Family-owned and operated businesses are the backbone of local, national, and global economies, and while many consumers imagine these operations to be smaller enterprises that offer boutique products and services, the truth is, these businesses, like the families that operate them, come in many sizes and forms. Their dynamics and idiosyncrasies will have varied implications for their success.
From local mom-and-pop shops to well-established brands like Walmart, the largest family-owned business in the U.S., the products and services on offer can differ, but there are key strategies and approaches that can be implemented to better secure success for a family business long into the future. This is good news given that family-owned businesses, when profitable, have a resounding economic impact which extends beyond the family to include their employees and the communities and economies they are a part of.
Economic snapshot
A Business Initiative article shows that there are 32.4 million family-owned businesses in the U.S., representing 87 percent of all business tax returns, employing 59 percent of the private sector workforce, and contributing 54 percent to private sector GDP. In Canada, data from Family Enterprise Canada shows that family-owned businesses represent 63.1 percent of all private sector firms, employ 6.9 million people, and collectively generate 48.9 percent of the country’s private sector GDP at $574.6 billion.
On a global scale, McKinsey and Company found that family businesses represent 70 percent of GDP and 60 percent of global employment, numbers which have resounding effects that ripple well beyond the families themselves. But success in this realm requires a strong operational structure, a culture that is homed in, and a personal commitment that can be far greater than that which comes with going to work for someone else.
A strong structure
A family-owned business is one that is owned and operated by family members, each contributing time and capacity to the business and the decision-making process. They can be owner-operators, partnerships, distributed, nested, and public offerings.
A Science Direct Management article outlines the four main strategic, organizational, and leadership priorities that are paramount to a successful family-owned business. Referred to as “the 4 Cs”—continuity, community, connections, and command—there are several ways to achieve these ends, most of which are centred around a comprehensive plan, a clear and unified vision, established roles and responsibilities, a system of accountability, and a well-defined operational structure. This is true of all companies, but when it comes to family-owned and operated companies, there is also a need to have a proven system of conflict resolution to preserve relationships that persist after clocking out at the end of the day.
Where these elements are in place, there is a greater likelihood that the business will be able to withstand downturns. In fact, there is strong evidence to show that the return on investment is greater for family businesses than their non-family counterparts.
Family-owned businesses tend to operate with purpose beyond profitability, which means that there is patient capital and leaders who are willing to reinvest their own funds and pause dividend payments in the interest of the company’s success, offering the stability and flexibility needed to weather economic storms.
One of the greatest storms these families can face is generational transitions. Knowing that only 30 percent of family-owned businesses survive the transition to second-generation ownership—a figure that is reduced to12 percent for third-generation transitions—a strong succession plan and adequate training must be in place to ensure the next generation has the necessary skills and institutional memory to preserve the family and company legacy.
Questions of culture
Many people start businesses with family because of the work-life balance it can afford, not only from the perspective of having the ability to set your own schedule, but also to be able to focus on one’s passion, working with loved ones and having a positive impact through this work.
From a cultural standpoint, family businesses often extend that sense of family beyond their own relations to include employees and the broader community. There is typically a strong sense of loyalty and trust earned through the longstanding relationships that have been formed.
Built upon deeply rooted knowledge and connection to the products and services offered, particularly in multi-generational operations, family businesses enjoy a longevity in leadership that promotes a sense of steadfastness. It must be noted, however, that longevity can also stifle innovation where there is an unwillingness to adapt to current business practices and technologies. While tried and true approaches serve family-owned and operated companies well, they also require a certain level of agility and adaptability to remain competitive.
The same is true of the ability to build success on shared values and visions. When these factors align, it is serendipitous, but there is also the propensity to fall too deeply into groupthink, which creates a culture of exclusion. Families must also be conscious of nepotism, which does the same. Luckily, these issues can be managed or mitigated through strong leadership and well-established policies.
While there are certainly rewards to be reaped from being a family business, there is also the potential for drawbacks, especially on a personal level. Career stunting is a very real concern, as career advancement opportunities are fewer and farther between in a family operation. The work can also tend to be repetitive, and fatigue is likely, often exacerbated by personal and familial pressures and the need to manage a viable and profitable business.
A great deal of personal effort and sacrifice goes into a successful business, and when family relationships and well-being are at stake, even more work goes into maintaining and protecting relationships. Work often goes home with you, and sometimes if feels like more time is spent at work than at home, which is why it is important to find time for rest, regeneration, and spending time with family outside of work.
The backing of a community
When it comes to family businesses, when they work together harmoniously to achieve shared success, the rewards are sweet and even sweeter when shared and celebrated with loved ones as well as the local communities they call home. Even when a brand is global, many of the benefits remain local because the families don’t forget where they come from. Many amateur sports leagues and local charities, for instance, have come to depend on local family businesses for contributions that enable them to operate and enrich the community. These are the teams that owners’ own kids and grandkids play on, so they see the value of these investments firsthand.
And engaging with the community in this way garners a great deal of support. Statistics show that people are more likely to support a family-owned business than their non-family-owned counterparts, especially when they know the benefits of their spend will stay local. This is especially true of Gen Z and Millennials who show great enthusiasm for doing so.
Data from Business Dasher shows that 80 percent of people buy from local businesses to support their community, while 40 percent do so because they believe there is better service offered. 30 percent feel that local businesses offer better products, and 25 percent of respondents appreciate local businesses for the convenience of local delivery and accessibility.
Findings from online marketplace Faire show that of the 1,000 people surveyed, consumers were willing to spend nearly $2,000 more in 2024 to help local shops continue to thrive. Nearly 80 percent of these consumers believe that their Main Streets are stable or growing when compared to pre-pandemic years and more than 65 percent will visit multiple times a month.
Whatever the reason is for support, family businesses are an undeniable economic driver and a pillar of the community. At the heart of it, they are composed of people like you and me who are subject to family dynamics of their own that are being managed in the collective interest of the many beneficiaries of their success.
