Definition:
In its most basic form a family owned business may be defined as “any business organization in which two or more family members are involved and the majority of the control or ownership lies within the same family”
History:
Family-owned businesses are widely considered as the oldest form of business around. Initially in villages and later on before organized guilds developed, the typical small town ironsmith or ginner would live directly above his smithy/workplace and his family members would assist him in his work till eventually he would retire and the business/shop would be passed on to the next generation.
Contemporary Family Business:
In today’s world, family businesses are widely recognized to be an extremely important part of any nation’s economic stability. In USA alone an overwhelming majority of business are owned by families. Ranging from the ubiquitous ‘mom and pop store’ present in virtually every neighborhood to the multinational conglomerate Mars whose revenues topped a staggering $33 billion in 2015.
Advantages:
Family businesses tend to have myriad advantages over other more commercial business entities:
- Tempo: The family is the most natural team in the world so the speed at which decisions are taken at times far outstrip the tempo of their non family owned competitors.
- Focus and commitment: The co-owner of a family owned business knows that his product line carries his family name and he does not have the luxury of simply walking away from it if things don’t work out, therefore such owners are typically far more committed and focused to their work and ethics than owners of other business models.
- Cohesion: Families are the most basic units of civilization the world over. Regardless of how hard ‘turf wars’ can get, ultimately the chances are the members of the same family will pull together for the sake of the family name and loyalty to each other.
- Low Cost: During lean periods such as recessions or stiff competition, members of a family unit may not be all that keen on extracting their ‘pound of flesh’, but rather may contribute capital to keep the business going.
Disadvantages:
Family business have a lot going for them, nevertheless they have their fair share of disadvantages as well:
- Nepotism: Family businesses by their very nature are ideal breeding grounds for favoritism and nepotism as the saying “It-runs-in-the-family” is taken quite literally indeed.
Lack of continuity: Sometimes the older generation simply does not know when to hand over the reins to the newer generation while at other times people who ‘inherit’ business don’t give them the time and commitment that the original builders did.
Future outlook:
More and more family-owned businesses are finding out the hard way that their offspring may simply not want to take the reins from their older counterparts. Moreover a lot of the newer generation coming in does not have the savvy of the older one. Ultimately, if family-owned businesses don’t want to be sold to their corporate rivals, they should take steps to not only attract their coming generations to the family business, but also retain their interest as well.
