Family Business Dynamics

Family Business Dynamics
INTRODUCTION

• Family Businesses are the oldest and most wide spread
form of business structure.
• They are potentially the most powerful business
structure in the economy
• Many of the largest companies in the world have
developed from and still are family businesses
• Despite this, they are the least studied and understood
structure in the economy.

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Structuring Businesses to Create Personal Wealth

BUSINESS STRUCTURES

Before looking at the dynamics within a Family
Business it is necessary to first differentiate
between a Corporate Business structure and an
Entrepreneurial Business Structure.

The key difference between the two is
the question of

“Ownership”.


BUSINESS STRUCTURES

“Ownership” of the business in the corporate sector
is in different hands to that of the “business”
(Shareholders/Directors)

In an entrepreneurial structure “ownership” and the
“business” are in the same hands
or at least overlap.
(Owner/Manager)



Corporate Entrepreneurial
Structure Structure

Ownership

Ownership

Business
Business


BUSINESS STRUCTURES

The question of ownership is a critical distinction because
when ownership and the business overlap, so do
business decisions and personal ambitions.

In this case it is essential to establish the personal
ambitions of the owner/CEO because the strategic plan
for the company, that will ultimately be implemented,
will be one that satisfies the owner’s personal ambitions
whether this is done consciously or unconsciously.


FAMILY BUSINESSES

The vast majority of entrepreneual companies are
small and medium sized enterprises (SMEs)

In most developed economies the SME sector
represents at least 60%of the national GDP and
of this 60%, at least 60% will be

Family Business.



FAMILY BUSINESSES

Family Businesses come in all shapes and sizes and range
from multinational giants such as Caterpillar, with $100
billion turnover, to the corner store with less than
₤100,000 turnover per annum. But, no matter what their
size,
the “family”

Now becomes and additional critical factor that has to be
analysed in addition to those of “ownership” and the
“business” itself.


FAMILY BUSINESSES

Ownership

Family Business



DEFINING A FAMILY BUSINESSES

Family members do not have to actually work in the
business to make the company a family business. In fact,
people involved in a family business can occupy one of 7
different positions
ranging from, simply being a member of the family,
to having an equity stake in the business,
to working in the business
or any combination of these.



Ownership

2

4 5
7

6
1 3
Family Business



ROLES WITHIH A FAMILY BUSINESS

These differing positions create complex forces
within the company, not only because of the
differing motivations, dependant upon the
positions occupied, but also because

these positions are not static.

.


ROLES WITHIH A FAMILY BUSINESS

Over time, the roles of different members of the family will
change

• children grow up,
• the owners become older
• other members are introduced through marriage,
divorce or even death



CHANGE WITHIH A FAMILY BUSINESS

• Not only are the roles of the “Family” not static,

• but also the “business” itself changes as it moves
through different phases of growth.

• Additionally, there are often changes in “ownership”
either due to the need to raise additional capital or to
provide either reward or inheritance benefits.




Although there are typically 7 stages of company growth
and 7 possible changes to the family,
for the purposes of illustration
only 3 stages of change
have been identified for
each of the components of a Family Business.



Cousin
Consortium
Sibling
Partnership Controlling
Owner

2

Ownership

4 5
7

Family Business
6
1 3
Enter
Business
Start Up
Work
Together Growth
Passing
Baton Maturity




One of the most dangerous periods of change for a Family
Business is when ownership is transferred from one
generation to the next.

If this is not planned well in advance, understanding the
dynamics that are at work, there is more than an even
chance that the hand over will not succeed and that the
Business will in fact close.



MANAGING A FAMILY BUSINESS

In order to effectively manage a family business it is
therefore essential to understand
• The personal ambitions of the owner/manager
• Who the family members are and which positions they
hold
• The stage of development of not only the business but
equally the family and the ownership
• What changes will occur both short and longer term and
what impact these changes will have on the business.



THE STUDY OF FAMILY BUSINESS

Unfortunately, many business schools do not differentiate
between corporate and the entrepreneurial structures
and as a result personal motivation is ignored when
discussing Strategy.

In many cases Family Businesses are totally ignored by
business schools and the core topics such as
management, strategy, finance, marketing, production
and accounting are taught without differentiating
between family and non family business.




The economic models, underlying most management
science, depends upon the inter changeability of decision
makers so that it does not make any difference
“who” anybody is.

This is clearly not the case in Family Businesses.




Many management consultants do not recognize that a
business is in fact a family business.

And even if the do, they are unaware of the dynamics
within such an organization and
consequently they fail to understand why
seemingly sound proposals based on management models
are either ignored or simply not implemented.



When the dynamics within a Family Business

are recognized and managed,

a Family Business can be a dynamic force in business.

When they are not,

a Family Business can tear itself apart.


When Sigmund Freud was asked what he considered to be
the secret of a full life he answered
“To Love and To Work”.

For most people, the two most important things in their
lives are their families and their work.

It is therefore easy to understand the potential power of
organizations that combine both, family and work, into
one enterprise
Which we commonly call

A Family Businesses.


Family Business Dynamics

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