The Unique Challenges of Family Owned Businesses

family owned businessThe unique challenges of family owned businesses center on performance - low performance. If you have family owned businesses, there are two studies worth paying attention to, one just published, the other from 2007. Both place family owned businesses in last place in two critical categories. The first is business performance. The second is board performance.

The 2007 study, a pedigreed academic work  from the School’s of Economics at both Stanford and London, and McKinsey surveyed 4000 mid-sized companies. The upshot of that study is that a relatively small and sustained investment in leadership training results in a 25% increase in staff productivity and 65% increase in return on capital. Most organizations underplay such investments, often in favor of making investments with short-term return. Family owned businesses land squarely at the bottom of the performance list, second only to government. Ouch.

The recent Harvard Business Review study on family owned businesses looks at a number of key performance metrics for boards. Boards of family owned businesses underperform against boards of other businesses for most key metrics. Unsurprisingly, the gap is greatest at spurring the conversation about leadership succession. Perhaps in family owned businesses that's assumed -- it stays in the family.

Both studies tie these performance issues to the dynamics of intergenerational management of companies. The oldest child, may not in fact, be the best candidate for the job.

The one guiding thought that "it's all in the family" fundamentally shapes the culture. And may possibly be the one thought that hinders performance.

Disclaimer: my wife's family has very successful and well-run family owned businesses. Passed from father to son, in this case. So no doubt exceptions abound. But as a species, these studies suggest family owned businesses have unique challenges to be conscious of.

P.S. If you would like to locate where your family owned business is on the path to higher performance, use our Team X-Ray App. It'll help you pinpoint where you are and where you need to move next.