Strategy and growth

All in the family: Private companies voice their challenges and opportunities

Family businesses are a considerable portion of the US economy—estimates top out at 80 percent to 90 percent of all businesses.1 If you’re not among them, it’s likely you’re doing business with one or more family firms, regardless of the industry or region in which you operate.

Like any enterprise today—public, private, large, or small—family businesses of all sizes are navigating an environment that is anything but predictable. Yet beyond this universal challenge, family-owned businesses face unique issues and opportunities, as revealed in a recent report by PwC.2

Not surprisingly, market conditions topped the list of external challenges (88 percent) for US family-owned businesses. Nearly one-third of family business leaders also said that government policy—tax policy in particular—poses a challenge. Seventy-six percent of surveyed executives said that the simplification of the rules governing corporate taxes and/or the lessening of the tax burden is very important or quite important to them. For growth-oriented companies, taxes and regulatory issues around the globe are important as well and merit careful attention. Nineteen percent of survey respondents consider international tax regimes a top challenge. This percentage may rise as family businesses increasingly look beyond the constrained US market to seek revenue opportunities in emerging and fast-growing markets abroad.

In addition, US family businesses cite competition as a top concern. That said, competition is less of a challenge now than the last time PwC conducted its Family Business Survey in 2007 (21 percent now compared with 34 percent then)—possibly because key competitors in the pre-crisis landscape no longer may be in business.

Internally, finding skilled personnel is the primary challenge, and the skills that family businesses prize often are in support of new investment areas, such as IT, marketing, and sales. Other top internal challenges include sustaining sufficient capacity and meeting demand. Businesses that have been running lean these past couple of years may have low inventory levels, making it harder to ramp up quickly enough to keep pace with the business’s growth and expansion objectives.

At the same time, businesses face an ongoing need to control costs. One-off cost-containment efforts that companies made early in the recession now may have to be reinforced by more sustainable measures.

One way businesses have begun doing this is by outsourcing back-office functions through the use of shared services centers.

The survey brings to light five key areas that family-owned businesses may want to focus on in meeting these challenges going forward: growth abroad, succession planning, taxes, talent, and business model and operating structure. To that end, management teams are revisiting their agendas and are asking the following questions: Have we made the necessary big bets to set us on a course of sustained high performance over the next five years? What is our next growth engine? What changes do we need to make to achieve our business strategy? Will the big bets we’ve placed give us a competitive advantage that our peers can’t replicate? Have we sufficiently gauged our risk exposure and the best way to mitigate it?

Contemplating these questions and then formulating the answers can help family businesses navigate successfully into the next decade of the 21st century—and beyond.

Top family business challenges

Top family business challenges

1 J.H. Astrachan and M.C. Shanker, “Family Businesses’ Contribution to the U.S. Economy: A Closer Look,” Family Business Review, September 2003.

2 PwC, Family Business Survey 2010/11, “Choosing your next big bet: A US perspective,” 2011.