Long term planning: the greatest family business challenge
20th December 2017
with Morten Bennedsen, INSEAD
Family businesses are the most common type of business in the world. In the UK only there are almost 5 million family firms, employing over 12 million people. Needless to say, the role they play in society and the economy is crucial.
Family companies are well known for their long term outlook. Wanting to build stronger businesses to pass on to their next generation, they naturally tend to think in quarter centuries and are less constrained by the limitations of delivering quick profits. This gives them a unique competitive advantage, but it also present some unique challenges.
In order to deliver their long term intentions, there are some key considerations family business owners need to take into account. In this article we interview Morten Bennedsen, Professor of Family Enterprise at INSEAD, about the importance of long term planning for the success of your family business.
What should family businesses be looking out for when thinking about the future?
"Family businesses have all the challenges all other businesses have, but as family businesses they also face other challenges that other firms do not. The greatest one that INSEAD have identified is long term planning.
"Family business owners are very dynamic, but many do not take the time to stop and think about what they want their business to look like in the future. Crucially, identifying where the firm, the ownership and the management will be one, two, three decades from the current time should not be neglected. In some way this is a paradox, because family business owners see themselves as stewards for future generations".
Why is long term planning so challenging?
"Business-wise it is very easy to think about long term decisions, as family firms are willing to sacrifice short term profits for long term goals. On the other hand, looking at ownership and management in the long run is a huge challenge. This is because the questions involved are very big and often sensitive for them to look at.
"Can my kids run the business? Who should I chose to run it? What will happen to the ownership structure when I retire? What will happen with myself? These are basic psychological questions that we all have as individuals. Here is the true paradox, as it is much more tangible to plan for the business than answer these psychological questions".
What are the consequences when there is no long term planning?
"It can be catastrophic for family firms. Lack of long term planning increases the key risk of failure, the next generation can get frustrated and people within the company become uncertain about the future of the firm. These are just a few of the possible consequences owners need to be aware of".
How can we help family firms start to plan for the long term?
"At INSEAD we have developed a family business map, to provide family businesses with a structured way to think about long term planning. It helps owner managers start thinking about it 5 to 10 years before they would have done otherwise.
"As it takes at least ten years to make a good long term plan, doing yours the year before you retire is not realistic. Some key steps we have identified include assessing the contribution of family to the firm – the so-called family assets, the challenges and institutional roadblocks your firm is facing, mapping what the future looks like and, crucially, cultivating your plan.
"Successful business families have discovered how to harness their family assets as the foundation of their business strategy. Such assets may include strong values, which may be the values and vision of the founder or the ability to install family values across generations".
You can find out more about mapping the future for your family business by reading Professor Bennedsen’s article, available here.
To explore some of the challenges we have mentioned in this article, visit our family business challenges guides. These will help you understand some of the questions you need to be asking yourself when thinking about issues like governance, communication or planning succession in your family business.