With 2020 in sight, leaders in the United States are confident in the country’s family businesses despite whisperings of a possible recession. Of respondents to the PWC 2019 Family Business Survey, 79 percent expect to deliver steady growth over the next two years with an additional 16 percent anticipating ‘quick and aggressive’ gains. Compared with company performance during 2018, a total of 64 percent of respondents report positive growth.
Concurrently, family businesses are looking forward into uncharted seas ahead. Top concerns include embracing changes in technology, digital disruption, hiring, and generational challenges. A travel agency faces very different challenges now as their customers have access to the same pricing tools and information once guarded by an agent. Taxi companies find themselves competing with any driver armed with an app and free time. If a strategic plan had been in place 10 years ago for these companies, they would have recognized the threat sooner and possibly led the disruption against their competitors in their respective industries.
Creating and implementing a strategic plan is critical to any business’ success, but family businesses face unique challenges that public companies and entrepreneurial pursuits do not. Not only do they need to consider larger-funded disruptors, but they also navigate specific challenges when positioning their companies, creating a culture, hiring, and implementing a succession plan.
Often companies charge their sales and marketing departments with creating leads to keep the pipeline full. Creating activity for the sake of running on the hamster wheel isn’t a strategic business development plan. Once established, family businesses find themselves in a state of busyness or “noise activity.” Yes, sales are closing and the company is retaining the majority of its customers, but closer review will show bellwether KPIs such as customer turn-over rate, customer lifetime value, and average customer spend starting to slip. If your company is interchangeable with many others and your customer quality is lower than preferred, there is a positioning issue at hand.
A company’s strategic plan begins with a review and statement of positioning, from which the rest of the plan unfolds. Your company’s positioning is not a mission statement or customer value proposition. Positioning clearly defines what you do for whom and the proven outcome. What you do may be easy to define but often the company’s audience is too broad (i.e. the public-at-large or anyone who will pay for your goods and services). Proven outcomes can be harder to define still as the statement isn’t aspirational — it is a statement of fact or even a guarantee.
Family-based businesses are in a unique position to add value in their positioning based on the strength of being family-owned and operated. This positioning might attract a specific audience to the brand — either customers or potential hires. Disclosing family ownership or management can also be a key differentiator in positioning if the company's competitors are large corporations. According to the 2017 Edelman Trust Barometer, people trust family businesses more than business in general (75 percent vs. 59 percent).
Fear not the association between the family business and the perception of small business. Household names such as Walmart, Mars, Ikea, and Ford Motor Company are all family-owned businesses. This positioning is also unique. One analysis showed that only one-third of the top 100 family businesses in the world actively highlight their brands as family-owned.
Family-based businesses can find themselves at a great advantage when it comes to creating company culture. Values in a family-based business come forth from the founder’s story. This story, while true, grows into lore over time, attracting value-aligned customers and employees if leveraged correctly. CEO Sigurd Haavik, one of the family owners of Aars, one of Norway’s leading automotive importers and retailers for the last 80 years, recently started to actively communicate the family aspect as part of their strategy.
“In general, the family aspect gives most people positive associations,” Haavik said. “Internally it unites the owners, especially the next generation when their assets grow to include more than what’s historically been the core business. It also unites employees and managers across business areas by creating a common sense of belonging to the family.”
While non-family owned companies struggle to mold a culture, the family-based enterprise begins with known values. Identifying, codifying and communicating culture plays a vital role in a company’s strategic plan. A review of these values, symbols and questioning their presence within the organization should be periodically reviewed. Culture permeates every function, beginning with hiring to the treatment of customers, to internal marketing.
Conversely, the family value system should be questioned if it is the right fit for the business. Just because a family-based business begins with a founding story and is built over time by the generations doesn’t mean it drives the business culture forward in a positive, productive way in the coming years.
Of the family business leaders surveyed by PWC, 85 percent cited attracting and retaining the best talent as an important personal goal in 2019 above improving profitability (76 percent). Digital disruption and generational market changes are forcing family businesses to juggle running a successful business today with planning for a future that may require different skills.
A strategic plan is more than anticipating demand and the number of hires needed. Not only are core business operations under disruption by technology, but these advances are pushing more traditional businesses to rethink their ideal hires. The speed of technology advancements is making overused statements such as “cutting-edge” increasingly hard to use as strategic positioning. Further, there are few industry standards in technology and the choices between them continue to diversify, challenging leadership to find the right applications, let alone hire employee specialists.
The decision to implement technology within the organization is only the beginning. Training is where most family businesses drop the ball according to Wayne Rivers of The Family Business Institute.
“I’ve seen people go out and spend lots of money on technology and then not be willing to spend very much at all on getting their people trained up,” Rivers said. “They just think somehow one day they're going to wake up and know it.”
Family-based companies have the unique challenge of evaluating family within the organization. Non-family members can view these younger generations as freeloaders, guaranteed hires because of relation. This perception can have negative consequences on the company culture. Alternatively, family members within the organization also need to be honest about their roles currently and in leadership succession planning.
Human capital development within strategic plan is the trifecta of positioning, culture, and hiring. After testing the company’s unique position and culture, the firm can with certainty evaluate its hiring needs.
Just 18 percent of family businesses say they have a robust succession plan. A robust succession plan isn’t just an idea, it's a documented and communicated leadership transition strategy. Having an exit plan is vital for every business at each stage. The best advice I have personally received on the subject was to “know your number or have a plan from day one.''
Often left out of consideration during early founding and growth stages, expanding businesses are now grappling with exit strategies sooner than anticipated. As the current generation ages, they intend on taking a true retirement, unlike the greatest generation before them. These boomers are very interested in slowing down and beginning to retire. But retirement to the boomers isn’t the grave, in many cases it's just the reframing of their daily activities beginning at a much younger age when they're healthy, able to travel and enjoy other pursuits. Succession is becoming more proactive between the ages of 55 and 65. Today's family business leaders reaching out for assistance on how to best go about management and ownership succession planning instead of hoping the next generation will take the reins or staying active within the company beyond their prime.
Toward this end, according to the Price Waterhouse Coopers 2019 Family Business Survey, over the next two years, close to half (47 percent) of family businesses plan to bring in outside expertise to help run the company, while 39 percent expect it’s likely they’ll buy or merge into other companies. Most (62 percent) are also encouraging the next generation to gain work experience outside the family business, with the implication being they’ll bring that experience back into the business one day.
When considering your business’ strategic plan, family companies must take into consideration generational members and their willingness and readiness to participate in the family business, and if not, plans to sell, merge, promote, or hire in executive leadership. This requires honesty among all participating members regarding not just the company but their own personal strengths and weaknesses. Grooming a hired executive, up-and-coming leadership, or a younger generation is a multi-year strategic process. Knowing your number or having a plan is essential to your strategic planning.
Whether your family business’ legacy is just forming as a vision for your child or you’re celebrating 100 years of continuity among generations, family businesses are poised for growth in 2020 and beyond. By embracing technology, training staff and questioning your founding culture, well-positioned firms who take a holistic approach to strategic planning will be able to navigate the uncharted waters ahead as we approach the 2020s.