An approach for lasting family business success
The unprecedented events of the past year have presented family businesses with enormous challenges. In the North American report of the 10th Global Family Business Survey, we reveal the outlooks of family business leaders from the United States, Canada and Mexico. Although many have shown significant resilience and are optimistic for growth through 2022, now is the time for them to embrace a new formula for enduring family business success.
Family businesses that want to ensure their legacy for future generations should make plans and take steps to act on those plans now. Those plans should involve ongoing dialogues among family members and company leaders that encompass the keys to a successful future: digitization, diversification, upskilling, ESG initiatives and family continuity plans.
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“Emerging from the COVID-19 crisis, family businesses are adapting their workforce and diversifying their holdings, while continuing to support their communities.”
Jonathan Flack
US Family Enterprises and Business Leader
Family businesses that want to keep their legacy for future generations should act now. Watch a video that presents an overview of the key North American findings.
US family businesses saw reasonably strong performance over the last financial year pre-COVID-19, with 63% experiencing growth. Looking forward, 82% expect to see growth in 2021, and 96% anticipate the same in 2022.
When asked to name their top priorities for the next two years, family businesses list expanding into new markets or client segments (57%) as their top priority, followed by introducing new products or services (50%). The other priorities that fill out the top five are pursuing strategic acquisitions or mergers (45%), increasing the use of new technologies (43%) and rethinking or revising the business model (43%).
Most of the decision-makers surveyed say that diversification is essential to moving forward. Diversification may also help family businesses manage risk by avoiding having all of their eggs in one basket. Currently, 27% and 5% of family businesses surveyed have diversified businesses and family investment offices, respectively, but US respondents note that in five years they expect to see more diversified holdings in both their business (36%) and family investment holdings (14%). It’s evidence that the pandemic has driven increased urgency for families to diversify their portfolio of investments, which is now seen as key to protecting their future legacies.
What does diversification look like for family businesses? Diversification may include investing in new platform companies and add-on acquisitions for existing portfolio companies. Before embarking on diversification, a family business should have a complete and meaningful picture of financial and non-financial assets. Once they have an understanding of the shared family capital, only then can they assess the needs and objectives of both the business and the family.
Family businesses have focused on environmental, social and governance (ESG) issues for decades—even if they were called philanthropy or social responsibility. These organizations are built on values and purpose and are centered on trust with their customers, community and stakeholders.
This may require companies to more effectively communicate and report their achievements externally, something that has traditionally been an uncomfortable task for family businesses, as many prefer to keep their efforts private.
Although closing the ESG gap may be challenging, there are great incentives: Many employees want to work for companies focused on making the world a better place, and companies that prioritize ESG can increase employee engagement. Further, customers often reward companies with strong ESG initiatives, and many are willing to pay more for products and services from companies that have strong ESG values.
Family businesses have been traditionally slow to change, which makes attracting and retaining talent more challenging. A growing number of workers are attracted to organizations that offer more digital skills, more inclusivity and more flexibility. For younger generations in particular, the employee experience is becoming almost as much of a priority as the pay scale. Family businesses that fail to provide a path to digital upskilling risk losing out in the intense competition for talent.
So what are US family businesses doing about it? Eighty percent say they use technology to drive efficiency and collaboration in the business or to access relevant data for improved decision-making, and 65% have invested in required digital capabilities for employees. However, there’s still room for improvement. Only 42% say they have strong digital capabilities, and just one-third have developed a clear and documented roadmap for digital transformation, an essential tool for achieving digital goals.
The events of the past year have made it even more clear that all businesses should have a near-term business continuity plan and a long-term succession plan, because circumstances can change rapidly and in ways that are beyond a family’s control.
Yet, only one-third (34%) of US family businesses say they have a robust, documented and communicated succession plan in place. And, while most family business leaders have at least an informal succession plan in place, only a minority have fully embraced the need to not only have a plan, but to document it and effectively communicate it to all essential parties.
Despite their different opinions, 60% of US respondents believe that family members increased their communications about the business during COVID. However, only 40% believe the crisis intensified communications between different generations of family members.
Those businesses that have not yet begun planning for succession could be vulnerable to significant risks—risks such as fractured family relationships, a successor who doesn’t have the capability or credibility to lead and reluctance from external stakeholders, who may not want to work with an organization that isn’t governed by a good succession plan.
It will take leaders with a unique set of skills—the ability to uphold reliable tried-and-true ideals while generating new ideas—to maneuver through the varied crises of the post-pandemic period and beyond, and to ensure that family businesses not only survive, but thrive for future generations. The desire for a changing of the guard is becoming evident: 40% of US family businesses say they want to see the next generation’s increasing involvement in decision-making and management (globally, only 24% of family businesses are focused on next-gen involvement).
US family businesses are not waiting to get the next generation involved—67% already have next-gen family members working in the business and anticipate they will become majority shareholders within five years. More than half (54%) expect to be family controlled or family owned within five years. The current generation of leaders needs to let next-gen family members get the experience they need, while they get comfortable with letting go of the reins.
