5 Reasons to Invest in Family-run Businesses
Discover the strengths of family-owned businesses.
Family businesses make up more than half of the GDP in many countries, making them an important part of the world economy. These companies range from small mom-and-pop shops to big global ones. Family-run enterprises can offer advantages you won't find in non-family enterprises. Here are five strong reasons to think about investing in family businesses, along with real-life cases that show how successful they can be.
Long-term vision
Family businesses often prioritize long-term growth and survival over short-term profits. By reinvesting their gains back into the business rather than paying immediate dividends to shareholders, these companies can achieve more stable and consistent performance.
Example: Walmart, founded in 1962 by Sam Walton, remains largely family-owned. With a focus on long-term growth and community engagement, Walmart has continually invested in expanding its retail network and enhancing the customer experience, ensuring its position as a leader in the global retail industry.
Strong company culture and values
Strong values and work ethics are typically passed down through generations in family businesses. This continuity can build a powerful company culture and create loyalty among both workers and customers. Employees typically feel a stronger sense of belonging and commitment when they know they are part of a business with a rich heritage and clear values. Similarly, customers tend to develop a deeper trust and connection with family businesses that demonstrate consistent ethical practices and a personal touch.
However, not all family businesses maintain this positive trajectory. When internal conflicts, mismanagement, or a lack of succession planning occur, these businesses can face significant challenges.
The Gucci family business is an example of how things can go wrong. Guccio Gucci founded the business in 1921, and it has since expanded to become a leading luxury brand. But by the 1980s, family problems started to show up within the group. Family members went to court several times over disagreements about who should run and direct the business.
The situation got worse until the family could no longer run the business. Maurizio Gucci sold his shares to Investcorp in 1993. He was the last member of the Gucci family to have a large stake in the business. This was the last day that a family ran Gucci. Later, the brand got a new lease on life under new management, but the Gucci family was no longer in charge.
Quick(er) decision-making
Family businesses tend to have less bureaucracy compared to non-family companies, allowing for faster decision-making and greater flexibility. This agility enables them to quickly respond to market changes and seize new opportunities. Without the need to navigate complex corporate structures, family businesses can implement changes more swiftly, whether it's adjusting to market demands, launching new products, or pivoting business strategies.
Mars, Inc., known for products like M&Ms and Snickers, is a family-owned business that has successfully expanded into new markets and adapted its product lines to meet evolving consumer preferences. Mars has introduced a wide range of products, including new candy varieties, pet care products like Pedigree and Whiskas, and even ventured into health and nutrition with brands like Eukanuba. Their ability to quickly innovate and adapt has allowed Mars to stay ahead of competitors and remain a leader in the confectionery and pet care industries. The company's streamlined decision-making process has facilitated the introduction of new products and timely responses to consumer trends, ensuring sustained growth and market relevance.
Their ability to quickly innovate and adapt has allowed Mars to stay ahead of competitors and remain a leader in the (pet)food industry. The company's streamlined decision-making process has facilitated the introduction of new products and timely responses to consumer trends, ensuring sustained growth and market relevance.
Trust and integrity
Family businesses are usually trusted and reliable because their family members care a lot about the company's reputation. This trust can be appealing to customers, business partners, and suppliers who prefer to engage with a company known for its integrity and commitment to quality. The personal stake of family members in maintaining the company's good name often results in a higher standard of business practices and a more dedicated approach to customer service.
Johnson & Johnson, founded in 1886 by Robert Wood Johnson and his brothers, remains a family-influenced company. Known worldwide for its healthcare products, Johnson & Johnson has built a reputation for trustworthiness and quality. This reputation has helped Johnson & Johnson maintain long-term partnerships and customer loyalty across generations.
Resilience
Family businesses tend to do better when the economy is bad, according to research. They are better able to handle economic downturns than many publicly owned companies because they focus on lean operations and long-term goals.
The Quandt family still owns BMW, which fared better than many of its rivals during the 2008 financial crisis. The company was able to focus on long-term investments and efficiency instead of short-term profits because of the family's steady leadership.
Examples of publicly listed family-run businesses
Walmart - Retail giant founded by Sam Walton.
Ford Motor Company - Auto manufacturer started by Henry Ford.
Berkshire Hathaway - Investment company led by Warren Buffett, with a family influence.
Samsung - Electronics leader, founded by Lee Byung-chul.
LVMH - Luxury goods conglomerate controlled by the Arnault family.
BMW - Auto manufacturer with major family ownership by the Quandt family.
Nike - Sportswear company co-founded by Bill Bowerman and Phil Knight.
Fiat Chrysler Automobiles - Part of Stellantis, historically family-led by the Agnelli family.
Estée Lauder Companies - Cosmetics firm founded by Estee Lauder and her husband.
Tata Group - Indian multinational conglomerate founded by Jamsetji Tata.
Final thoughts
There is a special mix of steadiness, commitment, and adaptability that comes with investing in family businesses. Family companies are good places to invest for long-term growth because they have a long-term view, strong values, and are naturally flexible. Not only do these businesses carry on family traditions, but they also help their towns and shareholders do well. When you are thinking about your next investment, you should think about the benefits of family companies.
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