Often when I ask a group to share a one-word description of family business, the most common response is small. True, many family businesses fit the classic “mom & pop” mold, yet they are also mid-size, large, and even huge. In most countries around the world, family businesses are between 70 and 95% of all business entities and often dominate their industry sectors.
Regardless of size, these firms have retained what makes them distinctive, family. From start-up, where 77% of all new business ventures established in the United States are founded with significant involvement of family in the business, to the more mature and successful, family-controlled firms that now make up 19% of the companies in the Fortune Global 500, up from 15% in 2005.
Additionally, a new class of family business has gained more attention. Ivan Lansberg and Devin DeCiantis at Lansberg, Gersick & Associates have co-opted a biological term for family business, the “extremophile.” Defined as organisms that thrive in physically extreme conditions where much of life wouldn’t, extremophiles exist in the family business world as well.
Collectively, these successful entrepreneurs, enterprises and extremophiles represent many of the better characteristics of family business that go overlooked; patience, trust, and entrepreneurship.
Family businesses, regardless of their size, are often constructed around a core of decision makers that are typically aligned with a common theme and direction. And when the business is a thread that is woven through the family history, there can also be an intention to see it continue. A recent study led by Antonio Revella, Ana Pérze-Luño, and María Jesús Nieto found that even when the business is in peril, the resourcefulness of families is typical – they forego salaries, and invest back into the business for the good of the business but especially for the good of the family.
Of course, such stoicism can also be fatal – and in some cases can lead to the downfall of the business, because the family might not know when it’s time to cut ties. But this ability to weather the storm – this patience capital – is what helps to explain family businesses as extremophiles.
Families are the primary brokers of trust. In developing economies where political systems may not be as stable, family businesses can supplant political systems. At the corner store in my neighbourhood, I know the business owner, the family story, and I see the next generation taking over and I have loyally supported them for over 20 years now. Family businesses can leverage this sense of trust in their positioning. S. C. Johnson & Son recently invested up to $30 million to amp up their already well known “family company” brand. Why? As CEO Fisk Johnson shares: “As a private family company, we believe we are different and we are proud of that difference. We hold ourselves to a higher standard. We work hard at nurturing a culture of caring and doing the right thing for the long term.”
Entrepreneurship is not solely the domain of tech start-ups and venture capitalists. While innovation can grow stagnant after a generation or two, for a family business to survive, each generation must bring its own identity, ideas and innovation to sustain the enterprise. Family entrepreneurship balances risk with tolerance, curiosity with knowledge and individual freedom with family support. Ask any entrepreneur who they turn to first for seed capital, help with the bookkeeping or selling their product, chances are family will be there to support the effort.
While extremophiles, as Lansberg and DiCiantis argue, succeed due to their adaptability, strong ties to their locale, and a deep connection between owner and enterprise, we see these same characteristics contributing to the success of many family businesses, small, large and even global. Leveraging the inherent trust and patience a family can provide, can allow for the business to remain entrepreneurial and successful into future generations.
Daniel G. Van Der Vliet
The John and Dyan Smith Executive Director of Family Business at Cornell University