How Successful are Family Businesses? And what are the Keys to Success?

5 Pillars of a Successful Family Business

1. Human capital

2. Social capital

3. Patient financial capital

4. Survivability capital

5. Lower costs of governance

Human CapitalThe first pillar is the family's human capital, or "inner circle." When the skill sets of different family members are coordinated as a complementary cache of knowledge, with a clear division of labor, the likelihood of future success improves significantly

Social CapitalThe family members bring valuable social capital to the business in the form of networking and ‘word-of-mouth’ which has become very common in modern-day businesses.

Patient Financial CapitalThe family firm typically has patient financial capital in the form of both equity and debt financing from family members. The family relationship between the investors and the managers reduces the threat of liquidation. Faster source than a bank loan

Survivability CapitalThe family company must manage its survivability capital-family members' willingness to provide free labor or emergency loans so the venture doesn't fail.

Lower Costs of Governance

The family business must manage its ability to hold down the costs of governance. In nonfamily firms, these include costs for things such as special accounting systems, security systems, policy manuals, legal documents and other mechanisms to reduce theft and monitor employees' work habits. Trust is key

Balance in daily life

Family PassionRaise kids around the family business

Keep a high synergy and possible family successors close to the businesses

Do not keep secrets

Trust

Biggest Family businesses North AmericaMars ($30 Billion) – 100%

The Washington post ($4.72 Billion) – 70%

Walmart ($419 Billion)- 44.7%

Jean Coutu (Canadian) ($2.54 Billion)- 55%

How it works

Clear understanding of tasks

Clear and Early Communication

Physical Space

Real Names Vs Nicknames

Diverss Opinion

Pros Loyalty

Sacrifices

Flexibility

Communication

Knowledge of Co-worker

ConsSensible topics

Obstacles with family members

Pressure

Socialization

Middle East

Saudi Arabia 6 out of the top 10 highest revenue family businesses in

the Middle East are Located in Saudi Arabia

90% of businesses in Saudi Arabia are wholly family owned as opposed to 70% in the European Union

Israel Andre Messika Diamonds

Makor Capital

Risks of Failure Trap 1 – Automatic Entitlement

Trap 1- Solution

Trap 2 – Business Vs Family Growth

Trap 2 – Solution

Trap 3 – Family Isolation

Trap 3 – Solution