We explain what a family business is, its advantages and disadvantages. In addition, its general characteristics and the Three Circles.
What is a family business?
The family business is that commercial organization in which decision-making is carried out (or highly influenced) by the members of a family, which also owns the company. In this sense, it goes without saying that the following generations will take charge of the company , and will assume their role with an emotional commitment; thus it is distinguished from others, in which the only participant is the owner and administrator .
Family businesses represent, for their part, the oldest and most widespread business model throughout the world . To qualify as a family business, a family member who acts as director and shareholder must own 20% of the voting rights and the largest number of shares in relation to the other shareholders. Thus, it does not matter if it is small, medium or large (in general, there is a lot of confusion regarding this last point). In fact, among the best-known family companies worldwide are Samsung Group, Walmart and Grupo Tata, the three of great magnitude.
Characteristics of a family business :
Ownership and government
Most of the actions, as well as the direct influence in the company , control and management, are in charge of the founders or family members.
Advantages and disadvantages
- Advantages. Family businesses have a very good level of competitiveness in the international market, they are more complex than companies with other characteristics; they are committed organizations, whether from a human or social perspective, the company means in the personal lives of its family members, beyond profitability. As there is an effort to keep relationships safe, the goals are rather personal and may take precedence over profit-seeking. In this sense, they have a strategic behavior very different from that of other companies.
- Disadvantages. Family businesses are more averse to risk, due to the aforementioned qualities: more human interests are compromised in a competitive context. They tend, following the same line, to be conservative; They are not usually oriented towards growth, that is, they maintain their level of profitability; and finally, it is difficult for them to obtain the necessary resources, the latter due to the lack of financing, typical of small and even medium-sized companies.
In the past , the succession of the family business was reserved for the first-born male
. Over time
, more and more women took responsibility for them and took up skilled positions. Inheritance, for its part, can be affected by family size and considerations related to managerial, commitment and technical capacity.
Through the generations, measures in family businesses tend to be more rational
. At the beginning, when they are in charge of the founder, it is he who is in charge of making the decisions. When the next generation inherits the company, there is a greater degree of consultation when making important decisions. The third generation will gather a consensus and call for a vote.
The biggest challenge for family businesses is dealing with their emotional conflicts
. To do this, they must be trained and take care not to ruin the legacy due to internal tensions.
The measures of family businesses are measured according to their fairness , regularly, so it is a very valuable point. What is considered fair, whether by family members or other members, is more likely to be accepted. A fair process becomes organizational justice and creates the basis for family participation throughout the generations
Myths of family tradition
Generally these companies have a very conservative character
. Sometimes, coping with family myths (or beliefs) - behavioral patterns of the outside world, etc. - can be a good remedy against stress and anxiety
, but the truth is that it also reduces flexibility and responsiveness to new situations.
The Three Circles
The Three Circles model is an indicator of family roles in the same company. There is talk of three circles: Family, Company and Property
. Linked roles can clash or coincide. All family members are part of the Family circle, but the truth is that not all of them will be owners. The owners manage the financial capital. There may or may not be family members in the Company circle.
What is characteristic of family businesses is the integration of these circles, since they often give rise to conflicts. Statistically, family members will prioritize emotional capital
, while company executives will care about social capital - reputation in the market - and owners will have an interest in financial capital.
The Genogram is a table in which important dates are recorded
, as well as relationships between family members, which makes it especially useful for recognizing patterns of behavior and being able to deal with them rationally.
Parallel Planning Process
This process refers to planning that weighs the requirements of the business and the family
. There are five central points where these needs collide and a parallel planning measure must intervene. They are capital, control, occupation -how the person who will perform a certain function is selected, conflict -the one that must be avoided so that it does not become the pattern- and culture -related to the way of transmission of values and the tradition of the company.
The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring to reliable sources and recommendations from technology experts. We do not have any contact with official entities nor do we intend to replace the information that they emit.