How to build resilience in family businesses  

Warren Buffett once said “When the tides roll away, we shall see who is swimming naked”. A business may seem to be succeeding until an unforeseen event happens. If family businesses are not resilient, such events can cause them to collapse. Family businesses (FBs) constitute approximately 90% of all businesses worldwide (Acquaah, 2013). Therefore, to sustain the world’s economic landscape, family businesses need to be flexible and able to quickly respond to the constant drive for change.

Complexity and uncertainty impact the evolution of businesses’ socio-economic context. Pandemics like COVID-19 are part of the uncertainties which test business resilience. For family businesses that plan to pass the baton on to the next generation, the differences in how generations think and run businesses can also cause considerable complexity and uncertainty.  They especially need to be resilient and able to communicate, collaborate and align these differences. Resilient FBs stand the test of time; they go through difficult situations but are able to survive.

This article provides insight into ways of building organisational resilience at the strategic level in family businesses. Family business owners, managers and next generation family members can build business resilience if they adopt ways to effectively manage any appearance of excessive optimism in the younger generation, build ‘owner-resilience’, enhance communication, live the core values throughout the organisation, and ask the right questions.

Ask the right questions

Questioning stimulates learning and critical thinking. Asking hard questions about the family firm may reveal its strengths, weaknesses, opportunities and threats. Some organisational analysis frameworks use effective questioning to understand the business’ position in terms of its future outlook. Effective questioning can help family businesses understand their resilience capacity. Some interrogative words – such as what, who and how – are simple tools to analyse their ability to withstand hard times.

While ‘Who’ and ‘How’ questions might come across as somewhat combative, ‘What’ questions appear more rational and deliver more constructive answers. For example, a father/CEO and his eldest son – who is the Business Development Executive of their business – are in conflict. In ascertaining the cause of the conflict, questions like “how did the conflict start?” or “who is responsible for the conflict?” can result in a blame-game. On the other hand, a question like “what circumstances led to their conflict?” would lead to a more objective look at the circumstances and set the stage for finding solutions. ‘What’ questions can be used to fuel resilience, as they focus on the issue or situation rather than the people.

To test the resilience of a family business, try some of the following questions: “What resources does my firm need to generate diverse solutions in times of trouble? What human capital traits and competencies are needed for this company to sail through hard times? What might cause this company to fail? What lessens the likelihood that this organisation will be negatively affected by outside factors? What options can this firm adopt in order to benefit from negative circumstances?” Remember, ‘What’ questions help family business owners build resilience in the family business.

Live company values throughout the organisation

Values are critical to sound decision-making and ethical business practices.  They drive the internal culture (management and employees), which ultimately impacts the external culture (how the business is regarded by customers and suppliers). In essence, strong values power the reputation of the business, which in turn affects its sustainability and continuity. When resilient organisations face adversity, their values guide them forward.

Values keep the family business from collapsing and see them through hard times. This only happens when the entire organisation lives the values on a daily basis.  Unfortunately, in many organisations the values are not embedded in their people or operations, and the day-to-day activities do not reflect their values. Some FBs may have their values published on their website, but employees do not remember them. In some cases, it is just the owners and a few managers who know the company’s values.

It is critical that all employees in FBs know and live the firm’s values.  This requires proactive leadership to create more engagement and commitment throughout the entire organisation. It is essential that companies align what they do in their operations to what they believe in. During this COVID-19 pandemic, we see that nations who are handling the pandemic well are those whose leaders constantly communicate the actions of government and the health authority to their people; this gives the people energy to fight back against the disease, and the resilience to not let the pandemic win.

Family business leaders also need to communicate effectively in hard times. Communication strategies should be from senior managers down to all employees. In this pandemic season, when social distancing is a must and many employees are working from home, governors and owners alike can organise regular virtual meetings for their senior managers. These meetings should reflect and communicate the values and empower managers to do the same with their subordinates.

