Family businesses are mainly characterized by the close cultural and traditional link that exists with the family that runs them. However, this definition criterion is quite confusing, so a different approach must be made
The Characteristics of a Family Business are of three kinds.
1. Regarding property: Much of it is owned by a family, which maintains power and control of business activity.
2. Regarding power: Family members dedicate themselves to the management of the company or in decision-making positions on the board of directors.
3. Regarding continuity: Being a family member, an element of inheritance must be involved, in this case it is identified when the members of a second generation of the family participate in the company, that is, the founder's children for example.
Following the above characteristics it is much easier to identify a family business without entering into subjective judgments.
Now, two of the great problems that are identified in this type of organization are:
- The Difficulty to Grow: Indeed, while non-family companies tend to accelerate their growth after some time, family companies tend to stagnation and the consequent paralysis in their growth. Continuity: Perhaps one of the most serious long-term problems. Being subject to the cycles of the family, it may not be revitalized enough or with the appropriate periodicity.
Other explanations of why these problems arise are the existence of a perverse triple coincidence between: the last active period of the founder, the aging of the organizational structure and the maturation of the product and the market.
On the other hand, a second generation crisis has been identified in terms of the dominance and legitimation of power. This is not to mention the typical problem of financing which is a constant problem for generations. Finally, there is an intergenerational point that very few first generation entrepreneurs consider and that is the taxes that are deducted from the inheritance to the successors. This burden further weakens the financial structure and there may simply be nothing left to go around.
Professor Miguel Ángel Gallo from IESE identifies Five Profound Traps Of The Family Business, namely:
1. Confusing Ownership With Ability To Lead: It is public knowledge that this phenomenon is one of the most common within EFs. It turns out that according to the saying "Power is for power", however, owning ownership does not magically transform you into a 100% manager.
Perhaps in the early stages of the company if it could be true, however as it evolves and more expansions are needed, a responsiveness of the executives is also required.
2. Not Follow The Laws Of The Market: It is not that you decide to sell at lower or higher prices, but that the problem is much deeper and less obvious. Not following the laws of the market refers to the fact that it is possible to make the mistake of paying highly (or below normal) to the members of the family that runs it and of giving small (or overvalued) dividends to shareholders. This creates a serious distortion in the perception of costs and in the determination of prices.
3. Confusing Affection Ties With Contractual Ties: It is a trend that is difficult to eradicate completely, but that can be controlled. The affection confused with the employment relationship discourages the commitment of those who work in the company and reduces the competitiveness of the firm. The requirement within the normal parameters of the contractual labor relationship is healthy and promotes the growth of the firm and the family around it.
4. The Unnecessary Delay Of Succession: This responsibility falls on the members of the previous generation. It is up to them to be prepared to deal with this situation. It is not simply a matter of abandoning a position to leave all the problems of the company to the successors. It is about preparing future executives in advance, preparing in advance the relationship with future shareholders, resolving in advance the tax details of the inheritance, transmitting the basic points of the company's culture to those who will have decision-making power, etc.
5. Believe yourself immune to the former: The last of the traps and perhaps the most deadly. It consists of ignoring this advice and believing the lie that this only happens to other people. In the case of PE, denying these problems is like denying that people age with age. It is not even enough that we have thought about how to solve these problems but we must be attentive at all times so that they do not take us by surprise.
But do not despair, all is not lost. Essential Strengths have also been identified that, when used and fully exploited, can lead to success and prosperity.
These are basically internal conditions of the families that are transmitted to the organization. Something like that intra-family values become the standard of the organization and its canon of basic behavior on which business relationships are built. Those characteristics or strengths are of two types.
The former are called Strengths of Unity: In these are those related to the power of the family to always stay together with much stronger ties than the merely economic ones.
- Common Interests Recognized Authority Mutual Trust Communication Penetration Flexibility
The other group of strengths are those called De Compromiso: While the previous one refers to the government, this one emphasizes those characteristics that reinforce the motivation for quality work. They are part of the mystique of work and wanting to be the best.
- Surrender to an Ideal Personal Sacrifice Demanding the Best Long-Term Thinking
The purpose of family businesses is to grow over time and achieve the proposed goals. This is no different in Non-Family Businesses, however the latter do not have the powerful motivational and governance arsenal that EFs have. It is time to constantly work on the problems mentioned above and on identifying others so that continuity is a fact and growth does not stagnate.
