When Business Is in the Blood


SPECIAL REPORT: FAMILY BUSINESS

When Business Is in the Blood

What Successful Successions Need

A Clan on the Cutting Edge

Families, United to Grow

Viewpoint: Equal vs. Fair in Family Businesses

New Spins on Old-Fashioned Virtues

Smart Answers: Filling Father's Business Shoes

Turning Hair Loss into Gain

Talk to enough family-business owners, and one thing becomes clear very quickly: For those with their own name on the shingle, business and family life are intertwined. Yet with increasing specialization, competition from corporate giants and from outsourcing, family businesses are under more pressure than ever to innovate, find new efficiencies, and improve performance. In this five-part Special Report, BusinessWeek Online looks at the future of the family business and explores how savvy owners can see their businesses grow and prosper in the coming years -- along with examples of companies that are doing just that.

Most surprising, perhaps, is the degree to which family businesses still play a central role in the life of every American consumer. Think about how many commercial transactions bring you in touch with a family-run company every day. The grocer around the corner, you favorite tailor, your doctor, even a chain of mom-and-pop variety stores that began in Rogers, Ark., better known today as Wal-Mart (WMT).

Chances are that you also work for one of these small businesses. An estimated 6 of every 10 private-sector workers do. "Without family businesses, we would have no economy," says Joe Astrachan, director of the Cox Family Enterprise Center at Kennesaw State University, one of the premier research sources on family businesses.

ACORNS AND OAKS. Then there are the corporate giants -- from Wal-Mart to Ford (F), from Wrigley (WWY) to Walgreen's (WAG) -- that trace their roots to humble, homegrown beginnings. One-third of the S&P 500 still have founding families involved.

So what constitutes a family business? Astrachan and colleague Melissa Carey Shanker define them as companies with employees that either have multiple family members in management positions or have survived multiple generations under family control. As such, they have identified at least 3 million companies in the U.S. as family operations, representing 29% of gross domestic product ($2.6 trillion) and 27% of the workforce (36 million people).

Expand the criteria to include farms, sole proprietorships, and any other business entity where a family member has control of strategic direction, and that number jumps to 24.2 million, responsible for 64% of GDP ($5.9 trillion) and 62% of the workforce (82 million people). "Virtually all businesses," Astrachan says, "start out as family businesses."

FAMILY VALUES, VALUED FAMILIES. Family businesses tend to be more traditional in outlook and culture, but they evolve and experience new challenges and opportunities just like any company. And therein reside problems for the future. As has been the case for generations, most family-run operations are complacent and, at worst, defiant about succession planning -- an oversight that remains the principal downfall of family-run companies (see BW Online, 1/25/05, "What Successful Successions Need").

That's why an increasing number of family businesses are becoming more professionalized, be it the involvement of outside managers or simply younger generations demonstrating greater leadership qualities and a desire to take the reins (see BW Online, 1/25/04, "A Clan on the Cutting Edge"). And good management requires knowledge and up-to-date information. Smart operations are drawing on an increasing number of resources. For example, more than 100 academic centers across the country are now researching family business.

For multigenerational family businesses aiming not only to survive, but to thrive, there is the additional challenge of innovation. Reputation and a storied past still carry significant advantage for family-run companies, with survey after survey showing that such messages resonate with consumers. It's why Dave Thomas is still featured in Wendy's (WEN) commercials years after his death, and why SC Johnson, the outfit behind household names like Ziploc, Raid, and Windex, still calls itself "a family company." The savviest of entrepreneurs learn how best to leverage this quality.

DREAMS AND SCREAMS. So where does the future lie for businesses inherently rooted in the past? The findings are often surprising, if not a little counterintuitive. For example, the new conventional wisdom shows that strife, as long as it furthers the conversation, can actually be a good thing. "Family researchers have found a linear relationship -- the more you scream in your family, the healthier your family is," Astrachan says. "Those families tend to stay together longer than those that shun hostile communication."

Astrachan's latest project is developing a system for quantifying the emotional return families draw from their businesses -- often equally, if not more, important than the financial returns. A company may not exactly be booming, he argues, but if it helps sustain the family and provides a source of purpose, those attributes can be just as valuable as a fat bottom line. All in the family indeed. By Rod Kurtz, BusinessWeek Online's SmallBiz editor, in New York


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