Despite Challenges, Majority of Family Businesses Are Faring Well

Facing unique strengths and obstacles, family-run businesses carve their own entrepreneurial opportunities

Written by Frank Condron

Canada’s family businesses have several key advantages over their corporate competitors and stand on a stronger economic footing than many of their counterparts around the world, says a report based on findings from PricewaterhouseCooper’s (PwC) 2012 Global Family Business Survey. But, the report says, managing difficult family dynamics is just one of the many challenges these businesses face every day.

PwC surveyed owners of more than 2,000 family-run businesses in 30 companies late last year, including 77 across Canada, to gain insights into their internal and external challenges, global outlook, advantages and disadvantages, and succession plans. The researchers found that a majority of Canadian family businesses are doing well, with 60% reporting sales growth in the last 12 months (compared to 65% of family businesses worldwide). They also found that family business owners are optimistic about the future, with 88% of the respondents saying they expect to grow their business in the next five years. The report identified a number of competitive advantages enjoyed by family businesses, including close staff and customer relationships, the ability to make quick decisions and adapt to changing market conditions, and a strong entrepreneurial spirit.

Thanks in large part to Canada’s more stable economy, Canadian family businesses have fared better than family businesses in most other countries since the global economic downturn in 2008/2009, according to Sharon Duguid, director of PwC’s Centre for Entrepreneurs and Family Enterprise. “They focus on the long term and they plan for strong growth because it’s what they have done consistently year after year,” says Duguid. However, she adds, “the caution that served family businesses so well through the global economic downturn may also be limiting their potential.”

In fact, the report says “an instinctual tendency to avoid excessive risk” is likely holding family businesses back from expanding into new markets. The survey found that 65% of Canadian family businesses do not currently export, although 74% of respondents said they expect to expand into foreign markets by 2017. Among the main obstacles stopping them from expanding internationally, the respondents cited “understanding foreign business cultures” (20%), “excessive local competition” (19%), “foreign market regulations” (19%), “exchange rate fluctuations” (16%) and “local economic conditions” (16%).

Family businesses thinking of expanding abroad also struggle with family members in the business refusing to relocate, as well as a reluctance to hire outside managers and a fear of leveraging current assets to finance foreign expansion. Given the fact that the Canadian market is small and mature, Tahir Ayub, Canadian Private Company Services Leader for PwC, believes there is no way for family businesses in Canada to grow significantly in the next five years unless they go global. “In today’s digitally connected world, anyone can reach into your market and offer consumers the same product or service,” says Ayub. “At the same time, Canadian family businesses also have the same opportunity. They are in a good position to take on more risk and debt to finance global growth.”

Of course, the challenges facing family businesses aren’t limited to foreign markets. The PwC survey found that Canadian family businesses are struggling with internal challenges such as staff retention (69%, compared to 43% of family businesses globally), succession planning (14%), cash flow/cost control (10%), financing (9%) and new business/product development (8%). The top external challenges cited by the survey respondents included unstable market conditions (57%), increased competition (36%), government regulations (27%), the fluctuating exchange rate (14%) and the availability of financing (8%).

The PwC report says that one of the top ongoing challenges for family businesses around the world is dealing with family dynamics within the company. This includes things like competition and jealousy among family members; disputes over ownership, control and succession; and work/life balance. Eighty percent of the family businesses surveyed said that they have processes in place to deal with these issues, such as company constitutions, family councils and third-party mediation.

The PwC report says that conflict within family businesses also contributes to the problem of attracting and retaining top outside talent. In addition, there is also a perception that salaries are lower in family businesses and that it is much harder for highly qualified individuals to move up within the business. To address these problems, the report recommends that family businesses adopt a more formal corporate structure and bring in outside board members to help run the company.

In spite of these challenges, Duguid says, family businesses also have unique qualities that might make them an appealing option for outside talent, such as an opportunity to have more control and autonomy and a more personal work environment. “They can and should also do more to sell their key competitive advantage: their commitment and loyalty to their people,” says Duguid. “Today’s generation wants to work with companies that have strong values and recognize their people.”

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