Many small and medium-sized businesses are family businesses. But being family owned needn’t necessarily mean being family run — new research suggests there can be big benefits to bringing in an outside manager.
There are many advantages to running a family business. Strong commitment, shared values and a focus on long-term success are chief among them. There can also be short-term benefits, such as increased flexibility and a willingness of family members to work for less than market rates of pay.
But it’s not all positive news. There are downsides too, and an important one concerns the management of family businesses. Often the small circle of family members doesn’t provide a big enough pool of management talent to guarantee the continuing success of the business.
A recent research project studied more than 700 businesses and ranked them on a score of one to five according to how well managed they were. The average score for family-owned businesses was 3.2. However, break that average figure down and there are interesting patterns. For instance, family-owned businesses with an outside manager outperformed the rest, with a score of 3.6. By contrast, family businesses run by the eldest son performed more poorly than the rest, scoring only 2.9.
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