Risk Taking in a Family Business

Joe Schmieder
Joe Schmieder

Research indicates that family firms take fewer risks compared to non-family firms. This lower risk-taking viewpoint has led to the myth that family firms are risk adverse.   Another conclusion is that family businesses take “safer” risks that are closely associated with their core business.   Since other studies indicate family firms show higher performance over the long run, it could be argued that family firms actually take more “high-probability” risks than non-family firms.  While these risk are not as exciting as what venture firms and some publicly owned firms may take, the family firms’ conservative, calculated approach to risk-taking appears to deliver stronger value over the long term.

As the New Year gets under way, what are some risks that your family business is considering for 2014?  Are you looking to expand your business?  Add more employees? Develop new products?  Acquire a business?  Open a facility in another country?  There are risks associated with each of these initiatives.  The competition could introduce an advanced product just before you go to market with your new product or the country you plan to enter could fall into an economic slump.  Regardless of these possible occurrences, family firms have a history of carefully selecting investment risk levels so they can endure these possible setbacks.  Families do take risks.  They are not adverse to risks.  They simply take measured risks that have a high probability of providing a long-term return.

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