Why family businesses are growing faster than their peers

Over one-third (34%) of family businesses are targeting growth rates in double digits (over 10%) compared to one-quarter (26%) of non-family businesses.

As last year, family businesses have a greater focus on talent as a growth enabler than their peers. Almost half (49%) in 2018 plan to hire full-time staff, compared to 38% of non-family businesses.

"We see family businesses seeking to lock in scarce talent," says van Rij, "building on established skills in motivating staff over the long term, while determinedly looking to attract young digital talent into their organizations."

Diversity has shot up the middle-market recruitment agenda – 40% cite it as their biggest priority, 37 percentage points up on 2017. Given the many studies proving diversity as a key contributor to team efficiency, success and decision-making, it is good to see middle-market leaders embrace the proven gains of more diverse teams.

With family business leaders' focus on overseas expansion, unsurprisingly slow global growth is the top-rated external risk to growth, with a third (33%) of responses, nine percent more than non-family business peers, and a clear 17 percentage points clear of the second-rated risk of slow local growth.

However, when it comes to challenges closer to home, insufficient cash flow rises to the top, selected by over a third (35%) of leaders, and 21 percentage points up on 2017. “Top-line revenue growth can lead to a squeeze on cash flow without strict cash flow management,” says Dr Joseph Astrachan, Professor Emeritus, Kennesaw State University. “As new markets are explored, the terms and conditions covering receivables may lengthen. Adjusting to new patterns of cash out and in requires good data analysis.”

The pressure on working capital is not matched by access to capital, which hardly registers. “The issue is not accessing long-term finance,” says can Rij, “but finding working capital fast to respond to the rapidly changing business environment leaders find themselves in."

The digitization of everything, while long-predicted, is now happening at such an accelerated pace, that, in line with all middle market leaders, family business CEOs are racing to embrace AI. As with all respondents, 62% of family business leaders plan to adopt AI within two years, a massive 56 percentage point swing upward from just 12 months ago.

"We have certain roles within the company, in our factory for instance, that could in time be entirely automated. I can see that happening, says Ibrahim Ashemimry, Co-Founder and Chairman of Jeddah-based Munch Bakery. "We also see the potential in 3D printing. If we could 3D print a custom cake that would be a dream come true. AI also has potentially huge benefit to our business, whether in customer engagement via our e-commerce platform, or in enterprise resource planning (ERP), where we could use AI to help predict what we need to produce." 

In a clear shift from last year, regulation emerges as a new force in stimulating innovation (only 2 percentage points below profitability) for more than one in four (27%) of family business executives globally: a 14 percentage point rise from 2017.

"We have seen the impact of regulation on carbon emissions in helping accelerate innovations in electric vehicles," says van Rij, "and new European data privacy laws will spawn a new subsector of startups focused on helping companies comply with these stringent new regulations."

Almost one in five family business leaders is increasing innovation by building external alliances (17%). These external alliances can take many shapes, from project-based collaboration, to whole supply chain ecosystems. Other companies are systematically scanning the horizon for start-ups that can accelerate their innovation strategy.

"We recently teamed up with Foresight Group, an investment manager, to create a £20m seed fund," says Craig Wilson, Managing Director of Williams Advanced Engineering, part of the UK-based Grand Prix Engineering firm. "The idea is to identify and invest in companies that will benefit from our expertise and Foresight’s financial acumen."

As the pace of change ramps up, company agility becomes more critical to survival and growth. Globally, CEOs rate rapid decision-making as the number one factor in improving agility (27% of responses) and family business leaders are the same.

“Owners of family businesses are tightly linked with the management and execution of strategy,” says Thomas Zellweger, Professor of Business Administration with a focus on Family Business at the University of St Galen. “This allows them to make decisions fast and execute on them. However, it is also true that they can wait out periods of uncertainty, waiting for clarity and then acting fast, but later in the cycle.”

Family business executives are responding to accelerated change with one in four (25%) saying they are spending at least half their time on future strategy, eight percent more than their non-family business peers. Of those that agree that even this isn't enough, four in ten (40%) are looking for a wider pool of managers to help take on some operational activities to free them up to focus on the future.

“Family businesses are focused on sustainable growth, protecting the assets of the business in the long term. Decisions are also made with the involvement of fewer people, they are made fast and with a percentage of gut rather than data. In that sense, they are more entrepreneurial. Being long-term focused and entrepreneurial in the same time is a luxury public or non-family owned businesses don’t often have," says Abdulrahman M. AlBassam, of the Middle-Eastern diversified industrial products group that bears his name.