Stefanie Brandt-Tallqvist // September 21 2018
The family business conundrum
Never has the world been more complex and fast moving than today, and the speed is just picking up. In all fields of technology the progress has been and will continue to be exponential, technology in many fields is becoming increasingly more efficient and powerful and at the same time costing less and less. Digitalization, AI and new innovations brings a lot of possibilities for companies, but with change comes uncertainty, and many companies feel they are navigating on uncharted waters.
Family businesses are usually in very traditional fields of business simply for the reason that they have been founded many generations ago when those industries were booming. Business was perhaps more straight forward and the value chain was linear. Today companies have gone from monolog (advertising) to dialog (brand) and global e-commerce is breaking the boundaries of old school value chains. It is often said that family businesses have a capability to plan for the long term, but it is becoming increasingly harder to see the future because of this volatile and ever changing new era. The challenge is how a business with long traditions and long term perspective can create a business and a culture that is agile and ready for whatever is thrown at them. The famous author Robin Sharma said ”Nothing fails like success”. By that he meant that businesses are at their most vulnerable when they are profitable because they fail to see what is coming or what to do about it, thinking their previous recipe for success will last in the future. A recent study of Finnish family businesses listed on the stock exchange concluded that the companies in the study were investing less in research and innovation than other listed companies.. The fact that family businesses are investing less that other companies in innovation and research is worrying, as they need to brace for the future and get the most out of the new innovations and technologies that are out there.
Then we need to add the family business layer. In family businesses each generation has an increasing pressure to continue the business. There is a certain ”not on my watch” dilemma where the generation in charge does not want to be the one who fails. The more of the family income is generated from the company, the more risk averse the owners become. On the other hand the amount of owners in the family normally increase with each generation, which means that at some point owners become separated from decision making and having only a family representative in the business. This increases the pressure of not failing and makes the risk of becoming slower at decision making increase. Family businesses historically have succeeded on an average better than other companies in recession and being more careful with how they spend their money makes family businesses vulnerable in this era.
At the same time we have an increasingly aging population. This means that many of the family businesses are going through and will go through a succession process within the next few years. Sometimes they are carefully planned and executed, sometimes in the case of death or illness the succession can happen quite abruptly. Family businesses in Finland needs to put extra care into the planning as we have a heavy taxation on inheritance that can be detrimental for a business if unplanned. When faced with a succession and at the same time seeing an increasing need for investing in new talent, new innovation and customer centric solutions it can feel quite daunting to dear to take the leap, and as the business is still performing it can be scary to challenge and transform the existing business. What if the leap is taken too early? Or even worse, what if its too late? What if the changes in the business logic cuts the revenues of the existing business?
The good news is family business are very resourceful. They usually have their economy in check and decision making can be very fast as top hierarchy is usually quite flat, the owners are represented in the board or in the management. They also have the ability to stay on a charted course as there is no abruption in ownership. Everything starts with a vision, a beacon, a lighthouse. Then it is important to understand the changes needed in order to reach that vision and then the company will get a clearer view on what to concentrate on, which investments to make, what business areas can be left as part of the history books and which parts can be made more cost effective, faster and efficient due to new technologies. At Digitalist we are dedicated to help businesses with this conundrum; when to push go. We help companies start their path of finding their vision and we help them go all the way with bringing them solutions and innovations on the way. The best way to start this journey as a family business owner is to ask yourself:
How future proof is your family business?