Owning & Operating a Family Business Essay

A unique feature of family business is its inherent multiple and interdependent roles. The uniqueness of family business is that members of family are affected by an overlap of family, business, and ownership subsystems, with owners playing simultaneous roles among these three subsystems. These roles can be complementary, but they can also lead to confusion and create role conflict owing to differences in values between the family and business subsystems. Moreover, overlap between family and business can impede effective role performance and decision-making because of difficulties separating business decisions from family objectives.

In general, family business is defined as a company (business enterprise) managed and controlled by one family. For instance, in the United States, family firms are less likely to be engaged in manufacturing and business services. A larger proportion of service businesses are family companies in the United Kingdom. More recently, family businesses are more likely to be over-represented in such industries as agriculture, distribution, hotels and catering. Family’s businesses are, however, under-represented in the banking, financing, insurance and business services sectors (Irving and Sharma, 2005). Because of their numerical importance, the performance of family businesses is of critical importance to the development of an economy. The key difference is that, in the family business all stages of the process are likely to be influenced by family values, goals and relations. Moreover, the close inter-relationship between family and business often leads to a mix up of issues from the different contexts (Longenecker et al, 2006). The remarkable feature of family business is that it joins three elements: the family, the ownership and the business. “The combination of patient financial capital, social networks, and human capital provided by these members increases the probability of survival of new ventures and helps to sustain the business during poor economic times” (Irving and Sharma, 2005, p. 13).

The main advantages of family business involve common values and traditions, strong commitment and loyalty, stability and decreased costs. Family values remain extremely important in the small family business, where a working family life seems to be a condition for business creation and development. The creation and development of a family business is one of major motivators for entrepreneurs (beside the need to create and compete). In the family business, family concerns blend with entrepreneurial forces and managerial technologies. Research into family business also recognizes the tensions between family life and business life, entrepreneurship, management, and family concerns are all aspects of organized (economic) life and therefore important to every family business (Longenecker et al, 2006). Their co-existence becomes especially obvious in medium-sized firms that have experienced an inter-generational succession. The interfaces between the three systems ‘family’, ‘ownership’, and ‘management’ determine the outcome of the succession. Entrepreneurship again is left out and use of the notion of ‘system’ signals a functionalist/consensus approach with little concern for recognizing, let alone nurturing, the tensions between proposed aspects of the family business (Irving and Sharma, 2005).

The main disadvantages of family business are family conflicts and lack of business skills and strategic vision, need to be better than non-family employees, difficult to raise liquidity, “In some family companies, daily operations are hampered by conflict; in others, the challenge is a high turnover rate among nonfamily employees” (Challenges of Managing Family Businesses, n.d.). Conflicts between the family system and the business system typically are considered to be dysfunctional from the point of view of the firm. The family system weaknesses are ‘inward-looking’ and ‘minimizing change’. Stagnant micro-firms pay a high price for independence declining both entrepreneurship and management. Many family businesses, though, import needed management technology through their hired accountants and absorb ideas about renewal through peer exchange (Longenecker et al, 2006).

To succeed and remain competitive, family business should have a clear vision of its strategic developments and “a clear mission, a statement of purpose and goals” (Challenges of Managing Family Businesses, n.d.). Successful medium-sized family businesses materialize continued entrepreneurship. The organizations all turned out to simultaneously accommodate each of the three ideologies. The ability to actively exploit tensions between different strategies may be identified as the unique quality needed to energies entrepreneurial processes also under the pressure of institutionalization and a fading original entrepreneurial spirit in the multi-generation family business. Also, family members should recognize that “rights and responsibilities are different at home and at work” (Challenges of Managing Family Businesses, n.d.). A living democracy is constituted by multiple and contrasting ideologies. In this case, “the leader of the family business must not take sides with any member of the family” Challenges of Managing Family Businesses, n.d.). Owners of family businesses face challenges not only from operational business areas such as competitive markets, planning, financing, and marketing, but also from issues associated with ownership and family. Given these systems, it has been argued that family business owners require special characteristics and experiences to maintain an appropriate balance between business interests and those of the family. Family members should avoid ‘the status quo’ position which prevents business growth and profitability. In order to avoid dissatisfaction and complaints, the leader should introduce equity in distribution of resources and fair pay (benefits, salaries, fringe benefits).

In sum, family business represents a complex business enterprise influenced by strong personal values and traditions of the family. Family enterprises often involve multiple and interdependent roles, and owners in these businesses can be susceptible to greater inter-role conflict than non-family business owners.

References

1. Challenges of Managing Family Businesses. (n.d.). U.S. Small Business Administration. Web.
2. Irving, G., Sharma, P. (2005). Four Bases of Family Business Successor Commitment: Antecedents and Consequences. Entrepreneurship: Theory and Practice, 29 (1), 13.
3. Longenecker, J., Moore, C., Petty, J. Palich, L. (2006) Small Business Management: An Entrepreneurial Emphasis, 13th Edition, Ohio: Thomson/South-Western.