Building Stronger Family Businesses for the Future

For family businesses, the dynamics are more complex to set direction, introduce change, and lead bold moves with the interaction of relatives and relations.

“The family needs a mechanism for aligning the views of its members and communicating those views to managing the business.”

In our survey of family businesses, we found a high degree of leadership confidence with two underlying themes that place cracks in the foundation – the high divergence of opinion as to how to strengthen revenue generation and the level of stress around the longer-term position of companies.

The focus on how to generate revenue to strategically position family businesses for growth was the most important factor for leaders, with a high degree of agreement. However, there was a deep variation of opinion of what direction to follow to grow revenues, little agreement existed as to what path was the right fit. And leaders felt they had the lowest level of influence in creating impact around revenue generation. Family business owners felt confident in where they had come although questioned the way forward.

The balance of short term and long term showed up in the stress of family businesses. Unlike other companies, family business leaders felt a high degree of stress around the long-term vision of the company. Other entrepreneurs identified their stress mostly regarding getting what they wanted from the business, not so for family-owned companies. This could be a difference of perspective between generations as to direction and method for growth, as the implementation of new technologies ranked as one of the lowest factors of confidence for family businesses.

An essential measure of effective leadership is the ability to hold two concepts in balance, doing the right things to maintain the short-term competitiveness of the business while also making long-term investments to strengthen the company for the future. Doing what is right for now and tomorrow is the key to unlocking the revenue generation capacity of family businesses.

Ironically, the greatest opportunity for growth for family businesses, as well as the most critical challenge, both were factors within revenue generation.

This is the question that will be the catalyst for growth for family businesses, how to best position the company to generate revenue today and tomorrow, without hurting the potential in either timeframe.

The Landscape

People are complicated … and hold the keys to unlocking the opportunities for the company.

Leaders have two fundamental jobs. First, to strategically position the business for success, and then, to shape the culture to enable people to bring their best contribution. All outcomes, positive or not, are a result of the effectiveness of leaders in these two areas.

Understanding what is happening, why it is happening, and how it is playing out for people to enable the collective performance of all is the fundamental role of leaders. Research has shown that 85% of the results of a company are due to how people understand the direction of the business and work together to achieve the shared goal. Therefore, it is essential that leaders need to make sense of it all for people.

In December 2020, we surveyed 48 family businesses with the Family Business Association Atlantic, as to the strategic positioning of their companies to assess the impact of the Covid-19 pandemic and clarify what was most important for family business leaders for the future.

Our analytics are both quantitative and qualitative, measuring and mapping the perspectives of leaders of family businesses and the interactions of their level of confidence in making sense of the strength and capacity of their companies. The data provides several key insight and themes for informed decision-making, framing deeper conversations with teams, and further assessment of workforce perspectives.

The ability for leaders to make sense of it all to achieve outperformance is slim. Studies by the Boston Consulting Group and Harvard Business School reveal that only 20% of companies will outperform in the best of times, despite the energy, effort, and resources expended. And in times of crisis, as we are experiencing presently, the number drops to 12% of companies.

What creates the challenge in finding clarity of direction for leaders?

In a word – noise. There is so much information (much of it biased and compromised), it is difficult to know what matters, and what is simply distraction. And people are talking about the same things over and over again, with the same voices. Attention can be taken away from what is most important, to what is the loudest. And this shapes a reactive response, rather than a proactive position.

There are also biases playing out, even unconscious ones, that keep thinking anchored in what had worked in the past and seeking messaging that confirms what is already believed. Again, a crisis can pressure leaders to seek the comfort of the same, to provide some degree of normalcy.

But within the obstacles, lies the opportunities.

While the average company in Canada struggles to achieve 42% of financial and operational performance, the 12%, the outliers, realize three times the profitability. And the common theme among the outperforming companies lies in strategic alignment. As reported by the Oxford Said School of Business, 60% of the variance between companies that outperform, and those that stall, falter, or stagnate, is due to the alignment of direction by leaders of their strategic positioning for revenue generation, innovation, and productivity.

The starting point for alignment is the clarity of the leader of the family businesses as to what matters the most for the company, now and in the future. Being clear allows for confident and honest communication, giving people the sense of where the business is, and where it is going.

