Definition: A business actively owned and/or managed by more than one member of
the same family
If you own a family business, you probably worry even more than
the average entrepreneur about ensuring that your company not only
survives, but also thrives to nurture the next generation. Several
years ago, researchers David Sirmon and Michael Hitt examined the
strategies behind successful family businesses. They found that
success is tied directly to how well a company manages the five
unique resources every family business possesses:
1. Human capital. The first resource is the family's
human capital, or "inner circle." When the skill sets of different
family members are coordinated as a complementary cache of
knowledge, with a clear division of labor, the likelihood of
success improves significantly.
2. Social capital. The family members bring valuable
social capital to the business in the form of networking and other
external relationships that complement the insiders' skill
sets.
3. Patient financial capital. The family firm typically
has patient financial capital in the form of both equity and debt
financing from family members. The family relationship between the
investors and the managers reduces the threat of liquidation.
4. Survivability capital. The family company must manage
its survivability capital-family members' willingness to provide
free labor or emergency loans so the venture doesn't fail.
5. Lower costs of governance. The family business must
manage its ability to hold down the costs of governance. In
nonfamily firms, these include costs for things such as special
accounting systems, security systems, policy manuals, legal
documents and other mechanisms to reduce theft and monitor
employees' work habits. The family firm can minimize or eliminate
these costs because employees and managers are related and trust
each other.
Clearly delineating these unique family resources and leveraging
them into a well-coordinated management strategy greatly improves
your business's chances of success compared to nonfamily-owned
companies.