Understanding the role of the family in family business

Family businesses represent many of the world’s largest companies, including BMW, Coca Cola and Ikea. Here we look at how the role of the family inevitably changes as a family business grows, and why it’s family values that really matter.

Keeping it in the family

As any family business expands from their entrepreneurial roots, a familiar pattern seems to emerge.

"Most families start with the family being the owner or manager. But then over time, the role of the family comes down," says Vikram Bhalla Managing Director of BCG Mumbai.

"They become one of the investors, and then they become pure investors. If you had a family business and your family became really complicated, and the business became really big, you might be tempted to bring in professional managers to take it forward."

This is where it gets problematic. Non-family members running the business, next generations insisting on taking it forward, even though they don’t have the skills, an increasing number of family shareholders that don’t work in the company. There’s a lot that can go wrong.

Indeed, according to research by McKinsey, less than 30 per cent of family businesses survive into the third generation of ownership.


Enterprising families

The Global Family Business Index has revealed the 500 largest family-owned companies by revenue, with global giants Wal-Mart, Ford and Tyson all prominent.

These are all deeply rooted family businesses. But how have they managed to achieve such success while still maintaining family control?

Ernst & Young’s global family business leader Peter Englisch believes it’s their ability to lead generational transitions. It’s no coincidence that 44 per cent of the firms in the index are owned by the fourth generation or older.

These companies have found a way to work well together and keep the family commitment alive for a long time. Englisch argues that the sweet spot is balancing the rational world of business with the emotional world of family.

The Takenaka Corporation knows all about that. Set up in 1610 when a shrine and temple carpenter opened a shop in Nagoya, it’s the oldest firm in the Index. The Takenaka family still run the engineering and construction company and have overcome many business, political and family threats for centuries.

Read: What I learnt from running a start-up with my partner

Success not perfection

Jeffery Scott turned his landscaping company into a successful $10 million enterprise and now offers up advice for those running, owning and working within a family business. He suggests that family businesses need to "follow all the business strategies and more" in order to be successful.

"Have specific roles, responsibilities and results for each family member. This is important for managers and ‘normal’ people in a family business. And it’s critical for family business members to be happy and successful," says Scott.

He stresses that it’s about striving for success, not perfection - especially for older generations handing the reigns over to the next generation. "Don’t look for them to do it perfectly how you would. But focus on success. That will take you much further, much faster," he says.

An alternative view is to let the second generation build their own career elsewhere first, then return to the family business with experience having proved themselves elsewhere.


Values-based leadership

Family businesses are often founded on strong family values. It’s how they run their lives and what gives their business a strong sense of identity. 

In an international survey of 336 middle-market family businesses, almost three out of four senior level executives stated that identifiable family values determine how their business is managed. And nine out of ten, attributed these values to the overall success and achievements of the business.

Ikea is a great example. The Swedish family owned and operated flat-pack furniture giant began as a ‘one-man mail’ company in 1943. Founder Ingvar Kamprad’s personality shaped the company’s values of cost-consciousness, simplicity and efficiency that has become Ikea’s recipe for success.

So, while every family business will have its own way of operating, being able to stay true to their values and find a harmonious way of working together seems to be key to long-term success and growth.

This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

More from Virgin