Importance of Family Business and Its Characteristics

The family business is one of the fundamental pillars in the economy of any country. But do we really understand the importance of family businesses in the current context?

In this reading, we want to approach family businesses based on three points: what they are, their characteristics and importance.

And also, describe an initiative that arose from the current global situation, which highlights the essential role of the family business in maintaining the economy of each country.

Content:

  • What are family businesses?
  • Organizations that promote family business.
  • What are the characteristics of family businesses?
  • Importance of family businesses in the current context.
  • Conclusions.

Importance of family businesses in the current context.

What are family businesses?

A simple definition of a family business is as follows:

They are companies or business organizations created and managed by a single-family.

However, we must know that family businesses, in practice, materialize in different ways, and an essential aspect is that of succession.

The family business is everywhere, sometimes we can think that they are small establishments and sometimes the idea we can have is of large family dynasties.

We have different types and sizes. Meat companies such as Incarlopsa is an example of a family business committed under any circumstance:

We also have other examples of committed family businesses, not only in these somewhat troubled times in 2020 but for years. Values ​​are, in the case of Events Hotels, its raison d’être in its “life project”:

Taking it to the technical part …

In a more technical context, the family business is defined as follows:

A company whose heritage and governance is exercised by the members of one or more families and its strategic objective includes its continuity in the hands of the following generations.

As an organization, companies or family businesses have problems similar to any other type of company.

But, by their nature, they have to face their own problems. For example:

  • to conflicts of interest between family members and the company;
  • to the challenges of the succession process.

In fact, the topic of succession is especially important.

Statistics indicate that only a third of family businesses survive the first generation. Only one in three.

Also, statistics indicate that less than 15% reach the third generation. Of course, many variables are involved in these numbers. So it is not easy to list the causes.

Now the successful move from a family business to the next generation can be facilitated by succession planning. Planning that must contemplate a deliberate and intense training and education process.

In family businesses, heritage and governance are under the control of family members.

In turn, this personal involvement facilitates agility in decision making in many cases.

Organizations that promote family businesses

Given the importance of the family business, in countries like Spain, organizations have emerged with the purpose of making the activity of entrepreneurs and partners visible, to show their support for local health and economic problems.

Importance of Family Business and Its Characteristics

An organization with this purpose is the Damos La Cara movement, with exponential growth since the start of the pandemic declared by the World Health Organization.

It is an open initiative that wants to reflect the plurality of company projects ranging from centuries-old companies, which have been able to adapt to the reality of each moment, to innovative initiatives.

In relation to innovative initiatives, they are committed to technological development, sustainability and internationalization as a way of growth, keeping the local root and essence in their place of origin.

It is notable that more than 1,400 companies and about 1.4 million people have joined to collaborate in the relaunch of economic activity, and the recovery of well-being and employment in their territories.

In this sense, the Damos La Cara movement highlights two aspects that may be of interest for similar initiatives in countries of the region:

  • Firstly, the cooperative side of the initiative: the Spanish family business unites to face the crisis and to demonstrate that they are a key pillar in the economic and social recovery.
  • And secondly, the need and utility of the initiative at this time, based on cooperation. “The way out of the crisis inevitably passes through the company and through close public-private collaboration.”

This was the main conclusion reached by the Instituto de Empresa Familiar (IEF) and the IESE Business School, reflected in a recently published report that talks about the relaunch of the Spanish economy after the pandemic.

You can access information about this interesting movement, through their social networks:

  • YouTube channel Damos La Cara
  • Damos La Cara on social networks: Instagram – Twitter – Facebook – Linkedin

What are the characteristics of family businesses?

We can highlight the following four main characteristics in family businesses:

  1. First, the ownership of the company is concentrated in a family group. But as there is more “transit” through the generations, ownership can be divided into kinship groups.
  2. Secondly, the family group participates in the management of the company or in its government.
  3. Also, there is the intention of continuity; that is, the transmission of business and family values ​​between generations.
  4. And finally, a strength they exhibit is their resilience and solidarity in times of crisis, which increases longevity. Family businesses survive an average of 33 years compared to 12 for non-family businesses.

Now, when a business organization grows by the success of its value offer, it has to adapt in many ways. And this can force a successful family business to change its legal status.

In the case of Spain, for example, many important companies have their origins in the family business.

But, with the passage of time and the obligation to adapt, in many cases, they have had to put shares for sale and open their management to agents outside the family.

For example, new financing needs or the absence of successors are causes of transformation. So they have ended up becoming non-family businesses.

Family businesses survive an average of 33 years compared to 12 for non-family businesses.

Importance of family businesses in the current context

There is no doubt that family businesses charge today, especially relevant.

They have an important “weight” in the gross domestic product (GDP) and in the job creation of any economy.

They are part of the industrial fabric that generates the creation of companies and the development of their activity.

For this reason, the academic literature, at an international level, has been interested in the study of family businesses and their differential characteristics.

In the case of Spain, there are revealing statistical data, among which the following stand out:

  • Family businesses represent 90% of public limited companies. For the year 2015, Spain had 1.1 million family businesses, out of a total of 1.25 million existing commercial companies.
  • Family businesses contribute 57% of GDP, which is part of the gross added value, directly to the economy.
  • Family businesses represent 67% of jobs in the private sector as a whole. On the other hand, these data are consistent with what is happening at the European level.

In this sense, family businesses, despite the changes that economic globalization has imposed, constitute a key pillar in the economy of the old continent.

In fact, enterprises in this sector are responsible for job creation, in percentages ranging between 50% and 80%, in most countries.

An additional interesting fact is that the European Family Businesses calculated for 2016 that for every 4,000 new family businesses that were created, global sales would rise by around 1 billion dollars in 2025.

Of course, these projections do not contemplate global crisis situations such as those experienced in this 2020!

Conclusions

With this reading, the importance of family businesses, their main characteristics and some of their own problems is clear.

According to different studies, 90% of the founders claim that the ownership and management of their business remain in the hands of the family.

In fact, family businesses have a half-life that exceeds three decades.

But the succession process in family businesses is not a simple task. This depends on proper planning, which is not always accomplished.

Academic studies show the existence of barriers that delay such planning.

And, worse still, timely planning can find obstacles that prevent it from developing successfully.

Now, beyond their own problems, family businesses currently represent a very high percentage of the industrial fabric of any country with economic freedom,

Therefore, it is a sector, within the private initiative, generating employment, so its presence in the economy is relevant.

Hence, initiatives to promote them arise, in addition to the academic studies that are being carried out on them, for some time now.

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