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Transitioning entrepreneurial ventures into family businesses

Statistics show that Family Businesses employ about 80% of the labor market. Although it may be difficult to distinguish family from nonfamily businesses, in Asia (as in the rest of the world) businesses are predominantly family-owned.

The character of a business changes when professionals come aboard and are given greater autonomy than family members to decide on the firm’s direction. There are, however, some businesses that are so closely associated with the family that one wonders whether this is deliberate, coincidental, or accidental.

The 2017 Edelman Trust Barometer report showed that, except in China, family businesses generated more trust than general business. Overall, customers preferred to purchase goods or services sold by family businesses. Furthermore, among those who indicated this preference, 54% also preferred to work in a family business, compared to 21% who did not.

Family businesses are perceived to be committed to the long term and to the community in which they operate. This commitment could explain consumer preference. But a good number of these family businesses may be perceived to be unprofessionally managed owing to a lack of rules and structures.

To counter such perceptions, families either influence individual members to obtain technical management skills—or they simply hire professional managers. The latter requires, however, that families learn to trust the judgment of others by empowering them with enough autonomy.

Leveraging Trust: One of the difficult challenges for business families is how to transition from being family-centric to being family-enterprise-centric, where the family and the business are well integrated. In essence, professionalism is one of the most important attributes because it is the first step toward transparency and good corporate governance. Of course, when a business becomes listed, any lack of professionalism and transparency may impact the decision of investors to purchase stock.

Customer Loyalty Correlates to Investor Confidence: We conducted a survey on the perception of individual investors regarding family business stocks. Preliminary results show a great preference for stocks owned by well-known business families in the country. Additionally, individuals tended to invest in companies where product or service loyalty was high. As observed by one investor relations executive, customer loyalty was a critical success factor—and building a strong brand that delivers what it promises adds to that loyalty.

Now, not all family businesses take the path to becoming a listed firm. An overwhelming majority are naturally inclined to stay under the radar; and there is good reason to preserve privacy. Even then, we find that more successful entrepreneurial ventures are those backed by a strong family, who take time to build appropriate organizational structures to deal with the challenges of developing and protecting the brand image.

Source: Santiago, Andrea., October 16, 2017, http://www.manilatimes.net/transitioning-entrepreneurial-ventures-family-businesses/356711/



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