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No business like family business!

Last updated on: February 22, 2005 13:19 IST

"Virtue itself turns vice, being misapplied..."
William Shakespeare, Romeo and Juliet. Act II. Sc. 3. 1596

Family businesses, ranging from tightly-held, private operations to publicly-traded, global corporations, are a major component of the world economy.

As a group, they significantly outperform non-family businesses. But paradoxically, many of their outstanding strengths are also profound weaknesses, or threats, to their ongoing viability.

We offer prescriptions for leveraging the virtues and avoiding the vices, and propose a strategic path to managing family businesses that can help to ensure their prosperity and survival.

Family businesses are a powerhouse of the US economy; in fact, approximately 60 per cent of all public companies in the US are family-controlled.

Family businesses account for half -- or $3.3 trillion -- of the nation's gross domestic product. More than a third of the S&P 500 are family-controlled and, on average, they've far outperformed non-family companies over the past decade, by a variety of measures, including return on assets and revenue growth.

The table takes a look at growth in profit.

Many of the top performers over the past decade are family-run firms, spanning a broad range of industries. They dominate their markets, generation after generation: consider retailing titan Wal-Mart, automotive leader Ford, Cargill (the world's largest private company), and a host of brand name luminaries.

Family firm predominance is by no means restricted to the US: some of the world's largest are also closely held and family controlled, including

  • Samsung (electronics, $98 billion in revenues, 22 per cent family owned);
  • LG Group (diversified products and services, $81 billion, 59 per cent);
  • Carrefour (retailing, $72 billion, 30 per cent)

Indian superstars have also broken into to the top 100 largest companies of the world:

Reliance ($9.6 billion, ranked No. 63), Tata Group ($8 billion, ranked No. 71), and Aditya Birla Group ($6 billion, ranked No. 87).

Top 10 US family firms (2002) 


Focus Revenue ($ bn) % Family

















Oil, Gas Agric

































Bred for success

Why do family businesses prosper? While competitive advantage, business strategy, and kismet have roles to play, we'd propose five meta virtues:

Loyalty: Family firms boast a highly developed sense of loyalty to the core unit. Blood is often thicker than water, and family members tend to test their actions against a higher standard than nine-to-five managers.

As one VP in a $1 billion family firm summed it up: "You work harder when your mother is watching you." Loyalty to the family impels many to drive harder, longer, and to eschew self-serving actions for the common (family) good.

Loyalty, a core value, tends to reinforce itself over time, as the family legacy grows. The fruits of loyalty are firms that span generations.

Focus: Successful family firms usually maintain exceptional focus on their core business, or markets. Examples abound, from Dell's tight aim on consumer-direct computer and peripherals, to Estee Lauder's uncanny hit ratio in cutting edge, upscale cosmetics.

This virtue can derive from tradition, or equally often, family business leaders' inability to leave work at the office.

When a second generation officer at a home-furnishings firm rapidly diversified, extending the family brand beyond furniture to new product categories, the repercussions were dramatic: he was replaced.

"Opportunities pop up every day," comments the successor president, "but we have a responsibility to stay true to our roots, and never forget where we came from -- money's no compensation for diluting our heritage." With a renewed commitment to the core portfolio, the brand's licensing revenues soared.

Speed: Intense internal politics aside, family firms tend to move more quickly than bureaucratic traditional firms. They often offer a crystal-clear hierarchy (father as chairman, sons as VPs), or a small set of decision-makers (the family council), so decisions can be made swiftly, with little debate.

In fact, according to a recent survey of more than 1,000 family firms, 25 per cent cite no board involvement at all, and only half have boards that meet more than twice a year.

Key managers know where to go to secure funding, and they usually know how to package their proposals in the short-hand that family members respond to: "the old man's not interested in market share -- show him cash flow, and it's a lock," explained a senior VP at a $60 million engineering construction company.

Deep pockets for growth: One of the chief advantages of a successful family empire is quick access to considerable resources. The family war chest is often earmarked for reinvestment, so managers can move rapidly to pounce on opportunities in the marketplace.

Nimble response, and accelerated investment have allowed firms like the third-generation-run V Suarez & Company, a leading diversified distributor (one of the largest Hispanic firms in the US), to dramatically enhance its competitive position.

In 1992, Budweiser held more than 52 per cent market share in Puerto Rico; V Suarez clung to a shrinking share. Nonetheless, V Suarez tested a "foreign" brand -- Coors Light.

It devised a bold marketing strategy, redefining the product's "Rocky Mountain" positioning to its seashore environment, and cut across traditional lines of distribution, leveraging multiple points of sale.

Against the odds, it went to war against the entrenched Goliath, Budweiser.

Seven years later, it seized market leadership. Today, Coors still dominates, with a 53 per cent share, generating over $300 million in revenue, making V Suarez the world's single largest distributor of Coors (380 million cans a year).

A final advantage for family-firms in this context: patient investment. Family firms can often afford to ride out market or implementation vicissitudes without triggering bank covenant defaults, or having to navigate venture capital ROI imperatives.

Follow-through: To the discomfort of many non-family managers, in family businesses you can run but you can't hide. Owners identify so closely with the business that they take implementation personally.

Failure to follow-through is more than a business shortcoming: it can become a question of family honour. Put another way, protecting shareholder value is far less abstract a motivation when the shareholders are down the hall.

Michael K Allio