Family business: key challenges and opportunities

This Massive Open Online Course (MOOC) considers some of the key challenges and opportunities facing family business.  In particular we will look at…

• Branding
• Marketing
• Leadership
• Place of family business within the wider business environment

What makes family business different to other businesses? The starting point is a definition of a family business and some examples. This information is presented by Business Information Technology students from Salford Business School.

What is a family business?

Family business is a broad term used to define an organisation whose ownership is controlled by two or more members of a family or partnership of families. The term can also be used to describe the strategic influence by family members on the management of a corporation, either by serving as advisors or board members, significant shareholding, or through taking an active role in management.

A family business is ususally managed by members of the same family, or a small number of families, in a sustainable manner that is capable of stretching across generations. Some families hold enough control to enable them to determine the composition of the board and can pursue the purpose of passing the business to future generations.

What is a Family Business – some key points:

What is a Family Business?

Examples of family business

One example of a well-established and substantial family business is the property group, Grosvenor. Owned in trust on behalf of the Duke of Westminster and his family, Grosvenor “owns real estate on five continents and reports just under $20 billion in assets under management.”

Advantages and disadvantages of family business

There are many advantages to Family Businesses. As the company is passed through generations of family members they have a genuine passion and pride in their business. This is reflected in a willingness to invest in long term projects and infrastructure, and their desire for stable client relationships. This is just one reason why family businesses can thrive over such long periods of time.

Sometimes the label of “family business” is itself appealing to consumers who perceive this as a mark of quality. One example of using family business as a mark of quality is SC Johnson who emphasise their family orientation and, partly as a result, are a thriving business. They have taken this focus further by adding the tagline “a family company” to their corporate logo and identification.

A  disadvantage for family businesses are the problems that arise when hiring and retaining non-family executives. In combination with the failure to plan for succession can be a recipe for disaster. Personal relationships can also blur the line between what is family and what is business. The dual challenge faced by family business then is to maintain a shared vision based on family values while still allowing for long-term business success and development.

The oldest surviving UK family business

John Brooke & Sons is believed to be the oldest surviving family businesses in the UK. It was founded in 1541 with the origins of the business found in the actions of Henry VIII and the dissolution of the monasteries in 16th century.

Originally established to manufacture fabric for military personnel, John Brooke & Sons has now changed its business focus to entrepreneurial parks and still survives today as an ongoing concern in Huddersfield. Representing the 15^th generation of the family, direct descendants Mark Brooke and his brother Massimo Brooke now manage the company.

Successful family businesses

The retailer Wal-Mart Stores, Inc. (branded as Walmart) is another example of a family business. Still owned predominantly by the Walton family, Walmart was founded by Sam Walton, and is now managed by his son, Rob.

The Walton family controls more than 50% of the Wal-Mart Corporation and so it is perhaps unsurprising that this father and son are currently some of the richest Americans ever.

Layers of business environment

The environment is what gives organisations their means of survival. Opportunities are created and threats are presented. For example, the success of Apple’s iPhone has generated rich market opportunities for many mobile phone apps developers. Although the future is impossible to predict perfectly, it is still vital for managers and CEOs to analyse their environments cautiously in order to anticipate and influence environmental change.

Understanding the business environment is an important concept for managers. For example, constant technological development changes the nature of work. This in turn, changes lifestyle which then alters consumer behaviour and purchasing patterns for many goods and services.

Porter’s Five Forces model

The image below illustrates a commonly used concept for analysing business environment – Porter’s Five Forces model. This model highlights the five common pressures on any business which are:

• Bargaining power of consumers – who can drive prices and profits down
• Threat of new entrants to the market – who could offer more competition
• Threat of substitute products – which can reduce the demand for products
• Bargaining power of suppliers – who can increase their prices
• Competitive rivalry within an industry – those offering same products and services who might be undercutting prices or offering better services:

Leadership in family business

Leadership issues in family business are a constant concern. There are many good examples of family run business such as Warburtons and Wal-Mart who use strong hierarchy in their organisation. This management structure works well within their local culture. Leadership is a key issue that affects how CEO’s successfully manage the operations of their family business.

Some key leadership challenges for a family business are…

• Managing the family dynamic and relationship
• Managing and leading the business successfully
• Managing the relationship with the people working in the business
• Managing the business through change

Family dynamic and relationship

The task of managing relationships in and out of the workplace can be a source of conflict that can hinder a family business. It is essential to keep these aspects of family and business separate to reduce potential tension that could lead to deeper problems within the family. Although it is important to manage the relationships if family members feel that they have been overlooked or undervalued, resentments can be long lasting.