Our WorkInsights Strategic Positioning Analytic provided the tool for 48 family business leaders, of all sizes and sectors of companies, to identify what mattered most in their perspective.

The Starting Position

First and foremost, family business owners are confident their companies are positioned for the future, uncertain and ambiguous, with strengths in vitality and resilience.

Within an increasingly dynamic and turbulent business environment, with an accelerating pace of change, vitality measures durability. Assessing strategy, structure, people, and the perspective for renewal and reinvention forms the pillars of a durable, or vital company, that will thrive. Leaders ranked family business vitality at 80.2% (more than ten percent higher than other entrepreneurial companies), seeing strength in their longer-term approach to strategy. There was caution in the ability to hold a forward-looking approach for the business, innovation being unsettled as to where and how to invest. Past success was perceived as much more important for positioning to the future.

Regarding resilience, the ranking of 78.3% (also much higher than non-family-owned businesses) rested mainly on people and productivity. Families stand together and withstand adversity, encouraging people to learn and grow, provide feedback, and have confidence in the focused and deliberate direction set by leaders. However, within the mix were two potential blockages to resilient growth: making partnerships to support new business opportunities and innovating around new technologies.

Yet, leaders of family businesses were confident. Across nearly fifty companies, family business leaders ranked their confidence around strategic positioning for growth at 84.8% (much higher than the 76.0% seen for other organizations). Leadership was strong in all aspects building a committed community of people inspired by the cohesiveness of the business. Leaders were most confident about people and productivity, their companies competitive from the investment in their teams and workers. People are the reason family businesses succeed.

The perceived ability of leaders to build trust, and empower people, creates the conditions for workers to fully realize their capacity and ability, committed to a shared purpose. The approach of leaders is essential for building an inclusive and diverse working environment, supportive of innovation and growth.

Family business leaders are confident the foundation is in place for strategic growth.

It is time to broaden the perspective.

The Challenge

With a confident leadership outlook, family businesses have been positioned for growth founded in a strategy of focused execution. The attention is placed on preserving prior successes with a tactical emphasis on building on current strengths. The emphasis in the tactical past-based orientation is much deeper than for non-family-owned businesses, possibly owing to the history and tradition of the companies.

This positioning can open businesses to threats from innovation in the market and not responding to shifting consumer trends

Innovation did not play a large role in positioning companies for the future, a problem hiding in clear sight. The lowest scores of factors influencing innovation were in the ability to implement new technologies and maintain a diverse and inclusive culture. As two critical components of forward-looking companies, innovation may be a critical problem in waiting. Attention may be on revenue generation, where the true risk is building an innovative and inclusive culture.

But the recognized challenge lies in accelerating revenue generation. This aspect of strategic positioning was assessed as most important overall for leadership attention, while at the same time have the lowest ability to be influenced by leaders. And revenue generation held the greatest divergence of opinions as to how to achieve growth and then included the most critical challenge to be resolved for family businesses, as to using marketing effectively to convert prospects to clients.

Leaders of family businesses put emphasis on revenue generation as the priority for future success. Revenue generation ensures the agility of a business to remain competitive, protecting the core, responding to change, and exploring new opportunities. For family business owners, building on stability was the preferred route for revenue generation – being focused on selling core offerings by simplifying product lines, staying with profitable offerings, and keeping people close to the customer.

The three challenges to revenue generation were internal and external:

• Leaders identified the inability to use marketing effectively as the single greatest challenge for the ongoing success going forward, gaining a clear value proposition, shifting to new customer trends, and converting to digital marketing platforms were all blocks to progress

• Leaders also disagreed to the broadest extent as to how to grow revenue, there was lack of agreement of direction. Business owners held varying opinions on how to use partnerships and investments with other companies to grow (proven to be one of the greatest opportunities for growth during times of crisis and recession), how to market to prospects and leads, and the ability to repackage or bundle current offerings to adapt to customer trends. Hesitancy was the main word here.

• Leaders also felt they had the least ability to influence outcomes in revenue generation. While seeing how to impact productivity and innovation, family business owners did not believe they could take the actions needed to positively change results in different aspects of revenue generation.

