Successful Leadership in Small Family-Owned Businesses Report

This report provides a comprehensive overview of successful leadership within small family-owned businesses. It begins by defining family businesses and contrasting them with non-family businesses, highlighting similarities and key differences. The report then presents statistics on the success and longevity of family-owned businesses, emphasizing their economic impact. It delves into various leadership styles and illustrates these with examples, including Jorgen Vig Knudstorp's turnaround of LEGO. Furthermore, it examines the factors contributing to both the success and failure of family businesses, such as family unity, communication, and succession planning. The report concludes with a discussion on planning for successful leadership within these unique business structures, offering valuable insights for students and professionals alike. The report also provided an insight to the planning of a successful leadership in family owned business.

Running head: MANAGEMENT
Successful Leadership in Small Family-Owned Businesses
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
The report aims at providing an overview of successful leadership in a small family owned
business. A family owned business is defined as the business where the family member’s
remains involved and the control or ownership of the business primarily lies within family. It is
the oldest type of business association. In early 1980s, the family business has been considered
as important and distinct categories of commerce. In present times, family owned businesses are
identified as dynamic and important participants of the economic world. According to US
Bureau of Census, close to 90 percent of the American business are not only controlled but
family owned. From partnership firm comprising of two-persons to the Fortune 500 firms, these
business accounts for half of Gross National Product and the employment of the nation. Family
businesses are believed to possess certain advantages over the other business entities in the focus
for long term, their quality commitment and the concern and care for the employees. Family
owned business also faces unique management challenges that arise from overlapping of
business and family issues.

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Table of Contents
Introduction:....................................................................................................................................2
Family Business versus Non-Family Business................................................................................3
A. Similarities..................................................................................................................................3
B. Differences..................................................................................................................................5
Statistics of Successful Family-Owned Business and Longevity....................................................7
Family Styles of Leadership..........................................................................................................10
A. Define Various Leadership Styles............................................................................................10
Example of Successful Leader and Leadership Style....................................................................13
A. Jorgen Vig Knudstorp - CEO of LEGO in 2004......................................................................13
B. Mark Zuckerberg- CEO of Facebook......................................................................................15
Factors Attributed to the Success of Family-Owned Businesses..................................................17
A. Family Unity:...........................................................................................................................17
C. Vision:.....................................................................................................................................19
Factors Attributed to Failures of Family-Owned Businesses........................................................20
A. Conflict within Family:............................................................................................................20
B. Lack of Communication:..........................................................................................................21
C. Lack of Succession Plan:..........................................................................................................21

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Planning for Successful Leadership in a Family-Owned Business...............................................22
Conclusion:....................................................................................................................................24
References:....................................................................................................................................25

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Introduction:
As far as the leadership is concerned, it is the subject that touches the various aspects of
family owned business which includes the development of the next generation to the succession
planning and from determining the effectiveness of the board to integration of the non-family
executives into firm and beyond. Leadership if not properly defined leads to the muddled
expectations and development of the multiples styles of the leadership within firm. There does
not exist any specific behavior, core skill and personality traits that defines an ideal leader.
Nevertheless, it is vital for the family members to determine capabilities of desired leadership in
accordance with the strategies and values. It is also necessary to describe the reasons as to why
the families’ remains in business together and also put forward a plan in attaining social and
commercial success that acts as the prerequisite for preserving the legacy. In the process, it is
also necessary to adapt the leadership styles to the generational change and the changing
conditions of the market. There is also the necessity of being explicit about the behaviors and
competencies for supporting the strategy and values. The expectations from the leadership are
simply part of equation. Families should work harder for identifying the ways of exercising the
leadership. This is important since everyone holding managerial positions within the family are
not leaders by birth. However, leadership can not only be learned but also enhanced by attracting
possible talents from the outside of the firm.
The report particularly focuses on the similarities and the differences of the family and
the non –family business. The report also puts across statistics of a successful family owned
business and its longevity. The report discusses various styles of leadership along with an
example of a successful leader, Jorgen Vig Knudstorp, who was responsible for turning around a

