3 Advantages that Family Businesses Start with over Traditional Businesses

Picture of Father and Son

Family businesses can provide many benefits to the family as well as society. Many people preach that mixing family and business is a sure recipe for disaster and estrangement, but it doesn’t have to be that way. Here are three reasons why creating a family business gives the business a competitive advantage over a traditional business.

A Family Business Understands Each Other Better

There are several natural advantages to starting and maintaining the family business. You come from the same culture. You have worked together in a variety of situations and under a variety of conditions. You know each other’s stress points. You know each other’s values. You understand each other’s point of view more easily because you can better empathize with their background. You have more in common in with them than just work and getting to know your employees is not hard to do. There is most likely a high level of trust already established with the other person, and both of you will be more willing to work through disagreements than if you did not have a prior relationship. Out of all the advantages listed, the ability to trust each other comes to the forefront.

Family Businesses Have Reduced Transaction Costs

What do non-competes, non-disclosures, and employment agreements all have in common? These contractual arrangements are created to deal with distrust between the parties. Trust is the number one reason otherwise compatible business interests fail to do business together. I probably get 3 calls a month from some internet marketing company wanting me to invest money with their firm so that they market my firm. The conversation usually takes 5 minutes of my time to get off the phone with them. It isn’t that I am not willing to pay someone for internet marketing, I just don’t trust them. It could be an otherwise mutually beneficial relationship, but because I don’t trust them we could both be missing out on revenues and opportunities. Clearly the higher risk (in many cases money) the higher the level of trust is needed to move forward. This applies in business deals, employment opportunities, job designations etc.

Employees in a Family Business Are More Easily United

Legacy families start to build the trust necessary to take risks together from the very beginning. Families that love and support each other naturally and organically develop a large degree of trust within the unit. The children know the strengths and weaknesses of each other as well as their parents. More importantly they are used to supporting each other and the relationships are strong enough to handle the contention, confrontation, correction, and embarrassment. After all they are family. One of the hardest things for a successful organization to do is to hire the “right people”. The “right people” are not necessarily the most qualified or most capable person, but is usually the most qualified and most capable person that fits within the Company’s dynamic.

Each member of the family fits within the family dynamic. They have had years and years of experience together and there is a consistency there that can be relied on. Louis Lamour is an author that leans heavily on this idea of core values in his books about the Sackets. The Sackets were family groups that shared a common ancestry, but one of the several core values shared by all the groups were to always help another Sacket if they were in trouble. The books depict many stories where one Sacket sent the call for help and the family would respond no matter the cost to their selves. It didn’t matter if it was driving several hundred head of cattle from Texas to Alaska, family feuds, or leaving family and work, the family always came.

There is strength within the culture. Having a family business where the other person’s culture, background, paradigms, and expectations are similar to everyone else’s is giant step forward as long as the culture is conducive to success. Finding the right person becomes less about who to hire and more about what skills do they need to learn. If you have the right people and you just need to focus on training, then many of the H.R. problems never surface.

There are many factors to consider when deciding whether to create/maintain a family business. Although, there are some pitfalls, such as ruined relationships, nepotism, and entitlement, there are also real advantages as well. Family employees are typically more loyal, work harder, and care more about the success of the business than non-family employees. The common culture and trust within the family can be leveraged to reduce transaction costs, and build up the business brand and reputation. Many family enterprises enjoy these competitive advantages over their competition.

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