What Business Owners Can Learn from Family-Owned Companies

More than 20 years ago, I asked a highly respected CEO at a Tier 1 auto supplier this question: If I only read one magazine or periodical, what would you recommend?

To my surprise, his answer was Harvard Business Review.

Since then, I have been a subscriber. I must say, however, that I have considered canceling my subscription more than once, especially when they went from six issues per year to 10.

Why would I consider canceling a magazine when I seemed to be getting more for my money? It is because there is so much information, I struggle to finish reading the entire magazine before the next issue arrives.

But then, just when my guilt is about to cause me to pull the trigger, an amazingly relevant, fresh article about a topic that is not covered anywhere else appears.

That happened in the November 2012 issue.

Three professionals from Boston Consulting Group reported their findings from studying 149 publicly traded, family-controlled businesses as compared to similar companies that are not family-controlled. The article was titled “What You Can Learn From Family Business.”

Most of you are involved in family-owned or owner-operated businesses, and I would highly recommend reading the article - which can be found here.

The authors found that during good economic times, family-run companies did not earn as much money as companies with more dispersed ownership. However, when the economy slumped, family firms far outshined their peers. Across business cycles from 1997 to 2009, the average long-term financial performance was higher for family businesses than for non-family businesses in every country examined.

Their simple conclusion was this: family businesses focus on resilience more than performance.

That is worth thinking about.

Many owner-operated companies naturally think this way. They are not simply managing for the next quarter. They are thinking about employees, customers, family legacy, cash, debt, reputation, and long-term continuation. That can sometimes make them appear conservative during strong economic times. But it may also help them survive and even take advantage of difficult times.

The article identified seven differences that set family businesses apart:

1. They are frugal in good times and bad.Editorial comment: It is their own money they are spending.

2. They keep the bar high for capital expenditures.Editorial comment: Did I mention it is their money?

3. They carry little debt.Editorial comment: Over the years, our experience has been that companies with less debt make some of their best investments during economic downturns, when their competitors cannot come up with the capital.

4. They acquire fewer and smaller companies.Editorial comment: We cannot prove it with data, but anecdotally, we have observed that most acquisitions fail. Usually, bigger is not automatically better.

5. Many show a surprising level of diversification.Editorial comment: As Mark Twain once said, “Don’t put all your eggs in one basket.”

6. They are more international.Editorial comment: When your business goes cross-cultural, there is often a lot of mistrust. In our experience, family-owned businesses are often able to develop deep, healthy relationships with customers and associates in other countries.

7. They retain talent better than their competitors do.Editorial comment: In our experience, in well-run family-owned businesses, the “family” goes well beyond the family.

For those of you who own and operate family businesses, I hope these findings are encouraging.

There is pressure in business to chase growth, maximize short-term performance, and compare yourself to companies that may be operating with a very different ownership structure. But family-owned and owner-operated businesses often have a different kind of strength.

They can be patient. They can be disciplined. They can care deeply about people.

They can make decisions with a longer time horizon.

That does not mean every family business is healthy. It does not mean every conservative decision is wise. It does mean the resilience mindset is worth protecting.

Keep asking good questions:

• Are we being disciplined with spending?

• Are we taking on the right amount of debt?

• Are we investing with the long term in mind?

• Are we building a company that can withstand downturns?

• Are we creating a place where talented people want to stay?

For many business owners, resilience may be one of the greatest competitive advantages you have.

I hope these findings give you the courage to keep going, and to keep building with the long view in mind.

Resilience does not happen by accident. If you want to strengthen your company for the long term, we can help you think through the decisions that matter most.