While family business leaders felt more effective marketing was a key opportunity that could unlock growth, the internal questioning of the ability to influence outcomes creates noise around what direction to take, and inaction results, with people focusing on what they have been doing.

And research has shown (Harvard Business Review, March-April 2021) that leader very much can influence sales and revenue growth and should be a direction for further investigation. Leaders have an integral part to play in shaping a market-relevant strategy. The customer journey has shifted, a digital platform is imperative, and the activities entailed in sales have changed, but asking the right questions is a core responsibility for leaders to influence revenue generation as an engine of growth.

The feelings around the level of disagreement may also be resulting in stress within family leadership. In a further study of family businesses, The Mindset Project, we found one of the highest stress factors was staying focused on the vision for the company. This factor did not show up for other entrepreneurs. Family businesses tended to employ more people, have higher overall revenues, and be in existence for more years. Family business entrepreneurs worked more as well, taking fewer sick days and vacation time, and were also less able to manage stress. They were also less likely to seek professional help, tending to self-manage pressures with family and friends (60% of family business entrepreneurs talked to family as compared to 39.6% for non-family business owners).

The divergence of opinions on the direction for revenue growth and the stress around staying focused on the longer-term vision for the company, combine to highlight a potential conflict as to renewing the business.

The Opportunity

Within the data, three areas were uncovered that showed that when done well, showed the greatest boost in confidence for leaders for strategic positioning of the company for growth.

Ironically, the three areas were also all within the area of revenue generation.

When the right investments were made, using marketing effectively was shown to provide a 46% boost in overall confidence for family business leaders as to their positioning strength. Being able to understand and message value to customers was incredibly supportive of growth, and confidence in the direction of the company’s strategy. Putting attention to marketing is clearly carries a high return on time and resources.

Following effective marketing, the second opportunity with the highest payoff was partnering or investing with other companies to build new business opportunities. This direction could include joint ventures, investments in start-up companies, or mergers and acquisitions. Research from Boston Consulting Group, Bain and Company, and McKinsey and Company, all confirm that during times of crisis or recessionary periods, companies that actively seek out transactions with other businesses are more likely to outperform and be positioned for strategic growth. Family business leaders reported an 18% increase in positioning strength.

Lastly, the ability to read customer preference trends and changes in markets and repackage and re-bundle offerings in response to adapt to shifts in the landscape provided the other greatest opportunity for strategic positioning strength.

Change is inherent in each of the opportunities and making sense of signals being a foundation. With each opportunity as well, the capacity for success depended upon a clear and consistent purpose to guide decision-making and fit for the family business.

The Next Step

The key to setting strategic positioning for growth, aligned for readiness and commitment of the workforce, rests with the capability of leaders to empower people.

For family business owners, there is resounding confidence in leadership to encourage empowerment, with an 84.8% ranking on the present approach to do so. Leaders feel there are highly authentic first, supported by genuine empathy, and backed by logic. The combination of these characteristics is proven to build trust, empowering people to work individually and collectively to achieve the direction set by leaders.

The question that remains is about self-awareness, whether family business leaders truly empowering their workers and teams. Is this a familial feeling, with people collegially agreeing to save discord, or are people truly empowered to align their commitment to shared success?

Is revenue generation the true challenge for future growth, or does the problem lie in missing opportunities for innovation and diversity.

Leaders of family businesses need to invest in a round of self-awareness, insights, and reflection to uncover the answer. To find out, perspectives should be gained from the senior team, and then the entire workforce, with confidentiality, to gain the unbiased data to uncover blind spots, confirm strengths, and inform further decisions.

Family businesses are confidently positioned, much more so than other companies, building on proven successes with focus on accelerating revenue generation by building on core offerings. Effective marketing remains a mystery, and an opportunity. And there is underlying stress around the continuity of long-term vision and how best to grow going forward.

There is the perceived need to make strategic investments in innovation projects, with the collaborative feedback of teams. But are people truly empower to do so?

There lies the question to be answered through data, making sense of how people work together.

Want to understand the readiness and commitment of people on your team or your organization?

Download our white paper, Positioning Your Organization to Outperform, and learn about how to measure how people think and feel to inform your decisions, and set a direction based on purpose and perspective with people ready and committed to achieving the success you envision.