Running a family business gives you the chance to think about long-term performance. But it’s important to make sure the goals of different family members are aligned when setting targets.
Research from the Institute for Family Businesses (IFB) recently revealed that two thirds of UK businesses are family owned – 4.8 million in total – of which over 16,000 are medium and large businesses. These companies generate a quarter of UK GDP and account for 47 per cent of private sector employment, so have a big part to play in the success of the British economy.
Family businesses often have more autonomy, operating without short-term constraints created by external shareholders or investors. That offers an opportunity to develop long-term thinking. We spoke to successful family firms to find out more about their approach.
Family business trends
- Family firms are more likely to see external finance as too expensive
- Ten per cent reported exporting in 2016 compared to 13.5 per cent of non-family firms
- Family-owned firms had lower mean (0.47) and median [management practices] score, compared with non-family-owned firms
- Most UK family businesses are first generation but 21 per cent of family-run SMEs are multi-generation
Thinking long-term about setting targets
Family businesses are often about legacy. Founded in 1728, cider, vinegar and juice manufacturer Aspall is an eighth-generation family business.
“You need to have a view on where it’s going. If you have a setback you look at the long term – as long as you’re fine-tuning how you get there. If there’s an issue it’s not about sweeping out the management team,” explained brand ambassador and Aspall family member Barry Guild.
It is also crucial family members discuss these targets, particularly when a new member is joining the team. When Suzanna Chaplin took over customer acquisition platform ESB Connect from her father in 2014 she was quick to acknowledge this.
“Expectations need to be set around what the end point is when going into business with a family member, so your goals and actions are aligned. If a parent would like to retire in five years, you might need to work toward being in the position to buy them out or find a buyer for their shares,” Chaplin explained,
“If this is clear at the outset, there are no nasty surprises, which can cause tensions, and you can work collaboratively to move the company towards the point that will achieve that.”
But what about the medium-term? As part of PwC’s annual UK Family Business Survey, the firm has found that 68 per cent of family firm leaders prioritise their long-term future, but only 17 per cent do so with innovation. PwC believes this often leaves family firms without a strategic plan for the medium term. Leaders of family businesses therefore need to translate the strategic plan into a business plan, assign responsibilities and work to communicate where the business is heading.
An example of this in action is Aspall’s KPIs, which are set up to highlight underlying growth and show rolling 12-month figures. The management team then drills down into trends, figuring out where they may need additional staff or marketing investment, for example.
What role should family members take?
Understanding the skills family members have and are missing is crucial to setting targets. “As we grew we realised that there’s no getting away from the fact that we were recruited because of our surnames,” said Aspall’s Guild. “We wanted to bring the right kind of people in that could do the job better than us. It’s a big challenge for any family business to ask where their skill set lies.”
The premium cider brand’s sales were doing well in the first few years after its relaunch but the business hadn’t achieved what it had hoped. To deal with this the business brought in a sales director with experience of selling to the pub trade – a difficult segment that they had no experience dealing with.
Eventually, Guild and his brother hired a managing director from outside the family to professionalise how it was run too. Guild then moved from managing director to chairman.
“There’s a ‘thing’ in family businesses of keeping things fresh, Where do the new ideas come from? When you bring someone in you then have to give them the free reign to do what they’re going to do,” he said.
Further analysis from PwC also shed light on the issues family firms face when it comes to the level of control external CEOs are given. “Families can be reluctant to give up control and external CEOs can find their professional judgements overridden by family decisions, which may appear to be based on emotion rather than rational argument,” its report said.
The report added that 70 per cent of the UK’s family businesses have non-family members on the board and one fifth have non-family share ownership.
Growth targets and new ideas
Family businesses can suffer from becoming stagnant. More than half of the family businesses surveyed by PwC said innovation was the biggest challenge.
Guild saw the risk of producing vinegar for other brands – the ease at which they could switch to another manufacturer – when he became managing director. The farm had been certified organic in the 1990s because of their grandmother’s interest. They were selling the same high-quality products to health stores as were being white labelled by supermarkets.
“We went through a redesign process, revamping the brand and the label with the same bottle cap and liquid. It brought home to me the power of getting the branding right. Six to seven years later we bought data and realised we were the biggest brand of vinegar in the UK,” said Guild.
Family wealth or family business?
Are you the custodian of the family business or its wealth? When a new generation gets involved in the business it’s worth examining these priorities, and setting targets together.
Guild added: “You need to ask questions such as ‘what’s the long-term goal’ and ‘does everyone want the same thing?’. You also need to look at family wealth. Are you custodians of the business or the family’s wealth? Is it wise to have the money all stuck in one thing? He also suggested thinking about diversifying if you’re looking to grow over several generations.
Guild has been involved in family business for 25 years as Aspall grew from 35 employees to over 120. That left its manufacturing facilities requiring a significant capital investment before further expansion was possible.
“Operating out of old buildings in rural areas makes it more expensive to pass quality standards and we would have had to spend considerable amounts on marketing as the segment became more competitive,” said Guild.
Without the assets to leverage to raise funding a substantial proportion of the business would have be sold to facility further growth. In the end, the Aspall brothers sold the company to Molson Coors for a reported £40m and expects to spend between £7m and £10m on developing facilities.
This was positioned to ensure existing staff members could remain involved and helped guarantee the long-term wealth of the family.
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