8 Challenges of Small Family-Owned Business Turnarounds

8 Challenges of Small Family-Owned Business Turnarounds

After surviving the Great Recession of 2009, family held businesses still have an uphill battle to survive slow economic growth, possibly stagnation, tight credit, and problematic expectations of the future. The challenge for family owned businesses to survive is critical in this current economic atmosphere. For the U.S. economy, family held businesses represent 64 percent of the Gross Domestic Product (GDP), approximately 62 percent of the nations workforce, and, most noticeably, 80-90 percent of U.S. businesses. However, among second-generation owners, 70 percent of the businesses fail and for third-generation owners, 88 percent of the businesses collapse into bankruptcy according to Family Business Review. The impact on the global recovery will depend on turnaround strategies of family held businesses.  The challenge of family owned businesses to survive is critical in this current economic atmosphere.

Small family firms have unique characteristics that affect their ability to initiate turnaround strategies when encountering an organizational crisis. In many cases, employing standard turnaround strategies such as top-management changes, infusion of external management expertise, and retrenchment are normally followed practices, however eight characteristics moderate these practices. In a study by John Cater and Andreas Schwab (2008), the researchers identified unique eight propositions or challenges in dealing with small-established family owned businesses. These include:

Challenge 1: The strong ties of family top managers to the business reduce an established family firm’s ability to initiate and implement necessary management changes in response to an organizational crisis.

Challenge 2: The limited pool of replacement candidates constrains a family firm’s ability to initiate and implement top-management changes in response to an organizational crisis.

Challenge 3: The family ties among top managers increase consensus orientation and conflict avoidance, which reduces the firm’s ability to initiate and

Challenge 4: The more informal management systems at established family firms reduce their ability to implement top-management changes in response to an organizational crisis.

Challenge 5: The internal orientation of established family firms constrains their ability to find adequate external support from services providers (e.g., consulting companies) to address temporary expertise needs in response to an organizational crisis.

Challenge 6: The internal orientation of established family firms constrains their ability to find and integrate external personnel to address permanent expertise needs in response to an organizational crisis.

Challenge 7: Strong altruistic behavioral tendencies of organizational members increase an established family firm’s ability to implement retrenchment strategies in response to an organizational crisis.

Challenge 8: Long-term goal orientations of organizational members increase an established family firm’s ability to implement retrenchment strategies in response to an organizational crisis.

As you can tell, turning around today’s distressed family business requires dealing with unique set of challenges. Unfortunately the greatest difficulty is not taking action early enough to void a crisis, but realizing that we have intergenerational issues possibly with limited financing options at hand. Too often the owners of the business are so busy working the business that they do not have the time to properly plan to manage the growing risks or to capitalize on possibly new opportunities.

Personally, I think that the significant role played by family owned businesses is critical. Identifying the risks of failure, recognizing strategies of company renewal, and implementing the necessary turnaround tactics that covers these enterprises that have unique characteristics. This will maintain family wealth, protect jobs, and strengthen the economy.

Reference

Cater, J. & Schwab, A. (2008). Turnaround Strategies in Established Small Family Firms. Family Business Review 21.1. Pg. 31-50.

Downes, J.J. (2012). Preventing Family Business Failure. Association of Insolvency & Restructuring Advisors Journal. Pg. 1 & 3.

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