As we embark on 2021, the business landscape remains dominated by COVID-19 and the global response to its effects. But the pandemic will pass. And its most lasting effect may be to accelerate a range of disruptions that were here before its onset – and which will continue long after it has subsided.
But what are the most important ongoing challenges or issues that private businesses specifically are facing this year? In this article we will address those that we think are most important for private businesses to consider and act on in 2021. In later articles we plan to examine them individually and highlight specific ways owners can address them.
The overarching theme across all of these issues – and one that’s central to the ethos of many private businesses – is longevity. Research consistently underlines that private and family-owned businesses tend to take a long-term view: a study by the IFB Research Foundation in 2018 found that of 2,500 UK family businesses surveyed, 81% agreed that their founder's guiding values were important to their future direction, and 64% said continuing the family legacy and tradition was an important goal. The researchers went on to state that the family businesses in the study “prioritized long-term objectives and strategies over those that are more short-term in nature.”
Longevity can be viewed through a number of different lenses – namely in terms of the business, private and societal perspectives. Today, we see private companies grappling with the need to make their operations future-proof in a more digital post-pandemic world; considering how to effect a smooth and secure transfer of intergenerational wealth; and responding to the issues of sustainability and social responsibility which are becoming ever more pivotal.
However, to secure longevity, private businesses have a combination of strengths they need to capitalize on and weaknesses they need to address.
Digital transformation is an area where the pandemic has dramatically accelerated both the pace of progress and also the urgency of radical change. In the past, digitization has largely been about introducing new technologies into the back office. Today, the growing dominance of online sales channels means it’s now about reinventing entire business models to compete in an ever more digital world. For example, during the pandemic, many retail businesses created or expanded their online presence, both as a lockdown survival strategy but also as an opportunity to future-proof their business. The result? Digitization has morphed from an IT problem into a pervasive business transformation problem.
Private businesses have both advantages and disadvantages in the digital domain. Their key competitive edge is their more closely-held nature, bringing a greater ability to think systemically and – especially for smaller players – to adapt and scale up in fast and nimble ways. However, they often lack the large-scale resources (both people and budgetary) of big corporates to drive major transformation programs.
Digital success requires the right talent, as captured in our thought leadership initiative 'New world. New skills: building the future workforce for the digital world.' A world where employees are independent decision-makers for whom workplace flexibility, diversity and job satisfaction are more important than maximizing their earnings – and where a company’s values and behavior are paramount when choosing whom to work for.
For private businesses, their core advantage lies in their embedded (often owner or founder) values, deep concern for their employees’ social wellbeing and strong implied contract with their people. Drawbacks? Compared to corporates, they have relatively fewer resources and less experience in recruiting and developing top specialist talent.
To overcome this hurdle, private businesses need to accept they can’t do everything themselves and start collaborating externally around acquiring the new types of skills they’ll need. For example, private businesses are often well established in their local communities, so active involvement in organizations such as Chambers of Commerce can open up untapped opportunities.
A significant issue for many private businesses is the protection and transfer of wealth for future purposes. Whether this involves ownership of family businesses transferring to the next generation, or owners thinking about how to use their wealth for other business or societal purposes – either way, the assets in question need to be protected for the long term.
Our client conversations confirm that managing a smooth transition of wealth to the upcoming generation is one of the biggest challenges private businesses face. But in terms of strengths, a highly positive factor is that NextGens’ digital skills and socially-aware perspective can contribute enormously to the growth and longevity of both family wealth and businesses: in our Global NextGen Survey 2019, 64% of NextGens said they believed they could add value to ensure business strategy is fit for the digital age, and 37% viewed social and environmental factors as drivers of change for the business. So what may currently look like a “perfect storm” of disruption and uncertainty could well become a “perfect acceleration” once the next generation gets their hands on the tiller.
A prerequisite for sustaining growth and longevity is keeping assets secure against compromise or attack. With the move to digital operations, cyber security becomes even more important. In the corporate world, cyber risks are primarily seen as a business issue centered on the potential loss of information. But for private companies the implications of cyber can be far more pervasive and personal.
For private business, cyber attacks pose threats that extend across all the “crown jewels” of personal wealth (even personal identity), business operations, and brand and reputation. All of which are critical to safeguarding the business’s longevity.
The broad scope of the cyber risks for private businesses brings the advantage that investments in cyber security can deliver returns simultaneously on multiple different fronts. The disadvantage they face is that, historically, private businesses have tended to be reluctant to spend money on securing their back office, preferring instead to invest in growth and innovation. But today’s reality is that a successful cyber attack could destroy everything a private business has built up – so investments in preventing that represent money well spent.
Finally: sustainability. Many private business owners are set apart by their strong commitment to making a positive difference for the public and society at large. It’s no coincidence they were in the forefront of efforts by the business community to support society during the pandemic. And challenges like climate change and income inequality are featuring ever higher in the public consciousness, meaning businesses seen as behaving irresponsibly in these areas face losing trust, customers and value.
This is arguably the issue where private businesses could have the greatest advantage of all. In many large corporates, sustainability and ESG (environmental, social and governance) initiatives are essentially a siloed process – a formal business exercise separate from the core of the business. But listed companies in particular are beginning to claim the ESG agenda for themselves. By contrast, in private businesses they’re often woven into the cultural fabric, reflecting the deep embedding of the owners’ values, purpose and legacy into strategy and decision-making. This can provide a powerful competitive edge, if private companies learn how to measure and communicate their ESG agendas – an advantage that should be increased still further by demonstrating a strong commitment to sustainable outcomes.
Nobody is saying 2021 will be easy. But as the world moves beyond the recent turmoil and tragic events, many opportunities will emerge. Private businesses will play a critical role in solving the world’s challenges at large and helping the world come back stronger after the pandemic. And by targeting the five issues we’ve highlighted – while keeping business, private and societal longevity in mind – we think they can put themselves in the forefront when it comes to realizing the full potential of the opportunities on offer. Watch out for our future series where we’ll consider in more depth how private businesses can specifically address these themes.