FAMILY BUSINESS

A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being.

A business actively owned and/or managed by more than one member of the same family or a corporation that is entirely owned by the members of a single family.

A business actively owned and/or managed by more than one member of the same family .

Definition of family business

The typical family business goes through four stages in its development:

1. Entrepreneurial

2. Functionally-Specialized

3. Process-Driven

4. Market-Driven

Stages of Family Business Development

head of the family takes all decision all members live under one roof share the same kitchen three generations living together (though often two

or more brothers live together, or father and son live together or all the descendants of male live together)

income and expenditure in a common pool- property held together.

a common place of worship all decisions are made by the male head of the

family

Six key aspects of Family

the interest of one family member may not be aligned with another family member

Example: a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business.

Problem with family business

Several years ago, researchers David Sermon and Michael Hit examined the strategies behind successful family businesses. They found that success is tied directly to how well a company manages the five unique resources every family business possesses.

Human capital.Social capital.Patient financial capital.Survivability capital.Lower costs of governance.

research

Proposition 1: A business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit.  Proposition 2: A business firm may be considered a family business to the extent that its members strive to achieve, maintain, and/or increase intraorganizational family based relatedness.  Proposition 3: A business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve, maintain and/or increase intraorganizational family based relatedness.  The Litz definition of a family business, therefore, incorporates three broad issues: the extent of ownership and or management, the degree of family involvement’ and the availability of family members for generational transfer. 

It is important to recognize that family business comprised of three separate, but overlapping domains.

FAMILY BUSINESS SYSTEM

Families exist to care for and nurture their members and provide safety and refuge in an impersonal world. Success in family is measured in terms of harmony, unity and the development of happy individuals with solid and positive self esteem.

Business, however are economic entities where success is measured in terms of productivity and profitability

Ownership is based on yet another set of rules. Success for owners is measured in terms of return on investment, protection of ownership interests and in terms of owners values and philosophy of business.

Individuals can manage themselves and relationships with others

Family has the ability to resolve conflicts with mutual support and trust

Boundaries between work and family are appropriate and respected

Knowledge is used wisely and isn't blocked by unresolved relationship problems

Communications are open and clear Individuals are flexible and able to use advisors wisely Family has the ability to make decisions and move forward Family is clear about goals and navigates towards the goals Family has good direction and leadership Transitions are managed and marked by rituals and Intergenerational boundaries are appropriate and respected

CHARACTERISTICS OF A HEALTHY FAMILY BUSINESS

The family has poor communications skills and is unable to manage conflict

There is low trust between family members The goals and values of the family are unclear Family members’ roles and obligations are unclear The business lacks a sense of direction and does no strategic

planning The business lacks sufficient expertise – the family tries to do it all There is little thought to succession planning There is little collaboration between the family and non-family

employees There is not a functioning board of directors There is no one to turn to for advice and help with key problems Family issues spill over into business issues and vice versa and Boundaries between work and family are unclear

CHARACTERISTICS OF AN UNHEALTHY FAMILY BUSINESS

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