A family business can be defined as a business where a single family owns at least 51% of the equity of the business; where a single family is able to exercise considerable influence in the business; and where at least two family members are concerned with the senior management of the business.
The dilemma is that between two-thirds and three-quarters of family businesses either collapse or are sold during the first generation’s time. Only 5-15% make it to the third generation. Some international research shows that only one out of 10 family businesses make it to the second generation. Other research shows that only one in four family businesses in South Africa survive into the second generation, while only one in 10 make it to the third generation.
Family businesses differ from other types of business. The non-family business is only focussed on the interest of the business. Family businesses are about the interest of the business AND the interest of the family. And this is where difficulties and conflict develop, as seen in the three family business stories at the beginning of this article. Conflict develops in the overlap between the business and the family.
The goals of a family are generally to nurture, develop, and support family members. In contrast, firms use profits, market share, efficiency, and other economic criteria to measure performance. Research on family firms indicates that family goals and needs often are the deciding factors in many businesses’ decisions and strategies. It is not the business that makes a family business different from other business arrangements; rather, it is the family. Keeping family separate from business is therefore harmful, as it attempts to extract the one thing that gives a family business its advantage over its non-family business rivals. In other words, a family business that is able to extract and separate the family element from the business will lose the one element that makes family businesses unique and allows them to outperform non-family businesses. Family influence is the one thing that is unique to family businesses, and could be regarded as a resource to a business.
Family influence as a resource is referred to as `familiness’. It is the unique bundle of resources a firm has as the result of the interaction of the family, the firm and individual family members with one another. Familiness is regarded as a capability, in the sense that it is firm specific, embedded in the firm and its processes, and is not transferable to other firms.
But family firms also have unique qualities, problems and challenges. They have unique psychological processes fostered in the closed environment of the family business. As one client put it: “At least you don’t have to love your colleagues in a non-family business!” The intertwining of family and business concerns is at the core of the issues and questions that surround family businesses. The Price Waterhouse Coopers Family Business Survey, Kin in the Game, found that the ability to manage differences of opinion smoothly is now more important than ever, but less than a third of family businesses have introduced procedures for dealing with disputes between family members.
The dynamics in family businesses become more complex and the problems multiply exponentially when more than one family unit becomes involved, with siblings ending up working together. The multi-family ownership requires a unique combination of people skills and attitudes to make it work and special steps to avoid intra-family conflict. Working side by side presents challenges of high intra-familial stress, strain, and conflict, especially when the family lacks skills in communication, problem solving, goal setting, conflict resolution, and strategic planning.
Couple businesses are a unique form of family business with the potential to be highly successful. But they also have the potential to damage or destroy either the marriage (and the family) or the business. (In most cases the business in any case collapses when the marriage collapses). Running a successful business and having a fulfilling marriage requires specific steps and skills.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.