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Top Ten Characteristics Most Often Found in Great Family Businesses

“Good is the enemy of great,” proclaims Jim Collins in his landmark bestselling book “Good to GREAT.” To achieve greatness in business, Collins’ research shows, among other things, that leaders must: express hr
– Face the brutal facts
– Get the right people on the bus, in the right seats
– Become the best in the world at something (The Hedgehog Concept)
– Know what you are deeply passionate about
– Know what drives your company’s economic engine

And how does Collins’ research team measure the transition from good to great? The primary metric used was financial performance as reflected in the stock values of these businesses. The 11 companies selected had to have “experienced 15-year cumulative stock returns that were at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years.”

These companies are:
Abbott
Circuit City
Gillette
Fannie Mae
Kroger
Philip Morris
Kimberly-Clark
Wells Fargo
Walgreens
Nucor
Pitney Bowes

As you can see from this list, achieving greatness does not guarantee staying great. One company is bankrupt; others have declined, leading to Collins’ latest book: “How the Mighty Fall.” However in both of these books, like so much of business research, the companies studied are publicly traded in large part because these companies generate objective data that are accessible and can be analyzed and compared.

Since most family businesses are privately-held and many keep numbers confidential, it is much more difficult to access quantitative data, making them more difficult to study. We do not possess the body of knowledge about when family businesses may have transitioned from an average or good company to a great company. So, what makes a family business great? In fact, there is no single definition or metric for a good family enterprise or a great family enterprise. Financial performance is just one important indicator of a successful company. For family businesses, we find that greatness goes beyond an ROI (return on investment) or EBITDA (earnings before interest, taxes, depreciation and amortization) number. In fact, over the years of working with family businesses, certain attributes have emerged that can arguably be tied to greatness. The following are 10 distinguishing characteristics most often found in great family businesses.

1. Living Shared Values: Great family enterprises consist of families that understand their values and guiding principles and truly live them in their business decisions and actions. The Mogi family (producers of Kikoman Soy Sauce and now in its 17th generation) created a family constitution in the late 1800s that includes 16 guiding principles. As an example, number 15 describes the trait of humility “…never think highly of yourself.” In great family businesses, values are the bedrock. In fact, John Ward (one of the founders of FBCG) has stated, “values pervade every aspect of family business. Values are the independent variable shaping every dimension of family business management.” Great enterprising families use their values to help guide key decisions regarding strategy, structure, diversification, culture, employee recruitment, governance and very importantly-succession.

2. Strong Financial Performance AND More! Just as Collins points out for public companies, family-owned businesses must also demonstrate continuous strong financial results. In fact, as a collective group, family businesses have shown strong long term financial performance. A McKinsey study shows that over time family-owned businesses financially out-perform other businesses by 7 to 8 percent but a great family company is not ONLY measured by profitability. Many family businesses have helped develop the more encompassing concept of the Triple Bottom Line: economic, environmental and community. Great family enterprises, while economically strong, are also stewards of the environment and often lead in the development of eco-friendly products and practices. In addition, communities around the world benefit significantly from the philanthropy displayed by great family companies.

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