Family businesses can be found in virtually all sectors of the world’s economies. They are economic powerhouses, credited with building vibrant communities by helping to create employment in various parts of the world.
In fact, you may be surprised to learn that family firms account for two thirds of all businesses worldwide, contributing an estimated 70%-90% of the annual global GDP. Research also shows that such businesses are the backbone of the US economy, with about 35% of Fortune 500 companies being family-controlled. These account for 64% of the US GDP and generate 62% of the country’s employment. They are also responsible for 78% of all new jobs created in the US.
As you can see, family-owned businesses are an important part of any country’s economy. Yet, due to their leadership structure, management and shareholders, they are complex entities, quite different from public companies.
They also operate slightly differently than their publicly owned counterparts. For starters, most family businesses tend to be culture and value oriented. Tradition plays an important part in their daily operations, especially in companies that have been passed down through several generations. Additionally, such companies tend to focus more on continuity, preserving their business assets as well as their family and company’s reputation. Unlike public companies, which lean towards profits for the next quarter and taking several risks in the process, family firms often incline towards incremental changes.
These characteristics can sometimes work against business innovation, earning family firms a reputation of being too tradition-bound. This can happen in the following ways:
- Heavy emphasis placed on continuity and grooming the next generation of family managers can create business leaders who have never worked in any other organizations. This limited exposure to outside innovative ideas can keep the family business’ strategy stuck in the past.
- Family members who have worked in the business for a long time can sometimes feel that they can run the firm better than anyone else and that they know best how to succeed. This can result in an unwillingness to adopt new, innovative ideas that might benefit the company.
- In some cases, the owners of family enterprises may be reluctant to take risks and jeopardize the business since it is where they’ve invested all their money.
The factors above notwithstanding, many family firms are some of the most innovative in their respective fields. Take Bacardi Cuba, for instance. This family-owned business has mastered the art of sticking to its roots while still innovating and creating new ideas. It has managed to stay in operation for over 150 years, passing through seven family generations. Throughout this period, the company has adapted and re-imagined its corporate brand numerous times to keep thriving in spite of challenging conditions. It is obvious that innovation is part of the secret to their success.
If you are the business leader of a family establishment, you can follow Bacardi’s lead by embracing innovation. Businesses are dynamic, and the strategies of yesteryear may no longer be relevant in today’s business environment. In order to keep pushing forward and remain competitive, your business needs to keep the spirit of innovation alive.
The best way to do this is by being more communicative with both employees and the younger generation of family business leaders. Senior business leaders should let employees in on the strategic direction employed by the company as well as their future plans and hopes for the business. Allowing the younger generation to air their views and contribute to running the business can go a long way towards bridging generational differences within the family enterprise.
If a family business is to succeed, the older leaders need to be more adaptive, flexible and open to meeting and implementing innovative suggestions from younger generations. This way, the firm can be more dynamic without sacrificing the heritage and traditions that made the company successful.