4 Reasons Family Businesses Have Survived

Forbes 2015 list of The World’s Billionaires recently came out and I was interested to see how many of the world’s richest people got there through affiliations with family businesses.

(#4) founded Inditex, the parent company of fashion retailers Zara, Massimo Dutti and Bershka, with his recently departed ex-wife Rosalia. They were both shop assistants and decided to try their hands at making baby clothes. They switched to nightgowns, and opened the first Zara shop in 1975 in Spain. The Inditex empire now has more than 6,000 outlets.

Charles and David Koch, tied for #6, are two of the four sons of Fred Koch who co-founded Koch Industries in 1940, which has more than $100 billion revenue annually. They bought their two brothers out in 1983 and own 43 percent of the company.

Christy (#8) and Jim Walton (#10) are also members of the Lucky Sperm Club. Christy was married to the late John Walton, one of Sam Walton’s sons. He, of course, founded WalMart, the world’s largest family firm. Jim is her brother-in-law, Sam’s youngest son.

Liliane Bettencourt (#10) also inherited her wealth from her father, Eugene Schueller, who founded the beauty company L’Oreal in 1907. In 2014, the company had sales in excess of 22 billion euros.

Family businesses are a major economic force in the world, making up 19 percent of the companies in the Fortune Global 500, up from 15 percent in 2005, according to an article in TheEconomist.com, “Business in the Blood.”

The article points to four reasons why huge companies have managed to stay under family control.

  1. Family firms were founded by a talented entrepreneur, like Sam Walton. If heirs continue to follow a successful formula and the founders’ principles, they can keep the business running.
  1. Family firms take a longer-term perspective. Businesses are often pressured to meet short-term goals to keep investors happy. Companies within the control of family members often look to the bigger, long-term picture, which can lead to greater profits.
  1. Family firms are less likely to take on debt. While this reluctance may limit growth sometimes, it can also make these businesses more resilient when the business is not going as well.
  1. Family businesses generally have better labor relations. It could be because workers are treated better or have more trust in the owners when they are part of a family and not members of a huge conglomerate who come and go.

I’ve worked with many family businesses in my decades as the Turnaround Authority, and I’ve seen the good, the bad and the very, very ugly. When a family business is well run, it can have amazing staying power, produce billionaires and become a major player in the world economy.

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