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failing family business. The report discusses the factors that attributed to the family owned
business and factors that attributed to the failures of the family owned business. The report also
provided an insight to the planning of a successful leadership in family owned business.
Family Business versus Non-Family Business
A. Similarities
Family business has been recognized by its significant presence in the economy and
throughout history. Family owned business is long lived and is the most prominent across the
world. According to the statistics put forward by the European family business in the year 2012,
it was found that close to 70 to 90 percent of the annual GDP is created by the family business.
The impact of this family business has been proved further through creation of 50 to 80 percent
of jobs in some of the major countries of the world. It has also been found that close to 85
percent of the startup companies is established with the money coming from the family (Dyer &
Gibb 2016), Besides, estimations have indicated that in most of the countries across the world,
family owned business account for 70 to 95 percent of the entire business entities (European
Family Businesses, 2012).
Research for the past few decades that has been related to the family business has
struggled predominantly with defining of the family business and the main characteristics.
Despite different definition in the literature put forward by various researchers in relation to the
family business can be stressed to the extent that there is no generalized agreement to what
should have been considered as the family business. The unique differences between the family
and the non-family firms can be utilized for explaining the operational and the conceptual

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definitions of the family firms. According to research studies, suggestions have been out forward
in determining how the background settings are playing crucial roles in defining the governance
of the family business and regulating the performance impacts. Studies have also suggested that
the family enterprises emerge as central force for driving the economies in the countries.
Non family firms are defined as the firms that do not perceive themselves as the family
firms and where the family does not own major shares. Brining a non family manager on board
acts positive family owned business since it acts beneficial for the company. This also helps in
explaining the professionalism of the family business where the financial management plays
leading role. Family business aims at maintaining healthier balance between the family and the
non family managers thereby helping in improving the performance of the company.
The last decade witnessed changes in the understanding of the family business as well as
the non family business (Aronoff, 1998). This represents the evolving changes that remain
crucial to the working and the understanding of both the business. The trends identified include
focusing on team management, business succession and ownership as the developing norm in
both businesses. In both the family and the non family business there has been an increased
importance of strategic planning, enhanced financial sophistication, increasing professionalism
of the managers, refining the retirement, expanding role of the women, requirement of the
professional service providers and quality and increasing availability of consulting and
education.
B. Differences
Research has helped in the identification of the key differences between the family
business and the non family business. The difficult part lies in the explanation of the reasons for

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such differences. Some of the generalized differences between family business and the non
family business lie in the age of the company, employee, sales, internationalization and the
financial ratios (Hall, 2012). Family business is mostly older and has lower level of sales and
fewer employees. Only a handful of full time employees of a family business are based on the
permanent contacts, smaller capital share, fewer shareholders and higher proportion of the board
members amongst shareholders. While digging in financial policies put into practice in both
companies, the key differences indicates personal preferences concerning risk, ownership control
and growth. However, it has been noted that there are various family business that outshines the
rivals related to non family business there exist some who lacks the genuineness of the longer
term business policy or the commitment towards the evolution or growth. If by any chance the
loss of control is due to personal apprehension of the owner manager then in such cases the
manager owner is intentionally or not intentionally destroying the chances of the company for
competing in future.
The report here provides an insight into the differences between the family and the non
family business with respect to the CEO, business strategy, varied approaches to the internal
matters of the management, larger share of the internal equity and level of efficiency. As far as
the characteristics of the CEO is concerned, it has been found that the managers of the family
firms are older compared to the non family firms while those in the non –family firms are found
to leave as the growth slows over the time. According to (), family business remains less
involved in the socio-economic networks and act in cooperation with the other firms. In respect
to the business strategy, it has been found that the family business follows lesser innovative,
non-cooperative and lesser growth oriented strategy in comparison to the non-family firms.

