The secret to success for family business

You’ve often heard it said “families that play together, stay together”. But now, it seems, this saying has been quantitatively substantiated when it comes to family business success.

The 2018 Family Business Survey from KPMG Enterprise and Family Business Australia (FBA), released this month, surveyed mid-market family businesses from two perspectives: that of the current business leader and the next generation. This is the first time the views of two generations in the same business have been canvassed together in any family business survey, anywhere in the world.

Overwhelmingly, families that communicated well, put succession plans in place, actively involved the next generation in the running of the family business and understood the importance of strong governance, both from the point of view of the family, as well as the business, were those that were most likely to transition their business to second and subsequent generations.

Conversely, families that rated internal communication as poor were less likely to pass their business onto other family members. And nearly 22 per cent of future leaders rated poor communication as the number one source of family conflict.

These results show that running a successful family business is not just a matter of economics and profits. It also includes a healthy dose of what the survey identifies as Socio-Emotional Wealth, or SEW. This is the value that the family puts on relationships both within and outside the family, such as nurturing and mentoring the next generation, as well as activities such as philanthropy and community engagement. In fact, the two are inextricably linked: the higher the SEW, the higher the business’s profit margin, success and sustainability.

This may seem like inspired common sense, but consider another factor: the vision for the family business. Unless present and future generations share that vision, conflict is also likely to arise. Family business founders are likely to be more risk averse and happy with the status quo. Subsequent generations may be more entrepreneurial, wanting to take the business into new markets or exploring product diversification. The 2018 Family Business Survey clearly shows the need to balance the knowledge, wisdom and experience of the founder with the appetite for the new displayed by the next generation. Successful family businesses are those that blend these two perspectives.

A surprising finding is that 64 per cent of the next generation do not believe they are ready to take over the business. That may be because many Australian family businesses are very sizeable, and taking over means accepting a huge responsibility not only for the future direction of the business, but for staff and other stakeholders. Families that instil confidence in next generation leadership and put a management transition strategy in place early are more likely to yield the rewards of sound succession planning.

When family businesses work, we believe they are the optimal business model. The survey also shows they are innovative, forward thinking and keen to promote diversity. Although today’s family business leaders are overwhelmingly male (78 per cent), when it comes to the next generation of leaders, the ratio is evenly split, 50-50 between men and women. Corporate Australia may be lagging behind, but family businesses demonstrate they willingness to embrace the next generation of business leaders, regardless of gender.

Bill Noye – Partner and Michelle de Lucia – Director,  KPMG Enterprise

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