The Advantages and Disadvantages of Running a Family Business

Jiaxin Liu

The Advantages and Disadvantages of Running a Family Business

Jiaxin Liu

Nowadays, running a family business is becoming the main stream of the development of business. Why is it so popular and what are its disadvantages are the main questions which people are considering. After the comparison of the advantages and disadvantages, it is obvious that the benefits of running a family business far outweigh the disadvantages. The goal of this essay is letting people realize and understand both of the strengths and weakness and then make a long-term success.

American dramatist and actor John Howard Payne said there is no place which is better than home (Payne, no date). People like setting up a business with family members because they are familiar with each other. However, a family business has both advantages and disadvantages. A family business is more flexible, more trusting and has long-term outlook, but sometimes it may suffer from family conflicts and a lack of succession planning.

So, what is a family business? A family business is a business organization in which decisions are made by several family members. It is the most ordinary form of business in the world. Alderson, a professor of California Baptist University, has argued in his essay that 90% of businesses are family-owned or controlled by family (Alderson, 2012).

One of the most important benefits of a family business is flexibility.Family members may be willing to do several different jobs without complaining because they can get advantages as soon as their family gets profit. "In family businesses, (the founder and employees have) an incredible passion for the business,and a focus and energy that you'll never find in a non-family employee."said Fishman, the founder and chairman of business guidance service(Fallon,2014).

Flexibility isn’t the only advantage to a family business. An elevation of trust is also more common to this type of business. Dennis Jaffe, a family wealth management expert, has argued, "Their sense of the business is as a trust, stewardship, responsible not just for today but for many stakeholders, including those of future generations" (Kennedy, 2013). Family members trust each other and bring their trust to the whole business. This behavior helps them become more reliant on each other so that they can have a better chance at success. Don Gentilini, the previous owner of Gentilini Motors, said that family business makes employees feel like part of the family. They take care of each other and treat everyone equally like a family (Fallon, 2014).

Not only do family businesses offer more flexible environment built on trust, they also tend to focus more on long-term profits. By contrast, nonfamily businesses pay more attention to short-term profits. In other words,a family business is an elongated process of accumulating wealth,because managers can transfer the treasure to the next generation. By way of example, Alderson argued in his article that the Ford Board has relationships with other families which controlled business (Alderson, 2012).They know that only a long-term viewpoint can bring more profits for their families.

While family businesses have some advantages, they also have some disadvantages. The biggest problem for family business is succession planning. Most of the managers pay more attention to their work instead of teaching their children.

Given the difficulty of succession planning, many family businesses,have failed. Research from Family Business Alliance found that only 30 percent of family businesses in America have continued to exist. In addition,only 12 percent still remain by the third generation (Fallon, 2014).

The lack of proper succession planning is due to various reasons:owners’resistance, pear of retirement,and inability to develop a good succession plan. Some common reasons including owners’resist, fearing of retiring and enable to find a good succession. Chung Mong-Koo is a good example of a person the failing to find a good successor (Top 10 CEO Scandals,2010). His father, the founder of Hyundai Motor, appointed him to be his successor in 1997. However, just six years later, Chung Mong Koo, the new chairman of Hyundai Group, was convicted of fraud and embezzlement.

To conclude, a family business has both advantages and disadvantages,and each of them can lead to a business’s success or failure. The advantages of running a family business, however, far outweigh than disadvantage, because managers can solve the disadvantages by cultivating children earlier, setting family rules and formulating policies. In other worlds, the disadvantages can be solved, but the advantages are inevitable. The goal, then, is to realize and understand both of the strengths and weakness and then make a longterm success. In the future, family business will still be the mean current of business.

Taiyuan Zhida LVY Secondary School Adviser: Christina Christy