Navigating the Economic Recovery:
The Family Business
As the nation recovers, family-owned businesses have come out of the recession as stronger and more nimble companies. According to Dr. JoAnne Norton, a consultant with the Family Business Consulting Group based in Chicago, Illinois, 60 percent of Americans own or work for a family-owned business, and many of them are actively outperforming their non-family-controlled competitors. The ownership structure of family businesses often makes for a long-term orientation that traditional public firms may lack, giving them an upper hand in challenging times.
A study published in the Harvard Business Review contends that during good economic times, family-run companies do not earn as much money as companies with a more dispersed ownership structure; but when the economy slumps, family firms outshine their peers. When the Review studied business cycles from 1997 to 2009, they found that the average long-term financial performance was higher for family businesses than for non-family businesses in every country they examined. While public companies focus on maximizing profits, family-operated businesses are likely to develop unique characteristics that keep them resilient during even the most challenging times.
The family firm is in many ways the epitome of “patient capital.” These businesses are willing to invest for the long term and do not suffer from the constraints imposed on their competitors by the quarterly reporting cycle and the need for quick returns.
“When a business thinks long-term, it doesn’t have to squeeze every penny out of an upturn,” said George Nelson, Jr., CEO of Louisiana Companies and Querbes & Nelson, independent risk management and insurance firms, and the chairman of Centenary’s Board of Trustees. “A business should be real sure it takes care of managing funds on the downside. For non-family-owned businesses, there may be more inclination to take risks, and if it doesn’t work out, you just say ‘oops’ and work somewhere else. If your father and grandfather ran it before you, you sure don’t want to be the one who kills it.”
Nelson, who is third-generation at Querbes & Nelson, argues that because owners of family businesses have a more personal connection to the money that is spent, they are more risk-averse and less likely to take on debt. Companies that took on too much debt in the early years of the great recession simply could not generate enough cash flow to pay their bills causing more than 170,000 small businesses in the U.S. to close between 2008 and 2010, according to analysis by the Business Journals of U.S. Census Bureau data.
When times are tough, many public companies find it hard to resist a quick fix, such as layoffs, leadership shakeups, or a sale. But for private family businesses—where employees and managers are relatives and selling out gambles with shared wealth—it is not that simple.
“We’re all in business to make money,” said Robert Schaumburg ’07, third-generation partner of Casco Industries, Inc., a Shreveport-based fire-services product distributer. “We want to sustain ourselves, but at the same time, it’s not necessarily all about the bottom line with us.”
Family firms appear to be saturated with the sense that the company’s money is the family’s money, and as a result, they simply do a better a job of keeping their expenses under control.
“In family business you are your own pocket book, and that affects the number of people hired,” said Norton. “We don’t ramp up and hire a lot of people, and we always run a little lean. Because of that, we don’t have to have as many layoffs even when times are tough. As a result, these cherished employees become intrapreneurial when they see things starting to go wrong in the industry and help the business come up with other products and services so that the family business and their jobs will survive.”
A 2012 survey by Pricewaterhouse Coopers (PwC) found that the vast majority of family firms believe that they are more agile and flexible than their public competitors, giving them the ability to better fill gaps in the market. Some businesses surveyed even went as far as to say that the recession became a business opportunity because they have been able to move quickly to acquire businesses at historically low values.
“If you’re a family-owned business, there is not as much strife or argument between your partner or the stakeholder who is interested in short term return on investment,” said Dr. Chris Martin, Dean of the Frost School of Business and Director of Centenary’s Center for Family-Owned Business. Instead, Martin asserts, there are often common family values and mutual goals about where to take the company at a moment’s notice.
“I believe that being in a family business is an advantage mainly because we can change a lot faster than public corporations,” said Schaumburg. “We don’t have a lot of red tape. If we want to change something, we can do it in an instant. I once heard someone say the best thing about a family business is, if you want to change, you can change immediately, and the other good thing is you don’t have to. We’re not forced into doing something we don’t have to.”