Family members who are uninvolved or less involved with the business need to not feel left out or made remote from other members working within the business. These members of the family should not be asked to take sides in any business discussions or differences in order to avoid long-term problems.

Leading the business successfully

When managing and leading a business it is important to invest in developing the leadership skills of the senior managers. The leaders of the business have to create the business’s vision and mission as well as identifying and defining the values of the organisation.

Strong leadership brings out the culture of the business. The strength of culture will often dictate success of business performance. This makes it vital for organisations to understand their culture and to implement the specific actions to enhance it.

Relationship with the people working in the business

Businesses face the challenges of growth when they continue to improve making it essential for the manager to provide strategic direction and a plan to achieving this direction. The strategy needs to be aligned with the family’s overall desires and vision, recognising the strengths and limitations amongst the people running the business as well as ensuring any senior staff outside the family are given equal weight for their input.

One key people issue for a family owned organisations is the frustration for people who are not part of the family. Non-family employees may feel as though their opportunities for growth and development are limited, that family members will be brought in over them, fast-tracked or that they cannot influence their managers. Any of these thoughts can be a serious de-motivator.

Managers of a family business need to recognise and reward all staff achievement as the key to achieving the business’s strategy and satisfying both business and personal aims.

Change management

The challenge that most organisations face regardless of ownership, usually involves the need to adapt to change, either pro-actively or reactively. However, within family owned businesses the key challenges outlined above in leadership are still present, with the extra pressures they can apply.

Family businesses face the same challenges for their leadership as any other organisation as they need good strong leadership. Their situation is different because of the additional dynamics within the family and workforce which require extra skills to handle effectively. Running a family business requires to continually develop their own abilities as leaders, strategic thinkers and directors, working on communication and influencing skills to keep people alongside the vision and strategy while being able to put yourself in their shoes.

Branding and marketing in a family business

Branding and Marketing a Family Business

Best practice

Before a person makes a purchase from a business they usually have a positive reason for using that specific company. By having it widely known that a business is a family business it can be seen as a valuable characteristic to the consumer depending on the business’s category. The aim of branding a business is to effectively distinguish it amongst possible competitors. If the business is successfully distinguished to the public or target audience by having a continual branded theme it also offers a perception of validity to the customer by offering familiarity of what the business offer and possibly stands for ethically.

A business that is family owned can fully capitalise by making sure they are perceived by the public in a specifically closely managed way. By doing so this gives friendly characteristics as opposed to a large company with no distinguishable personal characteristics within its running process. By effectively being branded as a family business the stigma of profit driven businesses can be disassociated.

Key Steps

Branding and marketing a family business can be done effectively when applied to the AIDA(Attention, Interest, Decision, Action) marketing model. By utilising effective networks to reach the target audience, and then informing them of the businesses and the fact that it is a family business the Person may then make the decision possibly based on this information to perform the action of using your business as their choice as a possible implication.

Maintain High Customer Value

Maintaining a consistent value of customers while providing a service or product will not only deliver customer satisfaction but boosts the reputation and ethical perception of a family business

Hold Strong Value in Employees

A report from the Institute for Family Business has shown that employee’s in a family business:

• are more likely to regard their managers as good at responding to suggestions and allowing them to influence final decisions;
• are more likely to report managers can be relied on to keep their promises and treat employees fairly;
• report greater job satisfaction with regard to the sense of achievement they get from their work, the scope they have for using their initiative and the amount of influence they have over their jobs;
• report greater loyalty to their business;
• are more satisfied with their job security.

Staying with Tradition

One of the unique characteristics of a family business is to offer a service or product in a specific way that is recognised by the public, this can be a large motive for maintaining value from the target audience.
Willingness to Evolve
The image of a family business is usually tightly connected with the traditional values of its niche, the uniqueness of family businesses is that they are usually multi-generational meaning that they have successfully survived overtime while offering their service or product. To do this there a business will have to adapt to customer needs over time effectively.

Maintaining Consistent Marketing

Consistent Marketing and branding is what sets apart a business from its competitors. It provides a way for customers to identify a product or service and have a predetermined expectation possibly based on experience or expected experience. In family business it is expected that consistent branding is withheld for great lengths of time.

