Taking a snapshot of the state of family businesses in the United States in 2012 isn’t an easy task. Family businesses represent approximately 90 percent of all businesses in the United States and range in size from mom-and-pop shops to the likes of Ford and Walmart. Fortunately, PricewaterhouseCoopers (PwC) has done it for us in the form of its 2012 family business survey.1 Although it’s a worldwide survey, the results give us a good sense of how family businesses are doing in the United States.
PwC interviewed almost 2,000 family businesses across the world, from both developed and emerging markets, representing sectors as diverse as manufacturing, retail, automotive and construction. The respondents couldn’t have been more varied in their size, location and industry, yet there was a marked similarity in their approach to business and in what they considered to be hallmarks of businesses like theirs.
Here are some of the characteristics the respondents reported about their businesses:
1. Long-term thinking. Family businesses are willing to invest for the long term and don’t suffer from the constraints imposed on their public company competitors by the quarterly reporting cycle and the need for quick returns. Seventy-two percent of respondents believe that family businesses contribute to economic stability, and this belief is stronger in longer established businesses of three generations or more. Fifty-three percent consider that businesses in this sector are notable for taking a longer term approach to decisionmaking.
2. Entrepreneurial mindset. Sixty-three percent of respondents think that family businesses are more entrepreneurial than other sectors of the economy, and the larger the family business, the stronger that conviction is. Likewise, 47 percent believe that family businesses have the ability to reinvent themselves with each new generation.
3. Commitment to jobs and community. Seventy-seven percent of those surveyed believe that family businesses feel a greater sense of responsibility to create jobs and will make more strenuous efforts than other companies to keep their staff, even during tough times. This translates into greater loyalty and commitment from those they employ. Seventy percent agree that community initiatives are important to family businesses.
4. A personal approach. Seventy-eight percent of respondents consider family businesses notable for their strength of culture and values, and this belief grows stronger with time (rising to 85 percent for third generation family businesses). Many believe that they win business because they’re closer to their customers and have a more personal relationship with them.
The survey found that revenue had increased and family businesses were optimistic about future prospects.
But, family businesses still face challenges due to the economic environment:
1. Revenue growth. Sixty-five percent of family businesses have grown sales in the past year, compared with less than half in the 2010 PwC family business survey. Only 19 percent of respondents saw a reduction in their sales in the last year, compared to
34 percent in 2010.
2. Future prospects. Over 80 percent of the businesses surveyed anticipate steady or aggressive growth over the next five years, and 39 percent of those expecting growth are very confident about their company’s prospects over that period.
3. Economic environment. Just like every other business, family businesses are facing major challenges in the current downturn, and in this respect, there’s little change from the 2010 survey. The three issues identified by most respondents were market conditions (54 percent), competition (27 percent) and government policy and regulation (27 percent).
4. Skilled talent. The recruitment and retention of skilled staff have become more acute challenges in 2012 than they were in 2010, with the number of businesses concerned about this issue increasing from 38 percent to 43 percent. By contrast, the need for company reorganizations or restructuring is no longer so pressing. Cash flow and cost control has also been reduced significantly as an issue, from 30 percent in 2010 to 17 percent in 2012, which suggests that many businesses have now taken the action necessary to streamline internal processes, improve inventory controls and reduce debt.
Challenge of Succession
The very essence of a family business is that it has been, or will be, passed from one generation to the next. But the moment of transition—and the years leading up to it—can make or break the firm’s future success.
According to the survey, 41 percent of respondents intend to pass both the ownership and the management of their business to the next generation, though it was noticeable that more than half of them still remained unsure whether the next generation would have the skills and enthusiasm to do this successfully.
Twenty-five percent intend to pass ownership to the next generation, but will bring in professional managers, citing the next generation’s lack of skills as the main reason for this decision. Of the remaining 34 percent, the majority had either not yet decided what to do with their business when they retire (12 percent) or were planning to sell (17 percent). (Five percent responded that they had other plans.) Those that planned to sell had come to this conclusion either because the next generation didn’t want to take the business on, were too young or didn’t have the necessary skills.
Coping with Conflict
Conflict in the family business context can arise from any number of different causes, both professional and personal. These might range from disagreements about future strategy and direction to the personal performance and remuneration of individual family members. The consequences can be temporary and minimal or so disruptive as to overwhelm what might otherwise have been a perfectly health business.
A good number of respondents had put measures in place designed to deal with potential conflict, ranging from shareholders’ agreements (49 percent) and entry and exit provisions (28 percent) to a provision for a third-party mediator (24 percent). Thirty-two percent have also instituted formal measures for assessing performance, which can be the result of bringing in professional managers, who would need such appraisals, or evidence of the need for an objective process to measure the performance of family members.
1. See “Family firm: A resilient model for the 21st century,” www.pwc.com/fambizsurvey.