Growing a family business

The traditional family business has many strengths, but if growth is on the agenda, some tough choices will have to be made. SmallBusiness.co.uk finds out whether families can sustain their ethos while stepping up their ambition.

As rioters tore through the streets of London leaving behind them a trail of destruction, one family watched as five generations of hard work perished in flames. Since 1867 there had always been a Mr Reeves at their store in Croydon, from which over the years they grew a sustainable business. In the immediate aftermath, many speculated on whether or not the future of the company lay amongst the ash and debris of the building. But three months on, Reeves Furniture has regrouped remarkably and trading is back to normal, according to Maurice Reeves, who returned from semi-retirement to help his two sons get the company back on track.

‘I have come back in to guide my sons along the right path,’ says Reeves. ‘Other businesses call in people to do this and pay them but this is my life, I can’t just walk away.’

Dealing with disaster

Families rally round in a crisis, and this has helped family businesses deal with the crisis that is gripping businesses globally, at least according to a recent survey. More than two-thirds (69 per cent) of UK family businesses questioned by PricewaterhouseCoopers agreed that being in business with their parents or siblings had helped them get through the economic downturn. A very similar number said their operating profits had increased or remained the same over the past year.

Grant Gordon, director general of the Institute for Family Businesses (IFB) says, ‘There is clear evidence in terms of business survival rates that family businesses came into the recession with a bigger cushion. Their balance sheets tended to be stronger because they tended to put money away for a rainy day.’

Instead of running to the banks for finance, family businesses were more likely to dip into their own profits to support growth, adds Gordon. This more conservative approach enabled them to enter the recession in better shape.

Thicker than water

Of the three million family businesses in the UK, the vast majority have fewer than ten employees – and may be perfectly happy to remain that size. For those that want to grow, however, there are particular challenges that must be faced. The same emotional ties that keep families together in a crisis can at other times be a source of tension, and conflicts between relatives form an almost inevitable hurdle, especially as businesses increase in size.

Hugh Robertson is CEO of RPM Marketing, which he runs with his brother Dom. ‘I think the key is to spend time with each other outside the work environment and ideally not discuss any work-related issues, otherwise it can really dominate the relationship,’ says Robertson. ‘When we are at work, it is the same as it would be with any other colleague.’

Maintaining that separation isn’t easy for everyone. Carol Cork runs private aviation business PrivateFly.com with her husband Adam Twidell in St. Albans. ‘We have got friends who as soon as they’re home don’t talk about business – that just wouldn’t work for us,’ she says. ‘It is an advantage for us – I mean if something happens at two in the morning we are both there together to deal with it and talk about it.’

She does acknowledge though that you have to differentiate between the two aspects of the relationship to be successful. ‘You must have respect for each other as business partners as well as being a couple.’

Making it big

The UK has plenty of examples of family businesses that achieved spectacular success, among them household names like JCB, Clarks and Laing O’Rourke. All of them have, in the past, grappled with the same issues faced by smaller companies.

Hussein Lalani and his brother and father have grown discount chain 99p Stores into a business with 154 outlets across the country. It made £4.5 million profit on £184 million sales last year. Lalani says, ‘We do try to separate the emotional and if there ever is an issue, we move on very quickly.’

But he concedes there sometimes is no getting away from the fact you are related. ‘Most of the time it is fine working with your dad, but the odd time he will slip into ‘dad mode’ and say something like, “I’m your dad and I’m telling you to do this”’.

The ultimate challenge for any family business that wants to grow is to what extent it embraces external talent – and how it deals with the closely related question of succession planning.

‘We see more and more family businesses being managed by non-family members,’ says Gordon of the IFB. ‘Family owners bring vision, purpose, a sense of commitment and strong values in terms of the way the founder operates. But if they are going to grow, they have to ask themselves, do we look outside the family?’

Two-thirds of those questioned in the PricewaterhouseCoopers survey said they had written a succession plan, and of those, a clear majority expect the company to be passed to another family member. Maurice Reeves remarks of his succession plan, ‘Succession obviously goes down by my two sons who are running it at the moment. We don’t know what happens after that – we don’t know if the grandchildren will come into the business.’

Grant outlines that businesses should be aware that with generational change a new dynamic comes on board. He says, ‘When you move from one generation to the next, it is actually moving from one model to another.

‘This is often from a management structure to a sibling partnership where suddenly more agreement is needed. Eventually, if it goes on to become a cousin business there is then a greater need for rules and strategies.’

Succession plans are not as simple as just picking an heir to take the business over. In fact, that could be the downfall of a company. Reeves says simply, ‘If the next generation is no good then the business will fail.’

For Gordon, the key to a smooth succession is to consider the management team as a whole and whether it needs to be supplemented with talent from outside the family. Reeves has one director alongside his two sons who is not a family member. ‘When I took over the company when my father died, I rewarded this man with a directorship as he had been so hardworking,’ he says. ‘I cannot say for sure but I would say this was the first time in five generations a directorship was given outside the family.’

Of course, not every family business is multi-generational. Lalani regards the idea of handing a company down through the generations as ‘very last century’. ‘We are from an entrepreneurial background, so in time we will look to start something else.’

However, while 99p Stores might not have been handed down through the years from parent to child, the Lalani family has passed down the family business ethos, having been involved in different businesses for over 100 years. Lalani grew up watching his father, who often worked alongside his own brothers, running businesses that included Europa Foods and Whistlestop convenience stores. His grandmother was also a shrewd businesswoman who at one time ran a family wholesale business and general store in Tanzania.

PrivateFly’s owners are also firm believers in passing down the ethos rather than the business. Twidell remarks, ‘My young son says to me, “Daddy will I work for PrivateFly one day?” And I tell him absolutely not – too many businesses are ruined by just handing down businesses for the sake of keeping it in the family.’

FPB: It’s all in the family

Britain’s economic future depends on the success of family companies, says the Forum of Private Business (FPB).

The FPB says that with an estimated three million of the country’s 4.6 million small businesses run by families, it is clear they form the backbone of any economic recovery as drivers of enterprise, entrepreneurship, and commerce.

Forum chief executive Phil Orford says, ‘With such a huge number of small firms acting as the muscle for the UK economy, it’s in everyone’s best interest for these businesses to grow, flourish, and be able to trade to the best of their ability.

‘These are the wealth generators of the country, and they need to be nurtured and assisted in every way possible.’

Orford adds that the country needs to start seeing growth in this area as being intrinsically linked to the future health of the UK economy, using the example of Germany, whose family businesses contribute to 49 per cent of GDP – a figure that compares to just 31 per cent for the UK.

‘If you look at the number of family firms which make it past second generation of ownership, current figures put it as low as one in five. We need that figure to improve.’

If even a small percentage of family firms were able to carry on trading as opposed to either being sold or simply being wound up once the first or second generation retires, it could make a ‘world of difference’ to the UK economy, Orford adds.

In the UK it is estimated that while there are around 1,000 family firms with more than 250 employees, most are sold long before they get anything close to that size of operation, often because there is not the experience within the family to take the business forward.

Tim Isherwood, managing director of succession planning company Steuer Gregsson says, ‘From our experience we know that one of the main concerns for family-run businesses is about the ability to pass it on to the next generation.

‘But in the same breath many owners of such firms will often admit to doing nothing about it, either because they don’t know how to approach the issue, or they simply haven’t thought about it.’

See also: The challenges of running a business with family members

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Family businesses

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