In times of adversity for the company, leaders can give briefings through videos or memos on situations, and remind them of the company’s stance with regard to their values. This will encourage continuous commitment and support from employees, which results in greater accountability as they carry out their duties.

Owners should be resilient

An individual or group of people who represent the ownership of the business need to build resilience on a personal level. Individual resilience is very important for family business continuity. Since owners are the major decision-makers, it is expedient that they build resilience which will in turn positively affect the organisation’s continuity. In this section, we explore some attributes that foster resilience in family business owners.

In her 2021study, Eva Wathén (2021) identified four key groups of resilience factors:

Positive Characteristics: Attributes like honesty, fairness and kindness help owners to be real and authentic. The resilient business owner thinks about the bigger picture and adopts a long-term commitment in times of adversity. Family business owners with positive attributes are not hasty or spontaneous in changing direction.

Supportive Structures and Mechanisms: An established owner strategy, clear governance and a competent board, defined owners’ roles, outside expertise and support, and cultivated networks are just some of the supportive structures and mechanisms which help owners navigate adversity and build their resilience.

Supportive cognitions: Owners’ supportive cognition refers to their entrepreneurial and growth mindset, coupled with their solution-focused attitude. They need to be rational in their thinking and not be overly-clogged with emotions. As much as possible, they need to focus on generating solutions to problems. They must not shy away from facing problems head-on. They need to be determined enough to address the issues and come out strong.

Supportive Coping Skills: As they face adversity, owners must keep an open mind to gain greater awareness and broaden their understanding of the situation. In doing so, they must be objective and get frank feedback from others.  This will give them the necessary coping mechanism to address their weaknesses and any threats from the outside.

Watch for excessive optimism in the younger generation 

Bruce Lee once suggested “Instead of buying your children all the things you never had, you should teach them all the things you were never taught”. Like most parents, Family Business owners want to give their children everything they didn’t have growing up – like the best houses, best cars or the opportunity to study in the best schools.

Be warned that this can create a sense of entitlement in the next generation – and can take away from any appreciation of the hardships they had to face, and a lack of understanding of the traits and virtues that have made them and the business successful.  It is important that the older generation in the family business does not paint a picture that suggests the younger generation will not also face hard times.

It is a fact that younger generations may have different or diverging interests from their parents and grandparents. It is possible, however, despite the generational gap, for them to develop the traits and skills which will weather the storm and see success. The term Excessive Optimism relates to low level of internal resilience in people. Successors should know the realities of life and not think that everything will automatically work in their favour. The business environment can sometimes be chaotic, and the younger generation must be taught how to manage adversity.

One valuable skill to teach the next generation of business leaders is social networking. They must be exposed to the social network of their predecessors as well as stakeholders of the business. Teach them the ‘Business’. Notwithstanding, it may be that not all the children will work in the business – so be careful not to be too pushy and rather assume the posture of a coach or mentor in guiding them to pursue their own passion. The younger generation can be guided to think realistically and positively but without “excessive optimism”.

What family business leaders can do

Success today may not guarantee success tomorrow. One factor that can help a business go through phases and a successful transition to the next generation is resilience. Owners and senior managers of FBs should strive to build resilience by asking the right questions to understand the company’s capacity to be resilient.

The owners themselves should have the right attitude and mindset to face adversities. Family business leaders’ positive attitude can help curb excessive optimism in the next generation. The next generation will know how to strike the balance between optimism and pessimism. Also, company values must be communicated and lived by all employees in order for them to believe in what the company stands for and their everyday role.

The writer is the Chief Executive Officer, Ravens Consulting GH (Family Business Consultancy)

References

Acquaah, M. (2013). Management control systems, business strategy and performance: A comparative analysis of family and non-family businesses in a transition economy in sub-Saharan Africa. Journal of Family Business Strategy, 4(2), 131-146.

Wathén, E. (2021). What contributes to a resilient family business owner? https://ffipractitioner.org/what-contributes-to-a-resilient-family-business-owner/