Family businesses are the bedrock of almost all of the world's economies. That is a very well known fact. Less well known is that, according to numerous research studies, family firms perform better than non-family businesses. In some countries, the performance of family enterprises surpasses that of non-family companies by as much as 158% over ten years!
These outstanding achievements are often attributed to the unique competitive advantages that these firms have gained over time. Particularly, family involvement encourages long-term orientation and patience, attributes that help family firms stand above the rest.
There is, however, a deeper perspective to all of this. Successful family firms attribute their superior performance to what family business researchers call the “familiness factor.” This refers to family firms that find a productive way to harmonize business values with seemingly conflicting family values.
A typical business system, for example, emphasizes concepts like “rationality,” “competence,” “contract,” “future” and “money,” whereas a typical family system values “emotion,” “birthright,” “relationship,” “memories” and “love.”
A strong familiness factor unites these competing and clashing values through instituting smart ownership structures, developing effective managers, nurturing experience, treasuring tacit knowledge and anchoring an authentic organizational culture.
As Grant Gordon, a fifth-generation family member of the Scottish distiller William Grant & Sons, once told the Financial Times (June 2, 2009), “There is no substitute for a strong, cohesive, self-aware family culture.” Successful family firms' self-discipline pays off in the long run.
Privately held family companies value their ability to plan for the long term, while their publicly listed counterparts are punished by the markets for missing any quarterly target. “Our absolute priority is not to have the highest profit margin,” Franz Fehrenbach, CEO of the privately owned German industrial group Bosch, explained to the Financial Times (July 24, 2008). “To finance our growth we need to have a certain pretax profit margin of 7 to 8 percent. But we don't need to go above that in order to improve a share price. Anything above that level we invest into securing our future development.”
A marketing paradox
But when it comes to marketing a family business, an interesting paradox emerges. On one hand, an obvious strategy is to advertise a company's family heritage because this history lies at the root of the company's valuable and difficult-to-copy competitive advantage. On the other hand, primarily anecdotal evidence leaves us to believe that only a small percentage of family companies actively promote this differentiating aspect to external stakeholders, e.g., customers, suppliers, future employees and investors. Most family companies do not reveal their familiness to the outside world.
Yet in these uncertain times, we suspect that many companies would like to do business with winners, outperformers and likely survivors of the economic crisis. Wouldn't teaming up with family firms be a safe bet?
Someone who well understood the importance of marketing his family corporation was Herbert F. Johnson, Sr., the son of SC Johnson's founder. He noted, “It's the goodwill of people that matters most in business … just like any family.” Now with the fifth generation at the helm, this manufacturer of household brands such as Pledge and Mr. Muscle proudly includes the phrase “A Family Company” in its logo.
Measuring public perception
We can categorize all firms in a simple two-by-two matrix. On the horizontal axis, we separate companies that are family-owned or family-controlled from those that are not. On the vertical axis, firms that are perceived as family businesses are split from those that are not.
Bringing these two dimensions together, we have four categories. Companies that are correctly perceived by outsiders as either family businesses or non-family corporations are the True Positives and True Negatives.
A False Positive is a company that is perceived by the public to be a family firm but actually is not. False Negatives are family firms that are not recognized as such by the public. Only the True Positives manage to market their family business brand effectively.
Our branding test
To measure the public's awareness of the family DNA in corporate brands, we designed a test, which was published in an IMD Tomorrow's Challenge article in July 2009 and featured European and South Korean family and non-family companies.
We invite readers of Family Business Magazine to take the U.S. version of the test, which is available online at www.imd.ch/brandtest.
The results, along with our analysis, will be presented in the Autumn 2010 issue of Family Business Magazine. We expect they will be helpful to corporate communication executives and marketing managers at family firms.
Joachim Schwass is Professor of Family Business at IMD and director of the Leading the Family Business program. Willem Smit is a research fellow at IMD, specializing in marketing strategy and branding. Lise Moeller is relationship manager at the IMD Family Business Center.