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.
With the Steelers in the Super Bowl again, there is more than the usual focus on the team’s owners; the Rooney family. The newspapers place an emphasis on the family’s history and family business legacy behind the success of this storied football team.
Reflecting on sports competition and business families, we are reminded every day of competition within the families themselves, especially the competition that takes place between siblings. Siblings may compete for:
Opportunities for jobs in the business and associated recognition for individual success;
Access to the family homes/ranches/cabins/boats for themselves and/or their children; and
Recognition of the value of their contributions in educational achievement, community or business performance, or for leading a family council.
Even when the competition is managed well by the brothers and sisters or restrained by respect for the most important issues, there may still be score keeping.
Friendly competition is a part of life with siblings, and it is more a “normal characteristic of the family culture” than a problem for many successful business families. In a football game, the rules are well known and understood, there are objective decision makers (the referees), and there is transparency (national television). These are also fundamentals needed in business families even when the competition is not so fierce.
Successful business families have well-understood policies for how the family relates to the business (the rules), use objectivity (independent directors and non-family managers), and find multiple ways to keep everyone informed (transparency). Also, from time to time, they bring up the fact that they are all now in their 50s and they still do things that look like they might be competing for their parents’ attention and favor – then they have a good laugh together at their own expense.