Today, family businesses play a crucial role in the economy, but will they tomorrow?
How will your business react to these global trends?
- The largest turnover of economic control in history
- Growing income inequality and environmental degradation
- Exponential technology advances and shorter product lifecycles
- The changing definition of the nuclear family
Throughout much of history, family business was a redundant term. Nearly all commercial activity was done through families. Today, despite massive change in the global marketplace, families continue to play a major role in the economy.
Family firms have many different faces:
The rural subsistence farmer in Peru,
The largest brands in the world
Family firms come in all shapes and sizes. And what starts as a 5 stool root beer stand may grow into one of the largest hotel chains in the world (Marriot)
Would you have guessed that family firms are the dominant form of organization worldwide?
Let’s take few minutes to really grasp the role of family business in the global economy. Imagine each of these balls is sized relative to the population of a continent. Now let’s see how much of each continent’s GDP is created by family businesses.
Taking a closer look by country, we see that family firms are key economic drivers all over the world. Family firms represent a significant part of the GDP in relatively small economies such as Ecuador, Belgium, and Malaysia—and make similar contributions to the largest economies of the United States, South Korea and Brazil.
Family firms also advance GDPs by fostering new business. Many people think that venture capital drives new business, but actually, they fund less than 1% of them. It is families that are the first and primary source of financing. Up to 85% of firms start with some level of family backing.
Family firms also create value by providing jobs.
Family firms employ 70% of the private workforce in Argentina and 57% in Germany.
In India, family firms employ 79% of the private sector. That’s over 129 million jobs. There are more people employed by family business in India than there are people living in Mexico!
We know that family firms play a big role in economies today, but will that always be the case? The future is not so clear…. did you know that the retirement of baby boomer business owners will bring about the largest turnover of economic control in history? In Canada alone, an estimated $1.9 trillion in business assets will change hands, affecting some 3.5 million jobs and 27% of GDP.
In this midst of this sensitive wealth transition, there are even larger factors at work. Looking forward to the next 25 years, it is clear family firms are going to face new realities that will challenge even their strongest features. For example:
Family firms tend to use long-term perspective, and don’t focus on short term rewards
But rapid technological advances are shortening product life cycles, challenging long-term plans.
Family firms tend to offer more security and have been shown to be less likely to lay off employees in tough times.
But job stability doesn’t have the appeal it once did – today’s workforce is mobile and not necessarily looking to settle down.
The relationships and values of family firms have always been a great strength.
But nuclear families are no longer the norm, and as families become more complex, more family firms will likely be sold instead of passed on.
Family businesses face drastic global changes such as environmental degradation, growing economic inequality and geopolitical volatility. In the midst of these issues, families’ conservative tendencies and commitments to the past threaten to constrain their ability to adapt.
Family firms have choices. They can be complicit in these problems. Or they can lead the way…
Family firms need to prepare a next generation of change agents. They have to consider that they are passing on more than just a business. Businesses come and go. Entire industries have lifecycles that end in death.
For families to live on, they need to shift from thinking about just maintaining the business entity to building enterprising families. Enterprising families take entrepreneurship beyond the confines of an original business and into a world of new opportunities
Enterprising families are committed to the longevity of the family, not just the business
…they cultivate the entrepreneurial spirit in the next generation
…the pass on values and a sense of responsibility
…they use family resources as a vehicle for spawning new organizations
…they use innovation to address societal ills on a grassroots level
Looking back 25 years ago, the changes have been extreme: car phones were more common than cell phones and the internet as we know it… and its vast economy… did not exist. Life expectancy for the largest Fortune 500 companies has decreased from 75 years to 15 years. At the current churn rate, in 25 years, more than 75% of the S&P 500 firms will be replaced by new firms. By 2040, there are projected to be over 9 billion people but with wealth concentrated in fewer hands. Other changes are so radical they cannot even be imagined. With an enterprising approach, though, family firms can confidently lead the way into this unknown frontier.