(Brad and Jan Elliott, pictured with their grandchildren, have just transferred ownership of BTL Liners to their daughter and son-in-law | Photo courtesy of BTL Liners)
While the past two years have been challenging for all businesses, those owned and operated by family members may enjoy a benefit that their counterparts don’t have: At the end of the day, relatives who work together can support each other in ways that non-related workers likely do not. Problems can be discussed during off hours or perhaps around the kitchen table, and healthy families running a business together can lean on one another to help get through the tough times.
An article in Inc.com states that according to the U.S. Bureau of the Census, about 90 percent of American businesses are family-owned or controlled, and other sources put it at 80-90 percent. The article goes on to say that these businesses can range in size from two-person partnerships, such as husband-wife teams, to Fortune 500 or other gigantic firms (think Wal-Mart Stores Inc. and Ford Motor Co.), and they account for half of the nation’s employment and half of its gross national product.
Here are some interesting statistics about family businesses, as reported on startupsanonymous.com:
- 60 percent of the U.S. workforce is employed by a family-owned business.
- Family-owned businesses are responsible for creating 78 percent of all new jobs in the U.S.
- Only 30 percent of family-owned businesses last until the second generation, and only 12 percent will make it to the third generation.
- 47 percent of people who own a family business are planning to retire within the next five years but don’t have any kind of succession plan in place.
- Family businesses are contributing more than half (57 percent) of the total U.S. gross domestic product.
- Just under 20 percent (19.3) of U.S. firms are family-owned.
- Of the family firms that reported an annual growth rate of more than 10 percent in the year 2018, more than 80 percent also reported having a clear sense of purpose and agreed-upon values within their business.
- Almost three-quarters (74 percent) of family businesses report a strong sense of culture and values.
- 24 percent of family businesses are led by a woman who holds the rank of president or CEO.
- More than a third (31.3 percent) of family businesses have designated a woman as their successor.
- Just under 60 percent of family-owned businesses have women in top management positions within the company.
- The number of family businesses owned by women has increased by 37 percent in the last five years.
Priorities for Family Businesses
According to PwC (pwc.com), an organization that provides professional services across two segments — including trust solutions such as assurances and tax services and consulting solutions — family businesses in the U.S. saw relatively strong performances over the financial year pre-COVID-19, with 63 percent experiencing growth.” The report, taken from PwC’s 2021 Family Business Survey, says that looking forward, “82 percent expected to see growth in 2021, and 96 percent anticipate the same in 2022.”
The survey report goes on to say that when asked to name their top priorities for the next two years, “Family businesses list expanding into new markets or client segments (57 percent) as their top priority, followed by introducing new products or services (50 percent). The other priorities that fill out the top five are pursuing strategic acquisitions or mergers (45 percent), increasing the use of new technologies (43 percent) and rethinking or revising the business model (43 percent).”
On the Family Business United website (familybusinessunited.com), there are several byproducts of the pandemic that have caused family businesses to set new priorities, including diversification-led acquisitions, acceleration of succession and responding to a growing shareholder base. PwC concurs with this finding, saying in its report that most of the decision-makers it surveyed say that “diversification is essential to moving forward to help family businesses manage risk by avoiding having all of their eggs in one basket.” The report adds that the pandemic has “driven increased urgency for families to diversify their portfolio of investments, which is now seen as key to protecting their future legacies.”
Challenges for Family-Run Companies
While family businesses can thrive because of the familial ties, there are also certain challenges in running a company with relatives. An article published on familybusinessmagazine.com says that emotions and family dynamics can bleed into operational objectives, but that those hurdles can also strengthen both the organization and the family relationships. The article, written by Chad Goodfellow, CEO of a company that has spanned four generations, states, “One of the biggest sources of conflict for many family businesses ties to company growth and profit distributions, and another challenge is conflict resolution.” In the cases when those kitchen-table conversations aren’t so pleasant, Goodfellow says that “well-organized, fun and focused family meetings to communicate about each family member’s holdings and financial standing” can be key. He goes on to say that setting clear boundaries, and defining and documenting roles and responsibilities, can help family members stay in their lane.
The PwC website says that a further challenge with family businesses is that they have traditionally been slow to change, which makes attracting and retaining talent more difficult. PwC reports, “A growing number of workers are attracted to organizations that offer more digital skills, more inclusivity and more flexibility. For younger generations in particular, the employee experience is becoming almost as much of a priority as the pay scale. Family businesses that fail to provide a path to digital upskilling risk losing out in the intense competition for talent.” To address this, PwC says 80 percent of family businesses surveyed say they “use technology to drive efficiency and collaboration in the business or to access relevant data for improved decision-making, and 65 percent have invested in required digital capabilities for employees.”
Crisis Can Bring Call to Action
In a Harvard Business Review article titled A Crisis Playbook for Families, authors Josh Baron and Ben Francois say that family businesses “differ from other companies in that their form of ownership gives them the ability to take critical actions that could help them through these difficult times.” The article states, “In a business crisis, the power of family business owners is magnified. Unlike public companies, which typically focus on maximizing shareholder value, family owners value objectives that usually go well beyond financial returns (e.g., family legacy, reputation). This crisis is forcing family businesses to make trade-offs among those objectives that would have previously been unimaginable — all while dealing with the complex dynamics of a family.” The article continues, “The stress, anxiety and fear that come out in a crisis can amplify already challenging dynamics… On the other hand, the crisis can be a call to action, causing family owners to ‘rally around the flag,’ put aside their differences and take actions that allow the business to survive.”
Inside this edition of Cascade Business News, you’ll find stories about how some of our local family-run companies have weathered the storms of the past year, as well as their hopes, dreams and goals in moving forward.