A family business is unique, in that it needs to keep both the needs of the family in mind with every business decision, without deterring from what’s right for the business itself. So how well is your business performing?
A balance is a must
Anyone running a family business will attest to the fact that with every decision the interests of the family must be held in one hand, and then interests of the business in the other. When one is favoured over the other, things fall apart.
If the owners set aside the interests of the family for those of the business too often, then they will soon find that the family starts to resent the business and pull away from it – making it difficult to pass it on to a committed next generation.
On the other hand, placing the family’s needs above those of the business will lead to the quick deterioration of the company’s health. Making it unlikely that it will sustain itself much further, let alone thrive.
That’s why the Family Business Performance measurement takes 6 important business and family characteristics into account to decipher how well a business is doing to keep the balance and therefore the health of both the family and the business high.
1. CEO’s Age
According to recent findings*, businesses with CEOs aged between 51 and 60 perform the best, with firms increasing in performance as the CEO’s age increased before they reached this optimal age bracket. Interestingly, the opposite is true for CEOs after the age of 60 – as CEOs approach 70, their personal goals tend to stop aligning with the business goals and risk-taking diminishes.
2. Diversity in Leadership
High performing family businesses are more likely to have a female CEO, as well as a formal board of directors with a non-family, non-executive director. This suggests that bringing diversity into the upper management of the business allows for different viewpoints to be heard and guards against stagnant thinking in the business.
The more structure and formal documentation around how family and non-family employees will be handled in the business, the better the overall performance of the business. When issues like succession, promotions and remuneration, as well as governance policies are not firmly in place, then a lot of time can be wasted on conflict and confusion – which will just work against the business’s positive performance.
4. Outward Focus
The highest performing family businesses are doing so because they are actively keeping an eye on both their competitors and the outside factors affecting the business through competitor analyses, benchmarking and documented strategic plans that are reviewed annually and reported on for progress made.
5. Entrepreneurial Culture
Such a culture supports the pursuit of innovation in developing new products and services, thus ensuring that the business is never left behind its competitors or the needs of the market. This “Prospector” strategy is all about moving forward as a business, rather than simply sticking with the same strategy the business has always had.
6. Financial Resources
This one should be quite obvious – a family business without access to financial resources will not be able to champion innovation as they won’t have the capital to float new products and services before they reach market. The healthier a family business’ financial situation, the more likely they are to perform well overall.
This article has been provided by KPMG and the advice is designed to be general in nature.