communities, which makes relocations less likely than in other types of firms. This connection facilitates close and long-term relationships with all stakeholders. Sustainability objectives also find a natural context for shared development in family-owned firms

In the middle of the first pandemic winter, I was invited to the inauguration of a singular office building with members of the owner family. I could sense the building’s geothermal and energy efficiency in my own body temperature. But what surprised me was that, on top of its energy efficiency, the building materials used were reusable and wouldn’t generate debris at the end of the building’s life.

The family had a clear aim: they wanted to leave a legacy of circular economy!

7 – A willingness to grow 
The very need to ensure long-term continuity generates the will to grow. As the owner family grows and welcomes new generations, this determination to meet growth objectives increases value for all.

It is often the members of the new generations who provide this impulse to grow and expand internationally. I’ll never forget when I found out that family firm with an important and fruitful business in a complicated foreign market had a “secret weapon”: the eldest son had been living there for more than 30 years!

8 – Innovation 
Family businesses know their trade and business model well and are prepared to incorporate new technologies and adapt their business models to transform and enhance their value chain. They understand that ensuring their continuity relies on building competitive advantages over time.

This year, a fourth-generation family business marked its 100-plus year anniversary since its founding. Among many positive aspects, I was particularly struck by the fact that 90% of its revenues still correspond to original products designed by the company’s in-house R+D+i.

How amazing to maintain this permanent reinvestment year after year amid crises, rough times and even geopolitical conflict!

9 – Agile and discreet decision making 
Family ownership is usually closely linked to the firm’s governance and management. While this sometimes has its drawbacks, it is often a clear advantage when it comes to the speed of corporate decision-making when equity decisions are involved.

In addition, their typical discretion out of the media spotlight allows them to work efficiently and agilely. I recently attended an acquisition by a family business that won out over other potential buyers because of this discretion and agility, which generated greater confidence in the seller during the negotiation process.

10 – Resilience in the business and family spheres
Since their creation and the comings and goings of different generations, family businesses are accustomed to confronting and overcoming difficult times. They have developed and passed on the capacity for effort and sacrifice.

The purpose of legacy helps them to maintain unity and commitment and build a strong pride of belonging. In the face of difficult and complex situations, their generosity – another salient value – enables them to accept and adapt to the circumstances, both within the company and family spheres.

A founding entrepreneur, now in his 80s, confessed to me that, beyond the ups and downs over the years, the most important thing is that he is and has been very happy. And so is his family!

Conclusion: we really need family businesses!

Homepage image: Djordje Petrovic on Pexels