Bringing to light wisdom from generations – Sustaining growth and profitability
(As originally published in the Financial Post, April 2013)
By David Fabian, Co-Leader, GTA Private Mid-Market Practice, EY
It’s been five years since the beginning of the global financial crisis and family businesses have come out on top. Their ability to weather the economic storm and thrive has put the focus back on the importance of thinking in generations not months for companies around the world.
These business leaders see the rebalancing of the global economy as an opportunity for expansion into developing markets. They are succeeding by remaining true to the family culture and values, while embracing the best management practices that the corporate world has to offer. In order to sustain growth and profitability, we’ve outlined several things for family businesses to take into consideration.
Long-term objectives. The long-term perspective of family businesses enables a more cautious approach to growth. It may also encourage investment during difficult times, allowing those businesses to focus on the future health of the company rather than on short-term survival. Strong central governance provides continuity and the entrepreneurial vigor to look for opportunities ahead. Lasting success will depend on seeing the risks as well as the opportunities, and having a sustainable strategy for competing for a share of global markets.
Optimize your market reach. Changing customer trends are affecting current go to market strategies for many companies. Moving forward and staying competitive amid changing market demands will require adopting a new way of thinking. Family businesses may need to extend their market reach, optimize their potential both in current and new markets; and broaden their product or service portfolio to exploit opportunities, achieve optimum returns and mitigate risk. Innovative entry strategies; investments in research and development (R&D); entering new markets and finding new opportunities for existing assets such as intellectual property, patents and licences are all ways family businesses can optimize their market reach.
Fulfilling customer needs, efficiently. Understanding who they are, what they want and why they buy from you, rather than from competitors, is the key to long-term growth.
Family businesses have the ability to leverage the family “face” with customers and distribution channels giving them a competitive advantage. In addition, they have the opportunity to leverage their local position to gain a robust understanding of customer needs and input this into the innovation and R&D processes of the business. Therefore, the growth strategy should be focused on deepening offerings to the most important customers, allowing the business to hold position against international competition. However, this shouldn’t be at the expense of margins and profits: procurement and vendor management, processes and supply chain efficiencies must be reviewed regularly to ensure they are operating efficiently.
Back office integration. Family businesses can drive an operational efficiency program by re-organizing and integrating back office support functions to deliver operational cost savings as a result of process consistency and automation. This includes aligning internal processes and coordination with business strategy; improving performance through lean sales management, creating logistic channel synergies; optimizing gathering of information; and enhancing the end-to-end sell process by aligning customer-facing functions (front office) with back office transaction processing.
Diversification options. To sustain a successful business, companies must embed innovation and constantly challenge their existing business models to broaden their product service offerings. Compared to other businesses, family businesses have less external pressure from stakeholders and regulators, allowing them to be more flexible and agile to act on and make decisions quickly. Undertaking transaction opportunities are one way family businesses can become more diverse.
Expanding successfully requires understanding the window of opportunity for strategic acquisitions and divestments to maximize transaction value. This means developing a transaction process that allows you to grasp an opportunity when it arises, while assessing the potential opportunities and risks, due diligence and operational integration considerations.
Expanding internationally. There are many reasons for entering the international arena, or to reassess and relocate your company’s locations. While many businesses hope that a move abroad will bring with it a high potential for savings, many may be surprised at the extent of the subsequent costs or unforeseen difficulties at their new location — these can be extremely complex and have a significant impact on the profitability of an investment. So do your research, and plan accordingly.
When looking to grow the family business, it’s imperative that the above items are taken into consideration. When in doubt, be sure to bring in appropriate advisors to help with your decision making on your path to growth.