Family businesses seem old-fashioned, and long in the tooth, but they actually are some of the most sustainable companies in the modern marketplace. Here’s why.
Family Businesses Survive Economic Downturns Better
Research at the Center for Management and Economic Research at École Polytechnique compiled a list of 149 public companies that were also family-owned. The companies all had revenues of more than $1 billion, and they were diversified across several countries, including the U.S., Canada, France, Spain, Portugal, Italy, and Mexico.
What they discovered was that family-owned and run companies did not earn as much money during good economic times as their non-family owned counterparts. However, when the economy takes a turn for the worse, those same family companies outshine their stuffy corporate counterparts.
The long-term performance for family-owned companies was higher than for non-family businesses in every country studied. This research also showed that an established family business weathered economic downturns better than non-family owned companies.
Family Businesses Are More Frugal
One of the reasons that family-owned companies out-survive non-family owned companies is that they’re more frugal with funds. They tend not to spend money on frivolous things, like lavish offices.
Large non-family companies tend to use stock options and grants to align management’s interest with the interest of the company, its employees, and consumers. However, family-owned companies tend to view the company’s finances as the family’s finances, creating an inherent conflict-free business relationship.
Family Businesses Are More Fiscally Responsible
Family-run operations also tend to use less debt (leverage) during good economic times, which may account for their more modest profits.
And yet, this becomes a benefit in tough economic times. To put it plainly, family-run companies tend not to spend more than they earn. It seems like such a simple economic principle, and one that is lost on large multi-nationals.
Companies, like Midlake products, are a shining example of this simple philosophy.
Family Companies Stay Small
Family companies tend to remain small, though this isn’t always true in terms of absolute size. In general, they don’t grow as large as their non-family peers though. This becomes an advantage when the market turns south, as there isn’t as much risk from previous mergers and acquisitions.
Family Businesses Are Nimble
Because family-run businesses often employ family members that sit on the board of directors, and because the company is a manageable size, they tend to be more nimble, which keeps them out of financial trouble.
Family Business Retain Talent
One of the most successful family businesses in the northeast, Wegmans, is a grocery store juggernaut. And yet, it’s considered a smallish family-owned business. It’s got nothing on its peers in terms of absolute size.
Walmart is orders of magnitude larger, and yet the small grocer owned by the Wegman family is adored in the community. In fact, it’s one of the most loved small businesses in not just the northeast, but in the entire U.S. And, that’s quite a feat considering it only has 85 stores.
The company’s secret? It retains some of the best talent in the industry, it pays a good wage for its workers in the local community, and it is both employee and consumer-friendly, with a focus on quality and pride.
That’s not something you get from large corporate chain stores.
Julie Shrum is the sales manager at Midlake. Working there for nearly 20 years has taught her a lot about metal fabrication and business in general. She works with her sales team to create a comfortable atmosphere for customers. Wearing many hats at Midlake has helped Julie find out about the many new uses for sheet metal.
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