Has the time come to rewrite business books? Did best practice help businesses when COVID hit? Or was it the family businesses who ran their business from their heart rather than their head, who shone through in time of crisis? For years being told they had a lazy balance sheet, too much stock and self-funding growth was restricting their potential. But then when the largest crisis we have seen in our lifetime hit, as practitioners, we had to question ourselves. Maybe family businesses had it right all along? Were the business principles we were teaching short term thinking or do they only work when times are good? Or maybe they are incomplete? The family business values were tested and they held strong. As Mimi Salmon once said “The strength and unity of the family was at its peak whenever there was danger.” Family businesses consider their staff and their customers to be their family, so when crisis hit, they didn’t just pull together for the benefit of their family, it was to ensure their staff had jobs and their customers were served. Maybe it’s time we make room for a chapter on resilience in our best practice books and what better businesses to learn from than family business.
What are the key learnings from family businesses?
- Excess stock, is not a lazy balance sheet, it ensures your customer needs are always met;
- Self-funded growth, does not restrict business potential, it is instead long term thinking that protects the family and the business;
- Dinner table decision making is not necessarily a bad thing, rather it allows quick pivots, innovation and speed to market;
- Honest communication with staff and customers builds trust and a loyal following, even if the news communicated is bad news.
When you consider your customers to be family, you never want to be put in a position where you say, “we are out of stock.” This family value has seen family businesses carry excess stock for years. In business, it is often referred to as a lazy balance sheet. That is, a business who is carrying a lot of cash or cash equivalents. The reason it is considered lazy is businesses could use the funds for profitable undertakings or alternatively return the funds to shareholders. In January 2020, we saw excess stock meant orders could be met whilst many businesses experienced enormous restraints on their supply chain. Initially we saw manufacturers in China close their doors then we saw all vessels were required to quarantine. For businesses with low stock levels, this placed enormous pressure on their business as there was a real uncertainty surrounding their supply chain and how long would it take for an order to be manufactured and delivered. What had been seen as a lazy balance sheet was now a competitive edge. We also saw family businesses collaborate and support one another, this included asking one another whether they had items in stock, so they could meet a delivery. Whilst many retailers were turning customers away or providing unachievable delivery times, family businesses were able to deliver and really went above and beyond to ensure they could obtain items for their customers. This brought a consumer loyalty. Maybe it isn’t a lazy balance sheet at all, rather long term planning, risk prevention and ensuring the business can overcome any disaster that comes their way. Placing a satisfied customer, ahead of short term profits.
Historically we have seen family businesses initially risk everything to start their business but once the business is successful, the owners become very conservative with a long term view on all business decisions. They become risk averse and avoid going into debt to invest in future growth. Instead they prefer to self-fund all growth opportunities. As they build their cash reserves for the next investment, this has been perceived as a lazy balance sheet. But once again, when COVID hit, they had less pressure placed on their business. They did not have loan repayments to meet. They could afford to keep their staff employed. They could fund that innovation that was going to turn their business around. Their long term thinking, conservative approach served them well. Are businesses today trying to grow at a rate they can’t sustain? Are the low interest rates encouraging businesses to increase their debt levels. What was considered a lazy balance sheet, served family businesses well. It placed them in a strong position, it allowed them to breath and to pivot. Does it take a crisis for us to consider, what is best practice to create a resilient business?
Working with family businesses, we often recommend they professionalise, rather than corporatise. This ensures family meetings are more productive and results driven but it also means there is no red tape. When a decision is made, they make it happen. We try to facilitate a structured family meeting to discuss the business, to allow dinner time to be family time. When COVID hit, there were many conversations family businesses had over the dinner table. There were tears, there was desperation and this lead to an attitude, we have nothing to lose, we have to give these ideas a go. They worked all through the night to bring their ideas to life. Prototypes were designed, models made, products designed and photographed and launched all in a weekend’s work. This agility has set family businesses apart. Whilst the corporate world were writing business plans and planning meetings to discuss next steps, family businesses were already in the market. The Corporate approach may be the best thought out approach to business but in times of crisis, businesses need the agility. They need to be able to try new things, to test the market. Knowing the business was either something they had built or their parents or grandparent’s, there was a responsibility and pressure to ensure they were not the generation who lost it all. We saw the next generation step up, pitch in and demonstrate stewardship. We must question, is a corporate decision making process the best option? Or are the layers of red tape preventing innovation, entrepreneurship, agility and speed to market? Maybe there is something to say about the conversation over the dinner table and everyone pitching in to bring an idea to life.
The last year brought many difficult conversations with staff. Family businesses consider their staff part of the family. They often comment that induction includes “welcome to the family!” Unfortunately, when difficult times hit, this makes the decisions and the conversations that much harder. Many family businesses said, each conversation was held with a tissue box on hand. The owners understand, the business is not only supporting their family but the families of all their staff. They know they have school fees to pay, mortgage repayments due. As hard as the conversations were, family businesses had the conversations, they were open with their staff, they didn’t tell them what they wanted to hear, rather what the situation really was. They negotiated with their staff to work out what suited them best as they navigated through the difficult times. We saw some incredible family businesses innovate, they pivoted and when asked why, they knew it was their only option to ensure their business could continue. Where many businesses thought the only way to survive was to make staff redundant, for family business, they would not even contemplate this option unless it was the last resource. The desperation to keep their staff in jobs, lead to some of the best innovations we have seen. For example, restaurants offered take-away meals, a tourism company started a pop up store to serve their local community and keep their staff in jobs and we even saw an events company turn a staff member’s hobby into the pivot of the decade, a furniture business for the home office.
The communication wasn’t only with their staff, family businesses were raw, they were open and they were honest with their customers. We found family businesses were supporting one another and sometimes even collaborating together to help one another survive. A great collaboration was when a local restaurant turned to a family owned limousine company to deliver their food rather than a menulog or uber eats. Ensuring they helped one another stay in business. Good leadership has always meant a strong optimistic delivery of all announcements. But it was the honest heart felt conversations with family businesses that saw local support grow. We saw a movement to support local business. And when we came out of lockdown, it was the family owned businesses, the ones who wore their hearts on their sleeves, the ones who were open and honest with their customers who started thriving. The consumer was no longer about the best price, or saving a dollar. They were about supporting local business and appreciating the service they were receiving. There is a lot large corporations can learn from family businesses during difficult times, speaking from your heart, showing true emotion is not a weakness in business, it is your strength.
COVID has taught us, it is time to rewrite business books. Resilience needs to be front and centre , the family values, the pride and the responsibility attached to family business brings a burning desire, when times are tough, to do whatever is necessary to make it through the hard times. Any decision made from the heart, is the decision of an owner who plans to be in business for the long term. It is a decision of a family who come together to support one another. They value their staff, their customers and their brand. Any short term gain is not worth it, if it puts any aspect of their business at risk. The key business takeaway from COVID is we need to focus best practice for business around resilience. Family business have taught us how to face a disaster and thrive.