Family-owned businesses have the ability to make good decisions and react quickly by not being bound by outside investors who are purely looking at the bottom line. These private companies will spend years forgoing profit to invest in the future of the company, a strategy difficult to maneuver in a public company or one with private investors.
Norton, who was a guest keynote speaker at the Center for Family-Owned Business’ March program at Centenary College, also sees nimbleness as an intrinsic value among family-owned business.
“I see this in the family businesses I work with,” says Norton. “I ask them how frequently they meet, and many reply, ‘Every Sunday at mom’s house after church.’ That’s where they make a lot of decisions because they are a smaller group of owners who often have the same values, same religion, and almost always know what the other is going to say, but they go ahead and ask anyway.”
Seventy-eight percent of respondents to the PwC survey consider the family firm to be notable for the strength of culture and values. Shared values allow businesses to maintain a consistent point of view, experience, and message.
“I think that generally the values of a family-owned business are much stronger than the values of an entity that is not a family-owned business,” said Martin. “Those values are derived from the family. That consistency in service, values, and decisions really provides a level of outcome that can be far superior to other types of non-family owned businesses. You have a continuous line of individuals from that family as opposed to changes in leadership that take things in an entirely different direction.”
While the vast majority of businesses have values built around ideas like integrity, quality, and customer service, family businesses often showcase distinctive values that set them apart. They tend to have stronger “people values” than non-family firms and can put customers and employees ahead of profits. According to an article by Business Spectator, Sam Walton, the founder of family-controlled Wal-Mart, claimed that the focus of the company is “concern and respect” for the people. Nordstrom’s four-generation department store’s values are based on the “goodness of people.” These values create a competitive advantage.
“It’s all about your name on the door,” said Jim Broyles of the Broyles group, founded by alumnus and trustee William Broyles ’89. “Your brand is your reputation, so you can see how people would take more into consideration.”
Family firms are a generally energetic group of extremely ambitious workers. However, there are also obstacles particular to the family business sector. Some of these are specific to their business model, such as succession planning, but others are more general challenges, such as navigating disagreements with family members.
“There are not as many boundaries when working with family members,” said Broyles. “Be it a holiday, after hours, or dinner with family, it’s certainly more difficult to turn work off.”
Centenary’s Center for Family-Owned Business acts as a support group for those entrenched in the common struggles of family businesses.
“Problems [that arise] in a family business are relatively predictable, so having a program on those specific problems is pretty interesting,” said Nelson. “Just having a forum where people realize that their problems are not that different from others’ problems is helpful. Everyone tends to think their business and problems are unique, but they really aren’t.”
One of the highlights of the Center is the guest speakers who come from around the nation from major family-controlled companies. Past speakers include Matt Saurage, President and CEO of The Community Coffee Company; Garett Boone, Cofounder and Chairman Emeritus of The Container Store, Inc.; and Bruce Cakebread, President and COO of award-winning Cakebread Cellars.
Norton sees the Center as a crucial component for the community.
“Because family businesses make up so much of the economy, you would think business schools would be required to teach family-oriented courses when indeed most universities don’t even offer these programs,” said Norton. “The Center is high quality and well-sponsored with great companies. It’s a travesty that we don’t have more of these.”
“It’s very beneficial to gather new information from each speaker who visits,” said Schaumburg. “It’s also good to see other family-owned businesses from around town and see how many powerful people in Shreveport are associated with family businesses.”
Martin agrees that these members are an integral part of Shreveport.
“Family businesses are the core backbone of this community, and most communities in the country, but particularly in Shreveport,” said Martin. “Many regions are trying to bring in new business development and generally focus on the larger companies, but I think that has changed over the years because they understand these [family businesses] are long-term companies and need to be viewed as long-term for the area.”
Family-owned businesses are an integral part of the economy. Non-family businesses cling to the idea that the greater the risk, the greater the return, but the first priority for family businesses is to protect downside risk. Instead of the fast-paced bottom-line ideals that force public companies to focus on maximizing tomorrow’s share price, family businesses focus on preserving their assets and the family’s reputation.