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The difference between the family and the non family firms lies in the different
approaches followed by the internal management. According to (), family firms seems less
significantly oriented towards the planning of the related issues and they use the formalized
information management system for supporting the decision. Besides, planning is less significant
in the family firms and the managers of the family business use a personalized approach and
relies less on the formal written policies.
Family owned business have large share of the insider equity in the capital share which
is one of the reasons for the family owned business. Hence, they are able to make choices of
conservative investment and remain better protected against the hostile takeovers. Further, the
family owned business remained willing in offering personal collateral. In respect to demand
side, there existed increasing evidence about how the managers of the family firms have kept
shares within family thereby avoiding equity financing and external debt.
However, as far as the performance of the firm is concerned, family business shows
greater level of efficiency compared to the non family firms. Thus, family firms have higher
level of Return on Assets (ROA) and Return on Equity (ROE) compared to the non family firms.
Statistics of Successful Family-Owned Business and Longevity
Family owned business represents the economic powerhouse known for driving the
national, local and the global economies. Some of the statistics related to the longevity and the
family owned business are as follows:
Economic Engine of America

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Family-owned businesses represent economic powerhouses for driving the national, local
and global economies. Family owned business accounts for closer to 64 percent of the gross
domestic product of United States thereby generating closer to 62 percent of the employment of
the country and remains responsible for generating about 78 percent of newer job creation
Astrachan & Shanker, 2013). Family owned business act as the backbone of American economy.
According to studies, it has been found that 35 percent of the fortune 500 companies have been
mostly family controlled and represented complete spectrum of the American companies from
the smaller business to the major corporations (Tagiuri & Davis, 1992). The major portion of the
wealth of America lies in the family owned business. According to Census Bureau of US, the
family firms comprises closer to 90 percent of the business enterprise in the North America
(inc.com, 2019). According to a survey conducted on ‘From Longevity of Firms to Trans-
generational Entrepreneurship of Families: Introducing Family Entrepreneurial Orientation’
where response was collected from 90 percent of the family indicated that family owned business
have stronger entrepreneurial activity taken up mostly by the controlling families beyond core
(Zellweger, Nason & Nordqvist, 2012). It has been found that smaller business including family
owned firms employs more than the dozen workers of US. In the year 2011, amongst 113.4 non-
farm workers belonging to the private sector, the smaller firms with less than five hundred
workers recruited close to 55 million employees while the larger firms recruited close to 58.4
million workers. In this context, it is also observed firms having less than 20 employees recruited
closer to 20.2 million (Fallon, 2014). Besides, family owned business has a lesser tendency
towards terminating employees irrespective of the financial performance.
Longevity of the Family Business

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As far as the aspect of longevity is concerned, recent research portrayed that continuous
family control is efficient since the families for instance are able to positively impact the
inventory resource and the longer term perspective focusing on the strategic positioning. In other
words, family owned business has lesser amount of problems related to human resource;
possesses higher values and has a drive towards newer entrepreneurial activity (Beckhard &
Dyer, 1983). The thing that truly drives the family business represents the sense identity and
connection of the owners and the feel of the family members with the business. The average age
of the family owned business is 60.2 years. Over 30 percent of the family owned business is able
to make a transition in second generation, Close to 12 percent will still remain viable in the third
generation with only 3 percent of the family business operating at the level of fourth generation
and ahead. The tenacity of the leadership in the family enterprise is four to five times lengthier
compared to the counterparts. The primary importance amongst the wealth holders of the family
firm lies in not only transferring the financial wealth but also the values surrounding the wealth
to the subsequent generations. The primary value that is taught includes the encouragement of
the children in earning their money along with activities like charitable giving, philanthropy and
volunteering. The environment for the innovation in a family owned business improves when
increasing number of generations remains actively involved in the family owned business(). It
has also been found that family owned business retains talent in comparison to the competitors.
According to Harvard Business Review, it is only 9 percent of the workforces in the family
owned business faces a turnover (Kachaner, Stalk & Bloch 2015). This helps in creating culture
of purpose and commitment thereby helping in avoiding the layoffs during the downturns and
promoting an atmosphere of investing in the people.
Creation of Wealth through Family Business