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.
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 is also a fundamental area in which family businesses can differ greatly. Family-controlled businesses are what most people think of when they refer to a family business. This is where a family member is not only the owner of the business, but is active in the management and running of the business on a day-to-day basis.
Family-influenced businesses, on the other hand, find the namesake family taking a backseat in the actual running of the business. Here the running of the business could be outsourced to key employees who may be better suited for certain roles than family members. Family members could have varying degrees of control in this business model, ranging from seats on the board, to the majority of the company shares.
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:
- [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.
- “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.
- “Understanding the Different Types of Owners of a Family Business”, Business Families Foundation.