Family business proved better resilient
Family venture is one of the most popular ways to start a business. Such a start-up is believed to provide a number of advantages: no trust issues to worry about, and profit distribution, along with other financial and legal matters, may well be discussed informally over a cup of coffee.
This was to a large extent the reason to a great deal of resilience family business showed during recent crisis. Family companies are better adjusted to surviving economic turmoil, PricewaterhouseCoopers research shows. Nearly half of the family business respondents reported growth of demand on their goods and services in 2010. Just a few of them had to cut down their operations, while the rest were going for expansion. Family businesses have a better potential for long-term planning, they are less exposed to loans, and their business values go much beyond the commercial benefit concern. Almost 70% of family business owners are certain that family nature of their business facilitated its crisis resilience.
A great number of Western family corporations and holdings have been devolved for several generations. In UK around 16% of all family businesses have lived with over 4 generations. Sweden has the highest rate of family business employed people – over 60% of entire labor pool. And Italy has the greatest number of family owned large companies.
The majority of family owned businesses is involved in trading and services. The thing is that family businesses are best suitable for day-to-day demand satisfaction, where convenience store or dry-cleaners are the way to go. But with time any small business can grow into something bigger, and Opel, Peugeot, Tissot, Auchan, OTTO, which have developed from being small family businesses, are real-world evidence to that.
There are just as good examples of successful family businesses in Russia – for instance, Kaspersky Lab, Green Mama cosmetics manufacturer, Sela clothing chain store.
According to most experts, 70% to 80% of Russian SMEs are family based. Family business share is especially high in sectors like agriculture, food and textile industries, trading and services. But Russian family businesses are mostly small and medium sized enterprises owned by their founders. Which is fair enough – entrepreneurship itself emerged in Russia around 20 years ago, and family business in essence is in the beginning of its development process, therefore it is early days for devolving.
Family business is based on trust. It is especially relevant in Russian mentality. We feel much more confident about our relatives rather than about unrelated person, since relatives would never try to cheat on their boss. Besides, family business, compared to a «regular market» company, is less bound to internal corruption security measures expenses. But with that, in family business trust is oftentimes better valued than a professional component, which may well do a disservice to the business itself.
Many SME-focused banks are more flexible with family based businesses, since this kind of business is considered to have a stronger structure, compared to unrelated partnerships. Company long-standing presence on the market, along with family revenue growth, is a good sign to a bank. On one hand – anything can happen to family relations: couples may divorce, children may split up with their parents, which eventually could hurt the joint venture. But according to psychologists, people that are related in both family and business sense, have a stronger relationship. Relatives involved in the same business understand that they are freelancing, and that their business objectives agree with their family objectives.
Entire family property in complex may work as a guarantee to a loan granted by a bank. People can not afford to risk their whole property, which is why their business decisions are well thought-through, and all the moves are double-checked, since a mistake can cost a lot to the entire family. Besides, no decisions require some special board call – anything can be discussed in the office or in any other place – at home, on the way home, or even at grass. This makes family business more flexible and adjustable.
Family business might as well be regarded as some sort of a «social elevator». Well-educated and highly-ambitious youths intend to avoid working with their parents, trying to get into a big company with a popular brand. But these companies cannot take in everybody, and fresh graduates start practicing their knowledge background in their family business. Having gained some application experience, they can take over their family business management. This is what a classic family business is, which is devolved from generation to generation. In Russia with its 20 years of market relations history this concept is just coming around.