The Different Types of Family Businesses

The Different Types of Family Businesses

Not all family businesses are the same. That's why it would be misguided to lump them all together under one heading when trying to understand the family business model.

Partner, Global Head of Family Business

KPMG in France


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Although most family businesses are probably started for similar reasons, they will all evolve differently, depending on the ownership style of each family. The purpose of this article is to delve into some of the most typical business models that family businesses tend to generate, while also looking at how increased outsider influence can affect the success of a family business.

The Sole Practitioner

As the name suggests, this is a one-man-band kind of business, where the owner wears many hats within the business. This is most family run businesses start out, with one entrepreneur, or couple, as the founder and owner of the new business, and then it grows from there. The growth of family businesses from this sole practitioner stage happens organically in most cases, as the founder's family matures and more members take an active interest in the company.

This can be a tricky stage to evolve from, as the founder has a strong attachment to the company, and might find it hard to relinquish or share control of the business with another family member. The sole practitioner is used to running every aspect of the business, and often feels irreplaceable.

Associated Partners

This is not necessarily a formal partnership in the legal form of the term, the union of the different entrepreneurs could be in various different forms, such as a Limited Liability Company (LLC), a corporation or other enterprise. This type of family business is founded by two or more entrepreneurs, in the case of family businesses, normally siblings or cousins, who then take on ownership of different aspects of the business.

Family-controlled versus family-influenced businesses

This KPMG Survey (PDF 1.46 MB) revealed that almost 50% of the family businesses who were questioned felt that their successors will be reluctant to enter the businesses. This is due to what is perceived as poor economic conditions. One can therefore safely assume that cutting costs right now will have a positive impact later, as it will motivate and encourage the next generation to get involved and continue to build the business if it is already flourishing. In a discussion on the results of KPMG’s latest Business Leaders survey, Jeremy Kay, partner in the UK firm, states that considering the economic slump, it comes as no surprise that this has been the third KPMG survey in which “changing operational processes to cut costs” remained the single most popular theme. He feels that what does come as a surprise though, is the fact that companies still don’t get the basics right. Kay comments: “Cost decisions should form an integral part of the overall business strategy and the focus should rather be on optimization, than on cost cutting.” Simply put, it means that optimizing costs go hand in hand with optimizing operations. And the best way for a family business to cut costs is to approach it just like any other business should. Take a critical look at every single business process in the business operations and re-engineer them to function optimally. This will not only result in maximum business growth, but it will naturally translate into cost savings too.

The effect of internationalisation on family businesses

When a family business decides to expand internationally, it brings up more questions than other business models have to answer. More often than not, expanding internationally means that the family-controlled business will need to welcome external parties into the governance of the company in one shape or other.

Family-controlled businesses would have to decide how to bring in external parties, whether to give them full control of international branches, or have them in more of a managerial role, or something in-between. Family-influenced businesses should find this transition easier to take on, as the family is already used to allowing external parties more control over the actual running of the business.

Sometimes in order for a family business to effectively expand past its borders, the family has to accept the fact that their control over the business may have to be diluted. This can be harder for some, but ultimately each family business must decide what owning their own business means in reality, and how much control over it they really need.

For further reading, go to these sites:

  1. [PDF] Jean-Luc Arregle, Lucia Naldi, Mattias Nordqvist, Michael A.Hitt, "Internationalization of Family-Controlled Firms: A Study of the Effects of External Involvement in Governance", Baylor University, 2012.
  2. "The Four Different Types of Family Business Consulting Firms – How to Choose the Right one for you (PDF 67 KB)", Family Business Institute, January 2007.
  3. "Understanding the Different Types of Owners of a Family Business", Business Families Foundation.

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