Myths and Realities of the Family Business

Myths and Realities of the Family Business
Image courtesy of the Family Firm Institute

Interview with Judy Green, president of the Family Firm Institute (FFI).

The family business field has often found itself subjected to a number of myths based on conventional wisdom that don’t necessarily reflect the realities of its complex nature. Many in the family business community are familiar with the perception that family enterprises are no more than local mom-and-pop stores or that 3% of family firms don’t make it past the 3rd generation. In this exclusive interview with Tharawat, Judy Green, president of the Family Firm Institute (FFI), discusses the phenomena of myths and realities of family businesses.

What do you think are the most common myths about family businesses?

The most common “myth,” in the traditional sense of the word relates to longevity and succession. As our Family Business Review editor Pramodita Sharma has noted:

If a firm went public, was sold, or closed down in favor of pursuit of other ventures, it was not considered to be a ‘successful generational transition’ as the firm did not get passed from one generation to the next of the founding family. The 30-13-3 statistic of the percentage of family firms that succeed in being transitioned from 1st – 2nd – 3rd generation took hold in the literature and media alike. These numbers reinforced sayings like ‘shirt sleeves to shirt sleeves’ or ‘rice paddy to rice paddy’ in three generations. Advisory and research efforts were directed to enable family firm leaders to ‘beat the odds’ and transition their firm to the next generation of their family. (The Practitioner, June 11, 2014)

However, recent research has shown that, among other things, families in business ran an average of three to four firms during the tenure of any one generation, and exiting a firm through sale, public offering, or closing may be signs of successful transitions rather than failure as assumed earlier.

What are some realities of family enterprises that go against conventional wisdom?

When we talk to the press and others who are not closely tied into the family business field, it is surprising how many people still think of family enterprises as either small businesses or first generation businesses. Thirty years into the establishment of the field, there is still relatively little interest in the multi-generational firm by the general public or the press.

Additionally there is the conventional wisdom that exiting or selling a company means failure. In an interesting article, “Family Advantage: Why all the doom and gloom,” written for The Practitioner, Lloyd Steier of the University of Alberta notes:

Although family firms do fail, we sometimes mistakenly confuse exit with failure. For example, it is not unusual for a family firm to be sold. Although the family may encounter challenges associated with the sale many of its members go on to become successful in other businesses, the professions, academia, and philanthropic endeavours. In other words, although the family firm ceases to exist, the family clearly thrives creating new opportunities from existing platforms.

How do myths about family firms affect decision-making and professional advice in the field?

We like to think that the members of FFI, and particularly the graduates of our GEN (Global Education Network), are quite aware of the myths and realities in family enterprise – in fact, we have an entire online course of the same name devoted to that topic!

In the vast majority of the professional community, one can only imagine how advice can be skewed if the advisor thinks he or she is “rescuing” the client from the precipice of the 30-13-3 model.

Also, advisors and consultants who are not aware of the complexity of the family business or who believe that the family dynamic is not part of the reality of the entire enterprise – or even worse, who do not want to acknowledge that component – are at risk of offering advice that is overly simplistic.

Why do you think certain myths about the family business continues to persist in spite of greater awareness about the topic?

I like medical models and, as a parallel, one can see that there is frequent resistance in the general public against new scientific research on identification, prevention and treatment of medical conditions. Think Freud vs brain science.

In family business, although there is greater awareness of the related topics and increasing research, there is a very long way to go, and much of the research we have has not yet penetrated to the family firm level.

Or to be more provocative, it’s possible that the entrenched views serve the purposes of the family business system in a non-functional way, and bringing in new knowledge is neither easy or nor popular.

Why is it important that the family business community overcome the myths and conventional wisdom about family businesses?

I think “overcome” might be too strong a word. I’d prefer to say that it’s important for the family business community to continue to examine, explore and develop new myths such as guiding archetypes, new realities, and studied opinions based on research.

As a business leader, how do you overcome challenges and what advice do you have to others looking to succeed in business leadership?

I’m not sure how much the challenge of leading a not-for-profit professional association and leading a private company overlap, but overall, I think focus and discipline are key. What are you trying to do – and for me this is as much a philosophical question as it is an operational question – and what will it take to achieve the goals? By that I mean do you have the discipline as well as the skill and the nerve to explore the territory you’ve staked out?

Our organization has had the benefit of some very unique leaders over the years. People who are intellectually curious, who have their eyes on a very big prize of impacting the global economy, and who also have business acumen. So, if I were to give advice about how to be a successful leader, I’d say surround yourself with people with these characteristics – intelligence, objectivity, the ability to think beyond themselves, but still rooted in reality.