Crowley: The importance of family business

Everyone has heard of Wal-Mart, Ford Motor Company and Dell Technologies, all national leaders in the world of business. Across Southeast Missouri and beyond, other companies, like Buchheits, Drury Hotels and Rhodes Convenience Stores are also making a name for themselves.

And while retail, cars, technology and hotel chains aren’t always grouped in the same category, there is one common theme: these businesses are all family-owned or family-controlled.

But contrary to popular belief about family business, they’re not small.

According to data from Update 2021: Family Businesses’ Contribution to the U.S. Economy, family businesses are some of the largest businesses in the country and a major driver of the economy with 32.4 million family businesses generating $12.9 trillion in GDP. A 2003 study from the same source states that family businesses account for 62% of the country’s employment and 78% of all new job creation. In an article released by The Telegraph in 2022, journalist Dominic Genetti ranks family-owned businesses by state. In Missouri, 32.6% of all businesses are family-owned, and the Missouri Department of Agriculture reports that almost 90% of the state’s farms are still family-owned.

Family businesses are important in the economy and can often be a great place to work.

A study by the 2015 Economist, reveals that out of 114 family firms and 1,200 other large companies, family-owned businesses score higher on worker motivation and leadership. While there is a perception that family businesses have fewer opportunities for advancement or fear that nepotism may limit an individual's growth opportunities, I have found that this is usually not the case, and in fact, most family-held businesses are seeking talented individuals to join their company at all levels.

This statement from Vistage International provides one of the best arguments for joining a family business, “Family firms tend to have a greater sense of commitment and accountability at their heart than non-family firms, as it is not just the needs of the business at stake, but the needs of the family, too. This desire for both the family and business to stay strong fosters additional benefits, including a greater understanding of the industry, the organization and the job; stronger customer relationships and more effective sales and marketing.”

But family businesses are not always easy and many operate differently than publicly held companies. For example, according to Leadership Lessons from Great Family Businesses published in 2015, family business leaders focus on the next generation as opposed to focusing on the next quarter.

That’s because only 30% of family businesses make it to the second generation, and only 12% survive the transition from a second to a third generation (2024 SCORE Foundation Fact sheet).

If family businesses are important and such a great place to work, why do so few make a successful transition?

This is due to the unique nature of family business and the two systems that overlap – the family system and the business system. For example, if your favorite child isn’t qualified to work in the family business, but wants to inherit leadership in the business, this can lead to tension. Unlike a corporate setting where leadership succession issues get left behind at the office, this kind of dilemma can make for a very uncomfortable Thanksgiving dinner! This is what I call the “Thanksgiving Dilemma” in family business. It’s tricky for all involved. Family issues, like divorce, can also have a significant impact on the family system and business system overlap.

As a family business advisor, one of the biggest issues I see with family businesses is the lack of succession planning. Statistics show that 47% of family business owners who expect to retire in five years do not have a successor (2024 SCORE Foundation Fact sheet).

Unfortunately, family business owners often confuse estate planning, the transfer of assets, with succession planning, the transfer of leadership in the company.

Succession planning ensures that successors have the knowledge, ability and support systems to lead the company in the future. This takes planning, effort and honest communication, years in advance of a change.

Good governance is also a critical factor.

It’s important to have a governance structure that aligns the family system and the business system, providing continuity and direction through generational transitions. Having non-family members on the business board provides insights and perspectives that may not arise in a family-only board. This safeguards against a single family member dominating the governance process or relying on a groupthink mentality, which limits the board member’s objectivity or creativity in addressing key business issues.

Having outside board members can also be critical in handling conflict within family-held businesses by providing an independent and trusted third party to arbitrate disagreements.

Family businesses are particularly important here in the Southeast region where we have relatively few corporate headquarters for publicly held companies. They are a major driver of the economy and a fun place to work. But family businesses come with their own set of challenges and making it through generational transitions can be difficult. While no one approach works for every company, there are resources available to help family businesses succeed.

Dr. Edward Crowley is an assistant professor in entrepreneurship in the Harris College of Business and Computing at Southeast Missouri State University. He also holds a certificate in Family Business Advising from the Family Firm Institute. Dr. Crowley is a native of Missouri who has started multiple companies and worked in Fortune 500 publicly held companies. While Dr. Crowley has worked in more than 50 countries across the globe, his favorite activity (besides teaching) is spending time at Mesta Meadows, his livestock ranch in Glenallen, Missouri.