What Makes a Family Business Unique

What do Wal-Mart, The New York Times, The Wall Street Journal, Scripps Media (HGTV, Food Channel, Phoenix Channel 15), American Greetings and Hallmark Cards, Grupos Femsa, Bimbo and Cemex (Mexico), Hermés (France), Salvatore Ferragamo (Italy), Cox Cable, Levi-Strauss, Bacardi, Anheuser-Busch, Ford Motor, BMW , LG (Korea), Reliance Industries (India), Dillard’s, Nordstrom’s, Sara (Spain) and Metro (Germany), Marriott, Ritz-Carlton and Hyatt Hotels, SC Johnson (Windex, Pledge), Scott’s (lawn and fertilizer), Smucker’s and Mars (m&m, Snickers) all have in common? For one, they are all family businesses. So are thousands of smaller manufacturers, distributors and retailers in your own neighborhood.

In fact, family-owned and family-controlled companies:

* Constitute 80-96% of all businesses in the US and the rest ofthe free economies.
* Generate 64% of the GDP in the US and close to 80% of the GDP worldwide
* Employ 59% of the US workforce and more than 75% of the workforce worldwide
* Created 86% of all new jobs in the US in the last several years
Account for 17 million businesses in the US alone
* Make up 37% of Fortune 500 companies and 60% of all publicly-held companies in the US
* Survive into the second generation only in 32% of the cases and only 12% survive into the third generation under the control of the same family

Family-controlled firms had a 6.65% greater return on assets and return on equity and created an additional 10% in shareholder value between 1992 and 2002 than their management-controlled counterparts in the S&P 500. And according to a study by the Kauffman Center for Entrepreneurial Leadership and Babson College, families and individuals provide $56 billion, while venture capitalists provide just $4 billion of the estimated $60 billion in private equity available each year for new business start-ups.

Family businesses are ubiquitous. But family companies are definitely complex, even quirky. Ultimately what differentiates them from other businesses is the presence of the family and the intention to have the business continue from generation to generation under family control. This intention and the unique values of the owning family shape one-of-a-kind strategies that provide the business with competitive advantages. But the intent to have it continue generation to generation also poses tough challenges for the current generation in its efforts to lead both business and family to a brighter future.

Building Family Businesses that Last

Without a vision and leadership from members of two generations and the use of select family, management, and governance practices, the future is bleak for family controlled enterprises. The blurring of boundaries among family membership, family management, and family ownership subjects family businesses to the potential for confusion, slow decision making, or even corporate paralysis.

Building a family business so that it continues takes ongoing dialogue across generation of owner-managers about their vision for the company. Family businesses that have been built to last recognize the tension between preserving and protecting the core of what has made the business successful on the one hand and promoting growth and adaptation to changing dynamics on the other.