What family firms can teach us about running a business - Sunday Times

From Iceland to JCB, business dynasties can flourish through long-term thinking and deeply held values. But rivalries and blind spots can mean they also stand still

The entrepreneurial streak runs deep in my family. My father’s grandparents had a successful clothing mill in Huddersfield before the Great Depression destroyed their business, while my mother’s mum ran a property portfolio and florist. Today, my brother Stephen owns a highly profitable online healthcare company and, while I love hearing about his success and passing him the occasional piece of advice, we both know that me investing in him wouldn’t work.

It’s not that we’d clash; we have a great relationship but would prefer not to extend that to a formal business one. Which points to why so many family businesses never achieve the growth they deserve; heart and head, emotions and finances, do not make for easy bedfellows and they prevent fast decision-making.

And yet so much of what is great about British business is encapsulated by what families have achieved through successive generations. In fact, a recent study by the professional services firm PwC suggested that the family firms sector contributed £225 billion in taxes in 2021, far exceeding most other kinds of business.

Through this column, I have been fortunate to hear from some of them as they looked for advice on how to achieve sustainable growth. There are, broadly, four kinds of family firm: those that endure by growing, adapting and flourishing, embracing risk and consistently reinvesting; those that stagnate because decision-making is too slow and dividends take precedence over investment; those that are public but whose majority holding is owned by the family; and those that implode because competing interests and rivalries lead to a fatal lack of focus. These ill-fated ventures were among the 30,000 UK businesses that, according to recent figures, were involved in some kind of insolvency action in 2023.

In my experience, the best family enterprises are always evolving to create long-term value. They are resilient because a good governance structure means decision-making is collaborative rather than simply in the hands of whoever has the lucky surname. Although HomeServe was never a family business, I was clearly its figurehead — but I never assumed it was my personal fiefdom. I always ran it from the perspective of being a paid chief executive surrounded by decision-making talents. It was, and is, a team effort.

Great family firms also benefit from a distinctive and unifying set of values, or ethos, running through the generations. Good examples include Iceland, run by Richard Walker after taking over from his father Sir Malcolm; Timpson, which passed from Sir John to James; and Barbour clothing, where Helen Barbour is the fifth generation of her family helping to run the company.

There are also plenty of examples of children transforming the smaller businesses of their parents. Since he took over the family firm in 1975, Lord (Anthony) Bamford at JCB has grown the construction equipment company into one that employs about 18,000 around the world and, in 2022, reported a record turnover of £4.4 billion.

Unfortunately, far more medium-sized private family businesses (typically employing 25-250 workers) struggle to grow because they lack the inclination and ability. The best leaders and owners are those who, recognising weaknesses and blind spots, learn by bringing in outsiders with different kinds of skills and experiences. However, when managers are recruited, it’s crucial that they feel like “part of the family”, rather than being sidelined by infighting and indecision.

Succession plans are also vital elements of well-run family businesses. Family members should earn the right to run the company by putting in the hard yards, doing their “apprenticeship” and enlisting a mentor. Never assume inheritance is inevitable. They have to prove themselves as they rise through the ranks, sometimes to a greater degree than an outsider.

Alternatively, a good succession can mean recruiting external chief executives to accelerate growth. The Wates family have brought in a series of successful chiefs to run the building contractor that carries their name, the latest being Eoghan O’Lionaird. It’s very easy for family leaders to resist innovation and to make decisions that serve their own interests. Outside leadership can reinvigorate the business and provide much-needed vision and clarity.

If you no longer have that emotional connection to build something sustainable and prove yourself every day, then it might be time to cash out. Don’t sit on a great family business and allow it to tread water. Sell, put the wealth to better use and let someone else acquire, run and grow it, creating greater economic wealth for this country. Or be proactive and split it up, so that different family members can take the bits they want. This can create focus and renewed growth.

Alternatively, think about bringing in an outside investor to take a minority stake and bring capital for growth and some additional expertise, perspective and balance.

Britain’s corporate giants could learn much from how successful family businesses are run: their focus on long-term goals rather than short-term results; their insistence that profits don’t come at the expense of deeply held values; and the philosophy that mistakes are seen as learning rather than sacking opportunities, with staff being given chances to develop.

But family businesses, in turn, need to learn from companies that answer to shareholders, particularly American ones that tend to take a longer-term view. From them, families can discover that power is not best kept in the hands of the few, that decisions are best made by a management team who understand the market, that reinvestment reaps long-term dividends, and that you can never win by drifting.

Richard Harpin is founder and chairman of HomeServe and Growth Partner, and owner of Business Leader magazine