Family businesses sometimes have an image of being cautious and inward-looking. There is some logic to this: people who join the family firm – or start one with their partner or spouse – are acutely aware the risks they take to grow their ventures could negatively impact their family wealth, standard of living and future legacy if they do not pay off.
However, family businesses are often highly commercially successful. In a recent study of UK business exits conducted on behalf of Arbuthnot Latham Private Bank by Aon, those whose family members had some prior history of entrepreneurship indicated an average net worth of £4.6m ($5.8m). “Self-starters” – the first generation to run their own firms – reported liquid assets of £1.4m.
Solid base
Far from being conservative, the growth ambitions of entrepreneurs are often enabled by the rock-solid foundations provided to them by supportive relatives. That said, over-relying on family can also be detrimental during the exit process.
Part of the explanation for family business success can be found in motivation. Those who join a family business say that the main factor that drove their decision was the opportunity to increase their personal wealth; by contrast, those starting a venture for the first time typically reference wanting to change their lifestyle, be their own boss and achieve success outside of the corporate hierarchy.
Family business owners are also far more likely to say their venture is part of their overall investment strategy than self-starters (72 per cent versus 42 per cent), suggesting their personal wealth is highly tied up with their professional success.
Many have a head-start and enjoy the advantage of a proven business model curated by earlier generations: they come on board and quickly spot opportunities to diversify.
In addition to commercial results, family business entrepreneurs often count culture among their successes, taking pride in fostering an environment that reflects their personal values.
As many are joining firms that already have well set-up operations and developed client bases, they can devote more of their time to internal priorities, such as looking after staff welfare, creating an engaging work environment and trying to generate a positive social impact through their activities. They tend to give themselves higher scores for goal attainment on maximising shareholder value and being active in the community.
Self-starters are in effect testing a new concept for the first time so must prioritise external demands and keep their business afloat. They dedicate more time to answering customer enquiries and ensuring high-quality goods and services.
Both types of entrepreneur work hard. But the advantage some family business entrepreneurs have is they are often able to rely heavily on relatives, partners or spouses in their endeavours: as advisers, mentors, administrative support or business partners. This support can represent the critical difference to success – particularly in the early years – by alleviating some pressure on other staff members or delaying the need for full-time staff.
The way out
When it comes to an exit, it is clear that relatives remain highly influential and trusted. As many as 58 per cent of family business entrepreneurs agree relatives were (or would be) their most important sources of advice when going through this process. Many actively would prefer to eventually pass on their ventures to another family member, seeing this as the best way to preserve the firm’s values.
There are drawbacks to seeking advice close to home rather than from professionals. Family business entrepreneurs have more regrets about how the process has been handled once they have been through it – 83 per cent would have done at least one thing differently (compared to 72 per cent of self-starters). Upon reflection, 44 per cent wish they had had a better strategy for finding the right buyer while 37 per cent would have waited longer for a better valuation price. Almost a quarter (24 per cent) would have sought advice relating to their personal wealth.
Self-starters also have areas they would have approached differently, specifically on timing. But as their ecosystem of advisers is more diverse, they tend to have fewer regrets.
Entrepreneurs who join a family business benefit from the efforts of previous generations. Those who start one will, perhaps without even realising it, turn naturally to their partner for counsel and practical support to accelerate growth.
The impact on culture, governance and commercial success of these advantages can be profound. Yet without the balance of external advisers to support their business exit, they may find themselves stumbling at the final hurdle.
Paul Beach is head of executives and entrepreneurs at Arbuthnot Latham and Tasha Vashisht, head of thought leadership, client insight at Aon
