Luxembourg: The Family Businesses That Will Outlast The Googles And Apples

Last Updated: 23 November 2016
Article by Louis Thomas

Most Read Contributor in Luxembourg, October 2017

You've got tech companies, retailers, and banks; there are start-ups, mid-sizers, and giants; you have service, product, and back-end—a hundred ways to slice up the corporate world. But where do family businesses fit in?

It's a categorisation that defies all others. It's simple enough—companies characterised by bloodlines and multi-generational thinking—but what else defines them? We've been looking into family businesses every year since 2012 and have found some interesting secrets (though we haven't gained access to the grandparents' famous tomato sauce recipe yet).

The victorious tortoise

The tiny lettering on a beer label: Since 1597. Most people brush it off as a minor detail, or find it passingly anecdotal. But in fact, labels like this one embody the ethos of family businesses: the idea isn't radical growth or a large exit, but long-term existence.

What does this mean on a strategy level? It means that family-owned businesses aren't beholden to short-term performance numbers; that they can afford a few flat figures if it means they're simultaneously slow-burning a redefinition of themselves for the next decade or next century. "The desire of our company is to exist for another 400 years," said one respondent in our recent study. Now imagine her ancestor saying it at William Shakespeare's funeral.

But it's not all about preservation—without growth, there's no survival. Key to growth, according to our respondents, is a distinct line between business and family. And not just a line, but a hierarchy... with business on top. "If business interests are put in first place, it will then ensure the family runs smoothly, not the other way around," said one respondent. Good governance is the means by which to separate ownership from management, set up family and business rules, and define dividend policy.

Where the sidewalk ends

Commonly-cited business hurdles include poor strategy, talent shortage, unstable political environments, and lack of a successor. In talking to our respondents, we found that these items may affect family businesses differently to the main.

The war for talent was cited in the most recent European Family Business Barometer as the top issue for 37% of family businesses. A common assumption is that family businesses have a damaged image when it comes to talent retention, but our research found that it wasn't quite true: factors more important than image were location, size, and industry. It is indeed the case, however, that family businesses tend to have an enhanced relationship with their staff, a closer bond—perhaps the metaphor of kinship is more easily transferrable as it's more readily available. This could also, however, have the effect of amplifying the consequences of a bad management decision.

Naturally, succession is an area that vexes family business owners, some of whom must be wary of letting family come before business. While our respondents strive for continued family ownership, they note that this is not the same as family management. Indeed, competence over kinship: 74% of family businesses currently have non-family executives.

The inventive spirit

Yes it's a terrible cliché, but not without a measure of truth: that success cannot be had in the likes of 2016 without innovation. While the comparatively sleepy business models of family businesses may not appear to be hotbeds of lively experimentation, you might want to take a second look. In fact, being able to stomach a few flat returns this year in the name of longer-term growth means that some family businesses are very open to truly new thinking. Perhaps other businesses could take a leaf from their book (or a... screenshot of their page?) by focusing on the future instead of on quick wins.

This interesting article from Northwestern University's Kellogg School of Management goes further into innovation in family businesses. It suggests that while family businesses may be more likely to fall prey to single-product-mania, they also have some advantages: tighter bonds with employees and less distance separating management and leadership means that decisions can be taken and funding moved more swiftly. The feeling of loyalty also helps innovators feel more comfortable taking risks, as the culture often enforces the idea that they are less replaceable compared to their equivalents in other companies.

The article cites a brilliant example: The Wagner family, who run a prominent Australian firm, decided to build Brisbane West Wellcamp, an international airport on their property in Toowoomba, a hundred miles from Brisbane. The average business executive might consider this a risky, even ludicrous, prospect. [...] But, with its goal of becoming a major freight hub for livestock transport, the airport might turn out to be a valuable asset for future generations.

The European Family Business Barometer found that one in four family businesses has prioritised becoming more innovative, and just over half (52%) are currently planning to invest in innovation and new technology.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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