In today’s culture where the hottest businesses are seen to be the nippy little startups led by beer and pizza-fuelled college grads, the idea of strating a family business can seem dour and dated. Such companies are regarded by many as being unprofessional and unsustainable – the stat that only 30 percent of family businesses survive into the second generation is often cited.
Family businesses are certainly traditional and steeped in history, but this isn’t necessarily a bad thing. As Professor William O’Hara, the pre-eminent expert on the theme of family business writes in his book Centuries of Success:
‘Before the multinational corporation, there was family business. Before the Industrial Revolution, there was family business. Before the enlightenment of Greece and the empire of Rome, there was family business.’
Today, those family businesses that have got passed the second and third generation appear to be some of the strongest and most resilient companies around. Family Business Magazine cites the construction company Kongo Gumi as the oldest known family business in the world, currently in its 40th generation and dating back to the year 578, when Prince Shotoku brought members of the Korean Kongo family to Japan to help construct lavish buildings royal architecture.
In a more earthy vein, the BBC recently made a documentary about the thriving butchers RJ Balson & Son, the founder of which may well have provided beef lungs and spleen to Henry VIII and Catherine of Aragon. Or indeed, one can look at the window manufacturers Neuffer from Germany, established in 1872 (just a year after the country itself was founded) it has survived two world war defeats and the bisection of the country.
Keys to the Kingdom
So what are the benefits and pitfalls of running a family business and how can one hope to create a model that is sustainable? The most evident benefit of starting and running a family business is the level of trust that is likely to be present at the beginning. This trust will allow greater flexibility and ease with straight talking and flexible management. This should of course not be taken for granted. At the beginning it is important to establish a collection of common principles should be brought together and recorded in a company constitution or mission statement. This will hopefully safe guard against ugly disagreement and confusion in the future, whether in the same generation or the next. A dissimilation plan is also particularly important to establish at this stage. Such precautions are necessary so to protect your family in the case of future business turbulence.
The close proximity of a family, both geographically and emotionally, is a double-edged sword. As much as possible, family business should try and keep work off the dinner table. At work family members should be colleagues before relations, at home they should be relations before colleagues. This of course is much easier said than done.
Where possible, a strong objective party should be established. This usually comes in the form of a board that can oversee changes to company policy and, most importantly, the succession process. In an article for The Slate, Henry Hutcheson writes that too many CEOs of family business neglect to prepare sufficiently for a successful handover. This is what is called the Monarch Exit Plan: King dies, prince takes over. Any avid historian (or Game of Thrones fan for that matter) knows that this rarely turns out well. Not everyone Mad-Cap Hal grows into a Henry V.
A strong board can ease the transition of power, temporarily over-seeing the running of the business as the old generation approaches retirement and the next generation settles into its new place. Not forgetting that a family business is first and foremost a business, is perhaps the best way to ensure success, and perhaps, like Kongo Gumi, allow the company to still be functioning 40 generations into the future.