September 26, 2014
That family businesses endure longer often stretching into successive generations is received wisdom. But are they also more welcoming to customers, employees and even innovation? With regard to the last of those, a recent Insead (Europe's leading business school) paper has a somewhat surprising conclusion with regard to innovation. Despite a known reluctance to take on additional debt or other external financing measures fearing the dilution of control, attributes which are thought to hinder innovation, family firms put out more patents than similiarly situated non-family firms. Among the reasons for their lead in new ideas is a longer time horizon, better governance structure and better availability of traditional capital sources as lenders tend to trust family businesses more so than others.
The outcome for employees, at least during adverse times such as the great recession, also appears to favor those who work for family businesses as they are less inclined to lay off personnel than their more corporate counterparts. That was the conclusion of a couple of Michigan based universities who say that family owned businesses place a premium on being loyal to their workers with some owners claiming that even "during times of belt-tightening the last thing they want to do is let employees go". Their apparently altruistic behaviour includes reducing distributions to themselves with as many as 58 percent of those surveyed saying that family members would take a pay cut before the business could consider reducing the workforce.
The foregoing suggests a more receptive environment for better products and services and therefore a better magnet for customers; particularly more loyal customers. An academic study in the Journal of Retailing and Consumer Studies points to a mixed bag with the authors noting that "consumers evaluate family businesses better in terms of service, frontline employee benevolence, and problem-solving orientation, and worse in terms of selection and price/value. Results further indicate higher consumer trust in family business management policies and practices, frontline employee trust, and satisfaction but no differences in loyalty. The study goes on to show differential effects in how image elements influence customer loyalty directly as well as indirectly through trust and satisfaction.
In sum, on the customer acquisition and retention front family businesses have been slow to bring out their considerable strengths particularly on the social equity front. That the latter can be a magnet was proven by Hilton in its social media stance that embraced opponents of California's Proposition 8. No hotel chain in the US that is family-owned (and there are a few that are out there) puts its family ownership at the heart of its value proposition than Drury Hotels which proudly states "family ownership makes Drury Hotels distinctly different and assures you of quality and consistency every time you stay". Given their long running success it is a message that other similarly situated firms ought to emulate.