Added value family business

The family as a competitive advantage

• the family contributes cheap labour; 
• the family keeps the capital together and reinvests; 
• the family thinks in generations, not quarters; 
• the family becomes a brand ambassador and quality guarantor. 

In order for family businesses to be able to play out these success factors, it is crucial to ensure cohesion and peace within the family and to identify points of contention as early as possible. With family governance, clear rules can be defined for cooperation in a family business. 

The family as a cheap labour

It is often the family members themselves who lend a hand, especially in the founding generation and also in the following generations. This is also often the case in small family businesses and in the crafts sector. The family as a resource is taken so much for granted that corresponding remuneration according to working time and effort often falls by the wayside or is at least strongly neglected.

Since "one's own" business is seen as the family's breadwinner and its continued existence and performance are therefore elevated to the highest good, it can also briefly take precedence over the well-being of each individual. This is also generally accepted by all family members, regardless of whether or not they hold a regular employment contract or even shares in the company. 
But it is precisely this unpaid work, coupled with an idealism that money cannot buy, that acts as a real guarantee of success and welds the family inseparably to their company.

Only in terms of insurance could there be problems if, for example, the wife, who has been working without a contract for years, slips on icy steps on her way to the office in winter and breaks her ankle. This is actually a classic occupational accident, but without an employment contract it does not count as such. Or if one day the issue of succession comes up and the entrepreneur is shocked to discover that no assets have been built up outside the company for the pension plan, as all capital has been returned directly to the company without any distributions.

Now good advice is expensive and one has to resort to emergency solutions such as life annuities and leaseholds. It is much better to think about retirement provision at an early age and to acquire real "silverware". This means assets that are outside the company and to which the bank also has no access. 

Reinvestment, equity, shareholder loans

In family businesses, the entrepreneurial family often tends to keep capital together and prefers to (re-)invest in its own company. As mentioned above, this can be disadvantageous from some perspectives in terms of retirement provision, but it is usually very good for the company itself. 

While in good times cheap loans beckon at every turn and bank advisors in glossy magazines properly blame SMEs for their far too high equity ratios, family entrepreneurs usually remain mistrustful. However, this mistrust pays off especially in crises. In the world of family entrepreneurs, those who can show an equity ratio of 100 percent are considered untouchable.

Of course, that doesn't mean that you don't have banking relationships and take out the odd loan. With the costs that arise, for example, for the acquisition of a modern bottling plant, no one pays in cash any more. Ideally, such a loan should be for the plant and not for the entire company or even the private residence. 

In times of crisis, it is necessary to "hold together", and this often means partially or even completely foregoing distributions and shareholder loans for one or several years. Unthinkable for most public limited companies. Such an announcement would inevitably lead to an immediate drop in the share price. The entrepreneurial family, on the other hand, is not happy about it, but is used to grief; after all, it does not only pursue short-term monetary goals, but rather thinks in terms of decades.

At the same time, they are aware of their responsibility towards their own family, but also towards their employees and the entire social environment in which they live. A lean period with the prospect of survival in the future is acceptable in this case.

Family businesses think in generations

While most public limited companies think in terms of quarters, family businesses usually have a much longer-term horizon. One can certainly speak of dynasty-oriented thinking here. Parents are prepared to make investments or initiate projects that will only benefit their children. This might be the new bottling plant mentioned above or a complete brewhouse. If succession is assured in the family, not every investment has to pay off immediately.

Similar trust as in time is of course also placed in the employees, who often celebrate long company anniversaries. In some family businesses it even happens that employees have been working faithfully and diligently in the company for two or even more generations and have achieved an almost family-like status.

Such longevity creates trust, and most entrepreneurs are proud of their history and the many ups and downs they have already experienced. Not infrequently, they then start to adorn themselves with a "Since 18XX" on the label at some point in order to make their own tradition visible to the outside world as well. Many entrepreneurs and their customers see age as synonymous with the quality of the product, and so the family, the company and one's own history, which often has regional roots, become part of one's own brand. 

Company = Family = Brand

There are several examples of companies where the brand, the entrepreneur and the product merge without boundaries: Claus Hipp of baby food manufacturer Hipp, Wolfgang Grupp of Trigema or Jeff Maisel of the brewery Gebr. Maisel - they all consciously act as brand ambassadors to represent the benefits of their product to the outside world. 

Due to the long-term mindset, the highest quality standards are usually demanded. A simple consumer purchase is the exception and frowned upon. A "stinginess is cool" mentality may attract others, but it tends to deter seasoned entrepreneurs. Thus, many owners find it quite difficult to cope with the latest hypes. This may be forgivable, even reasonable, in the case of short-term flash in the pan. However, it becomes problematic when the hype becomes a trend and continues to develop. For example, beer consumption, which has been stagnating for years, is such a trend.