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The Business of Family

Explore why some family businesses endure while others fizzle out

Contrary to popular belief, family businesses are more than just charming corner stores and quaint mom-and-pop restaurants. These businesses constitute a staggering 63 per cent of Canada’s private sector enterprises and contribute half of the country’s GDP and employment. But their impact goes beyond the numbers. Family businesses tend to prioritize giving back to their communities.

In this video, Sarah Burrows, assistant professor of entrepreneurship at Smith School of Business, breaks down the unique challenges facing family businesses. She explores the inseparable nature of familial and business interests while reinforcing the importance of keeping personal dynamics out of corporate affairs. She unpacks the different roles family members play in these firms — from employees to shareholders and beyond, and touches on the need to navigate familial ties, employment obligations and shareholder responsibilities effectively.

Burrows also explores the oft-tricky process of succession — passing the firm down to the next generation. Why is it that only a small percentage of family businesses survive beyond the second generation? And what are the keys to a successful succession? From keeping family drama out of the boardroom, to navigating tough decisions about who takes over next, Burrows explores the complexities and dynamics of family-owned businesses.


Sarah Burrows:

00:08: How big is the family business sector in Canada?

One of the most common misconceptions, I think, is that people, generally, when they think about family-owned businesses, they picture these small mom-and-pop-run restaurants or corner stores, and that’s definitely not the case. Family businesses are everywhere and of all shapes and sizes. They represent 63 per cent of businesses in the private sector in Canada and account for approximately 50 per cent of private sector GDP, as well as 50 per cent of private sector employment.

00:40: What are some challenges unique to family businesses?

A couple of the major challenges unique to family businesses are certainly that inseparable nature between the family and the business. And there are a couple of things with this. One, you really do have to make a conscious effort to try and keep family in the family and business in the business. So don’t let what happens in the living room influence what’s going on in the boardroom. There are these three distinct, but interrelated roles. You could be just a family member. You could be a family member and an employee. Or you could be a family member, an employee and a shareholder. And that’s really tricky to manage these different dynamics.

And then I think the other thing too that we often don’t talk about is the fact that when that next gen takes over, there’s a lot of pressure put on his or her shoulders. And so really making sure that they have the support that they need to be able to do that successfully [is important].

And then lastly, of course, is the hot topic of succession. The research suggests that 30 per cent of family-owned businesses make it to the second generation, 12 per cent make it to the third generation, and only three per cent make it to the fourth generation and beyond. So, succession is clearly tricky.

02:05: Why do family businesses fail?

One of the big reasons family businesses fail is due to a lack of communication and a breakdown in trust. We might think about succession as one point in time; the point at which you pass the baton. But you have to realize that there are decades of family history and dynamics that are informing that decision point. And so, to the extent that you can engage in that open conversation and make it a multi-stakeholder conversation, is really important.

02:40: What do successful successions get right?

What does a successful succession look like? First is the importance of starting early. And these are small things, like take that next gen when they’re children to accompany you to the office. When that next gen is socialized at an early age, it’s really important so that they begin to foster that emotional attachment to the firm. But also stakeholders, like employees and suppliers, get to know them. And so, there’s kind of that legitimacy building. Once that next gen shows an interest, what are their visions and their goals for the family business? And how is that aligned or not aligned with the predecessors?

And then I would say lastly to go outside. And what I mean by that is typically they spend three to five years working in the same industry, but at a different firm. And so again, that contributes towards your legitimacy building when you do come back, but also in terms of the knowledge and the capabilities that you need to lead the firm.

03:47: What are family businesses really good at?

Family-owned businesses are really good at building strong stakeholder relations, developing those ties with their employees, their shareholders, customers but also, importantly, their communities. When you look at their missions and their values, they really care about giving back.

The reason why they’re so good at doing this is that, unlike non-family-owned businesses, where it can often be mandated, family-owned businesses inherently or intrinsically want to pursue this, because of that idea of the legacy and that multigenerational survival. They want to make sure that they’re leaving this community — this environment — in a good place that it can sustain for generations.

One other thing that I’ll add is they often tend to be people-oriented. They oftentimes pride themselves on treating employees like family. And I find this interesting because in recent years there has been popular press about how if you’re interviewing for a firm that prides itself as “treating you like family”, this could be a red flag because some families are dysfunctional. But I think it’s different in the context of family-owned businesses because what it means is that they are making a conscious effort to treat the family and the non-family employees equally. So really going the extra mile, developing them with regards to training, development and giving them equal opportunities.