A family business will have predetermined characteristics that they aim to instil within the public’s perception. When a customer chooses to use a family business they are not just buying a product or service they are buying a creation that is ingrained with values developed and sustained over a long period of time.

The purpose of a family business is not about making as much profit as possible but providing a service or product consistently that meets the criteria originally set by the business through tradition and agreed values. This can be noted in family businesses that have potential to have a wide variety of services and products but remain in a specific niche, Toyota is an example of this as they consistently provide a high level or automotive products and services.

A logo is usually the initial representation when somebody thinks of a brand. Although logos are usually simple in the aim of making it as memorable as possible it is important to keep consistency in this element of branding to ensure that the customers stay as familiar as possible. It is good practice that there is a logo to visually represent a business wherever they are present, for example at a businesses’ headquarters or buildings, on documents sent to any members of public, newsletters and social media outlets or website. It is most important that a family business follows these procedures as they are especially regarded as traditionally functioning.

Passion for the core idea is essential. From the start of any family business, there will be specific rationale for offering a product or service in the desired way that a business intends on. It is important for a family business to maintain the core idea it has in order to uphold its identity and unique offering. This can be done in a number of ways such as:

Passion for Core Idea – Vision

A strong vision of the future of the business and how it is intended to be operated in order to be a success while staying fully attached to the core idea for example the company Warburtons are the second biggest grocery brand in the united Kingdom and have kept the core idea that they are a family run business focused on baking to a high standard.

Succession

Due to the close relationship of staff in the operation of a family business a potential benefit is that succession whilst maintaining the passion for the core idea is possible, before succession takes place it is likely that the next person to have a large influence over the business is already highly invested in providing the product or service at its current level.

Values

The core idea of family businesses is usually to offer a product or service with specific values. The values offered are usually exclusive to the business and are not just customer focused but stakeholder focused as a family business strives not to be dictatorial which can be saw as a huge benefit compared to competitor in terms of marketing.
A way of reinforcing the core values of a business and also marketing the values that the business has is by encompassing a well established mission statement that is known throughout the business and is memorable. Wall Mart Make use of having the same mission statement and advertisement slogan which is “we save people money so they can live better.” This example is not catchy but the simplicity helps the slogan to be memorable and clearly has a defined purpose that the customers and staff at all levels can keep in mind.
positive feedback loops

By analysing any positive feedback loops whether it is in the form of profit or customer feedback a family business can evaluate the customer reaction whilst maintaining the integral core ideas that have been instilled consistently through the business’s history.

“I don’t know if a company can have a soul, but I like to think it can. And if it can, then I’d like our soul to be an old soul—and everything that implies. I’d like to talk about things like values and soul. These things aren’t transient. These are things you build forever (Sherrill, 2000).” – William Clay Ford, III, Chairman
Ford Motor Company

By staying in touch with customers it enforces that the relationship between customers and a family business is special, From being recognised as a family business it is possible that customers regard the business as highly moral and reward the family business by providing them with loyalty and over a period of time a customer base is established.
A successful family business is not just seen by its customers as product or service seller. It is seen as an integral part of a community, region or even a nation depending on the scale of the business.

Key steps for customer interaction

General Feedback

Over time customer demands may change it is necessary for longevity to adapt to maintain staying well in touch with customers. A large portion of this is feedback, Due to family business being traditional and usually have traditional processes any feedback given on a product or service may lead to a reluctance to accept criticism and not accepting undesirable feedback over an extended period of time will possibly lead to a loss of customers that family businesses usually have.

Social media

By utilising social media there is no financial start up cost and due to the use of social networks the reach ability you may have towards your customers is unlimited. To make use of social media effectively you will have to make sure that all profiles representing the business are constantly up to date as they have a potentially large impact on how the business is viewed.

Content will also need to be posted regularly, if left not updated for a long period for extended periods of time there will be limited reach to new followers and maybe even a loss of some. From posting your content this will open up the potential for interaction with customers for you to engage with and extend interactions.

Invest in Technology

The operations of family businesses are viewed as a series of long-established traditional techniques that would have been acquired over a long period of time. The marketability of a business can be greatly enhanced of any business if they can make full use of modern web 2.0 technologies, as this has became a integral part of modern day society it can be of great benefit to a business to adapt in order to capitalise and stay harmonised with customer demands. U