A recent study by Nicolas Kachaner, George Stalk and Alain Bosch published in Harvard Business Review (Nov. 2012) indicates family-run businesses have an innate advantage over other models. Looking across business cycles from 1997 to 2009, the study cited seven reasons family businesses outperformed their counterpart nonfamily enterprises:
They’re frugal in good times as well as bad.
They maintain a high bar for capital expenditures.
They carry little debt.
They make fewer — and smaller — acquisitions.
They incorporate a surprising level of diversification.
They’re more international.
They retain talent more effectively than their competitors.
Talent retention has been an issue of special concern over the last year as the business rebound has challenged companies of all sizes. Retaining talent comes down to having a firm foundation of values that are lived out on a daily basis, creating a workplace that attracts and keeps the best people. A company’s culture is identified in that foundational value system.
Let’s look at one barrier and three advantages family businesses have in building a great culture.
Barrier: Baggage is passed down
At the Family Business Alliance annual meeting in October, keynote speaker Eric Allyn, a fourth-generation leader at Welch Allyn, shared a poignant moment in his company’s history. An event years earlier, in which two siblings had been given an opportunity to come into the business and another had not, led to clashes between family members that were threatening the health of the company, forcing Eric’s generation to issue an ultimatum to the company leaders. They were able to facilitate a shift in the organization and start down a path of strengthening the business and healing the family, but it took a tremendous effort, including more than three years of meetings between eight cousins.
Making people decisions in any company can be challenging, but the process can be exponentially more stressful in a family-operated business. In a nonfamily company, healing can start when people leave the organization. This is often not the case in family businesses, which is why it’s critical to deal with things in the present rather than passing issues down to future generations. Culture is built when leaders share values and vision. Only when that happens does culture breathe life into healthy relationships at all levels of an organization. The Allyn family’s act of courage changed the direction of the company. The sooner such healing happens, the better for all future generations.
Advantage: Values run deep
Jim Collins highlighted the importance of values in “Good to Great: Why Some Companies Make the Leap … and Others Don't”: “The point is not what core values you have, but that you have core values at all, that you know what they are, that you build them explicitly into the organization, and that you preserve them over time.”
Culture is more than words on the wall. The power of culture lies in how it is manifested in the actions of the organization every day. In a family business, there is depth in beliefs because they come not just from a previous president or CEO, but from former generations. Eric Allyn shared the core value at Welch Allyn that originated with his grandfather, second-generation leader W.G. Allyn: “Be always kind and true.” There is power in words, but far more in the vision of a family patriarch communicating that single value as a legacy to guide future generations.
Family business expert Craig Aronoff, another speaker at the FBA annual meeting, shared a story about the values of the Sulzberger family, owners of The New York Times. In response to the Patty Hearst kidnapping in 1974, a fear emerged among wealthy families that the same thing would happen to them. Living their value, “Without fear or favor,” with which they guided their publishing empire, the Sulzberger elders called their heirs together and let them know that if they were kidnapped, no ransom would be paid.
Advantage: Key ingredient — passion
Whenever I attend an FBA event, I look for a business owner to sit next to and ask, “Tell me about your business?” The only thing that interrupts the ensuing story is an announcement that our keynote speaker is about to start.
In entrepreneurial businesses, passion is often called “fire in the belly.” The Kauffman Foundation cites passion as a key ingredient for a successful entrepreneur. Family businesses are built by entrepreneurs and when that ownership mindset is passed on, an amazing passion surrounds that business. In West Michigan, there are multiple examples of businesses leveraging that passion into growth.
Passion for a healthy family and business can also be used to tie generations together. Eric Allyn shared an annual tradition in which extended family is brought together for one week to build bonds through service. One activity assigns each family member to a group tasked with a service project. They do everything from mission trips to bake sales — with Grandma helping the grandchildren cook!
Filling a room with passionate people can impede success, but it can also become the fuel to drive a company to greater success and to attract talent looking for more than just a successful business.
Advantage: Thinking long-term
S. Truett Cathy, founder and CEO of Chick-fil-A, committed to putting a long-term perspective in front of short-term profits by keeping his restaurants closed on Sundays. He says, “It’s not all about the money. Understand the good that your business does and communicate it to your children and all associated with your enterprise.”
In a recent study published on hbr.com of publically traded family businesses in Canada, it was found that, over the past 15 years, family-controlled businesses outperformed their counterparts in annual growth rate (7.7 percent versus 6.1 percent). Family business owners are more focused on the long term, and studies have shown that translates into better business returns.
The legacy of successful family businesses in West Michigan is something to celebrate. Behind each story is an intentional effort to build something special by leveraging the strengths of being a family in business, and to take courageous steps to pass down a legacy that will carry the business forward. Culture and success are built on leveraging a common set of values, a shared passion and the ability to think long-term.
Scott Patchin is the founder and executive director of The trU Group, a leadership development and coaching practice helping leaders and teams in high-growth organizations to develop and lead more effectively. He can be contacted at firstname.lastname@example.org.