FAMILY BUSINESS VERSUS NON-FAMILY BUSINESS
Family business integrates the business life into the family.
The principles in which the family business operates differ when compared to non-
family business.
As a result, operation and performance of family firms have developed into key study
interest for scholars.
The key aspect for comparison between family business and non-family business include
performance, business lifespan, organization culture and founding principles.
The main aim of businesses is to make the profit regardless of the structure of
ownership.
The family business is a business that is organized and managed by a family. Thus, its
risks are borne by a family.
FOUNDATIONS
There are differences between founders of the family business and the founders of the
non-family business.
Family business indicates more dependence on family social capital that is important in
controlling business performance cognitively and physiologically.
Family founders face more conflicting family and business environments when
compared to non-family business founders.
During formation, founders of family business operate in an unguided internal business
environment. Entrepreneurs are influenced by beliefs, goals and perceptions. These
characteristics affect the rationality of the founders.
To non-family business founders, there is less attachment to the business.
The family-run businesses tend to be conservative with investment decisions.
PERFORMANCE
Success of the family business is a function of the lifespan of the family, bankruptcy and
risk-taking.
Family businesses are greater risk takers than non-family entities.
Surprisingly, family firms record less failure than non-family businesses, because family
business put up boards that are stronger in resisting failure. The boards have the ability
to hold together against difficulties such as averting bankruptcy.
On the other hand, independent directors, change of directors and reduced proximity of
directors to the business work against non-family businesses.
In family businesses, directors are engaged in the daily operations of the business. This
engagement is ideal in identifying problems and their causes and subsequent solutions.
Family businesses and non-family businesses face the same economic performance with
reference to short-term sales. However, family businesses may exist for other reasons
other than economic gain thus the adoption of the agency may be relative.
Family business outperforms non-family business because of superior attitudes held by
family owners.
The guiding principle in performance is ownership, whereby family owners bear the full
responsibility of business failure, unlike non-family members.
The level of success between the family business and non-family business varies in the
scope of business coverage.
A family run business being more conservative focuses on home regions for markets
while non-family businesses have incentives of facing global markets.
Non-family businesses have been seen more likely to promote the exploitation of new
markets.
BUSINESS LIFE
Family business and non-family business differ in the span of their business life.
The intentions of founders of companies and intentions of the family successors play a
major role.
Family businesses sometimes suffer when the engagement of family members is either
too much or too little.
Too much involvement make family members too conservative Adequate engagement
promotes an entrepreneurship culture within the families.
ORGANIZATION CULTURE
Organization culture is a set of beliefs and values that present solutions to problems in
an organization.
As a result, it promotes learning, innovation and risk-taking. Family firms maintain
stronger entrepreneurial characteristics than non-family firms.
SUMMARY AND CONCLUSIONS
Family business outperforms non-family business since the businesses are greater risk
takers. The responsibility to succeed falls on the owner who bears the full responsibility,
unlike the non-family run business where managers have little or no responsibility for
business failure.
Non-family businesses have smoother transitions than family businesses which get
messy sometimes.
FAMILY MANAGED BUSINESS (FMB) VS. PROFESSIONALLY MANAGED BUSINESS (PMB)
A non family business refers to a company where the voting majority is in the hands of
its shareholders.
Family business is PERSON DRIVEN. A Family Business refers to a company where (at
least 20%) voting right s are in the hands of the controlling family than the shareholders;
including the founder(s).
Emergence of PMB Higher Dreams, Higher Aspirations, wish to become a Professional
Company, Willingness to bring the Talent Pool to own organization are some of the Key
Factors responsible for Transformation of the FMB to PMB
Characteristics of FMB
Loyalty towards family
Family relationships
Male Dominated culture, Ownership & Commitment
Active and non-active members
Traditional methods of business
Succession Planning of Next of Kin
Characteristics of PMB
PEC (Planning, Execution & Control)
Defined Mission, Vision, Goals & Objectives
Defined Roles, Rules & Regulations
Performance Driven
Modern methods of business
Succession Planning of a Professional
Challenges faced by FMBs
Generation Gap
Attracting & retaining non-family employees
Women in the family joining the business
Modern technology & contemporary business practices
Financial limitations
Liability to sustain competition against MNCs
Challenges faced by PMBs
Organizational conflict
Adherence to Systems
Retention of Talent
Succession Planning
Strengths of FMB
High commitment /dedication from family as business owners.
Family member’s willingness to work harder and reinvest profits into the business for
long term growth.
Willingness to pass on knowledge and experience
Family name and pride associated with the business.
Weaknesses of FMB
Poor Management, insufficient cash to fund growth.
Non-alignment of incentives among family members.
Lack of articulated practices and procedures.
Lack of discipline.
Strengths of PMB
High commitment /dedication of Top Mgmt .
Loaded with contemporary Management techniques and business tools
Effective delegation of authority
Financial strength
Timely Succession Planning
Sustainability in highly competitive markets
Performance based culture
Weaknesses of PMB
Less focus on human development.
Poor commitment levels of middle and junior mgmt.
High attrition levels
Chances for shut-downing without the approval of all people in the organisation.
Workers may feel uneasiness
