Family business challenges

Perspectives

Family business challenges

Private company issues and opportunities 2020

Few family businesses survive into the third and fourth generations, and oftentimes the culprit is misalignment between the goals, wants, and needs of the business and individual family members.

Family business dynamics

Family is one of the most evocative words in any language. It conjures up thoughts of love, strength, support, and special bonds, but also of conflict, tension, and drama. Nurturing the positive side of this equation takes effort and dedication. While this can be challenging for any family, those in businesses together must work doubly hard to achieve long-lasting harmony.

In this report, articles from Deloitte practitioners who work with family businesses provide actionable insights on topics ranging from succession to social responsibility, from preserving family capital to assessing the health of family businesses, and from innovation to the future of work.

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Family business & purpose
No matter where a family business resides and operates, it likely has a purpose that extends beyond profit-making, such as culture, tradition, and community. Yes, profits are needed to sustain family businesses, but they derive at least in part from a sense of purpose that resonates with stakeholders across the spectrum, from customers to employees to people in the places where they operate.
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Family business health
Many dimensions of running a family business are interrelated, meaning an issue that's affecting the health of the family could explain why a part of the business may be suffering, and vice versa. Typically, an objective look at the business from inside and out can point to reasons for its success and where it can improve.
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Zoom out to zoom in
You can't really understand exponential change if you're just focused on what's changing from day to day. By zooming out to zoom in, family businesses have an opportunity to drive disruption rather than being a victim of it.
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Family governance
Good family governance relies on open and transparent family communication, but business families quite often lack the skills and capability to navigate tough discussions together, particularly those involving both business and family matters.
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Aligning family & business strategy
Shared values, vision, and culture are among the traits we attribute to entrepreneurial success in family-owned businesses. But as our research suggests, there appears to be little alignment between personal preferences and overall business strategy in many of these firms.
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Access to capital
Like all businesses, family-held concerns often find themselves in need of capital. For many, an influx of funds can help their business development plans, both in the short and long term. That might mean deploying capital to organic growth in existing markets—adding staff and building new facilities. It also might be funding more ambitious plans, like acquiring a competitor or entering into new markets or product lines.
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Social responsibility
At a certain point in the life cycle of family businesses, many owners ask themselves how they can support their communities—the places where they have historical, economic, and social ties. While some family-run businesses traditionally make contributions directly to charity, others set up foundations that support the values of the company to achieve their philanthropic goals.
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The future of work
Every family business is unique and has its own distinguishing culture. But every family business faces certain core challenges, including attracting, developing, and retaining talented workers and adapting to changing workplace environments. As their companies grow and the workforce evolves, many family businesses may need to eschew the hierarchical, entrepreneur-driven structures that created their foundational success.
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Ecosystems & innovation
Joining and thriving in an ecosystem can be a challenging, yet rewarding endeavor for family businesses. Turning to external partners to collectively launch a new product or service can create conflict, especially when business interests have been closely guarded within family circles. But in contrast, the opportunity to grow a business as part of an ecosystem of disruptive innovators can take family business as far as their imagination will allow.
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Cyber risk
Today's family businesses operate in a highly connected environment in which the increasing volume of data has also intensified the risk of online attacks. Though many family businesses may consider themselves out of harm's way because they operate out of the spotlight, they still may be large enough to make attractive targets for hackers and criminals.
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Preserving family capital
Family-owned businesses have a lot of demands on the wealth they create. There's the ever-present need to keep the business growing, but that requires investment—often in areas that represent new risks in order to stay competitive. There are also the demands of family members who want to increase their standard of living and enjoy their success. Finally, many families want to create a legacy outside of the business through philanthropic efforts that cement their name as multigenerational benefactors.
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Succession
Much of what goes into planning for business succession depends on the cultural traditions and attitudes in a particular society, even if the broad preference for maintaining family control is something seen in every locale. Succession, understandably, is influenced by culture. As a result, the process for a family business in China can be very different than the process for a family business in Germany, for example.
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