“The authors argue that the same attributes that have long been vilified as weaknesses of family businesses – stable strategies, clan cultures, lifetime tenures – have actually created formidable competitive advantages for many of these firms…..these family owned businesses not only dominate their markets for twenty years to hundred plus years but did so by defying most aspects of modern management practice.”
Managing For the Long Run: Lessons in Competitive Advantage from Great Family Businesses, 2005
As consumers, we still attach some kind of mystic to family businesses based on the perception that they are friendlier, better employers, more caring and therefore they must produce a better product. Recognizing this marketing advantage, many family businesses continue to promote this aspect of their business. But it is more than just mystic or perception; it is a reality based on the fact that a family business has access to unique ingredients that can provide a lasting competitive advantage.
As you might have suspected, the unique ingredients stem from having ‘family’ as part of the business equation. The benefits derived from being a family in business will vary depending on the makeup and size of the family as well as its stage of evolution (i.e. 1st, 2nd 3rd generation). The following are some of the benefits that differentiate family businesses and can provide a significant competitive advantage.
Loyalty - Family members in business tend to demonstrate a greater sense of loyalty to each other and to the business. They also tend to be more committed to its success and are more passionate about what the business stands for.
Legacy – Families in business have an opportunity to create a lasting legacy which brings with it a sense of accomplishment and a strong sense of pride. Building on the efforts of their forefathers is a strong motivator for subsequent generations to become stewards of the family business and carry it too new heights in the name of the family.
Access to labor – Multi-generational family businesses have access to a labor pool of family members who, as previously mentioned, tend to be more loyal and more committed to the business. Family members also tend to be more flexible in taking on different job functions and filling in for others.
Access to capital - Family businesses often rely on the family as a source of capital for funding business activities. This source of funding has often been cited as a significant competitive advantage especially when times are tough and funding is tight.
Key employees– Key employees (non-family) appreciate and enjoy the unique work environment created by a family in business. The workplace tends to be less formal, more hands on, and more personable. Many key employees are treated like extended family and develop a strong bond with the family and the family business.
Patience – Family businesses tend to be less driven by short term financial results and are prepared to sacrifice short term gains for the achievement of longer term goals. This allows them to align the deployment of resources with their strategic objectives. This long term approach to investing is often referred to as ‘patient capital’.
Values – Family business owners have the opportunity to teach and pass along their business and personal values to the next generation of family managers/owners. Family members take pride in upholding these family values and build them into their day-to-day work and personal activities. The work culture is often a reflection of these family values.
Career opportunities– Family business owners pride themselves in being able to provide family members with career opportunities in the business. The family business can be a great training ground for family members who aspire to pursue business careers elsewhere or within the family business. Family members are also provided with the opportunity to become managers and owners of the family business.
Relationships– The opportunity to work with family members to pursue common business goals can be a very rewarding experience. Years of bonding among family members can create a strong sense of belonging and interdependency. Effectively managing these family relationships will go a long way in ensuring long-term family and business harmony.
Financial rewards– Successful family businesses are able to provide financial rewards to both active and non-active family members. It is not uncommon for family businesses to reward family members more than they could obtain elsewhere. This is often viewed as one of the privileges of being family.
Succession – As well as providing career opportunities, family businesses also favor passing the business along to the next generation of family members. The opportunity to be an owner of the family business or of any business for that matter can be both motivating and rewarding.
Community & philanthropy – Most family businesses are active in their communities. The communities benefit from both the family members as volunteers/supporters and from the family business through financial support and employment opportunities. This commitment to the community tends to permeate the generations and provide family members with the opportunity and rewards that stem from this ongoing community support.
Given that family businesses have the potential to experience this real and/or perceived competitive advantage, they owe it to themselves to be proactive and plan their succession strategies well in advance to ensure that this competitive advantage and strong business opportunity has longevity. Family businesses that are able to effectively harness these unique family attributes and leverage them into the business have the potential to grow value and create sustainable competitive advantages. Those who have successfully done this tend to dominate their markets and continue for many generations.
Case and point!
A good example of a family business that was able to leverage their family attributes in creating competitive advantage and long-term sustainability is the case of Beau’s Brewery, a micro brewery located in Vankleek Hill Ontario. Started by father and son, they tapped into the family labor pool and the family’s capital pool to get things off the ground. With a number of family and extended family members actively working in the brewery they have been able to leverage many of the family attributes outlined above to manage their rapid growth and sustain their competitive advantage. In recognition of their efforts, Beau’s Brewery earned CAFE Ottawa’s (Canadian Association of Family Enterprise) ‘Family Business of the Year’ award and went on to win the national CAFÉ ‘Family Business of the Year’ award. In accepting their awards, the owners made it very clear that without access to those unique family attributes, there would be no Beau’s Brewery.