Family-owned Business Model – How Does It Work?

Corporations changed the way the world conducted business. There are various types of corporations. However, most well-known companies are public. It means the general public can participate in buying their shares.

Through these shares, they can obtain ownership and control of the company. It is also beneficial to the company as allowing the public to buy its shares generates more funds. Despite that, however, a high percentage of companies are private and family-owned. Among the family-owned companies and businesses, the family-owned business model is prevalent.

What is the Family-Owned business model?

The family-owned business model is prevalent among companies that have closed ownership. The owners of family-owned companies or businesses are individuals usually related to each other. These companies come from prominent families. Various characteristics are unique to family-owned companies, such as its closed nature of succession.

The family-owned business model is for companies that may continue through generations of a family. The shareholders or owners of family-owned businesses are a closed group, often related through blood or marriage. These owners dictate the company and its objectives. While it is a common business model worldwide, it originates from the 1870s, when family-owned businesses became prevalent.

For most people, family-owned businesses may refer to small stores run by family members. However, various companies are family-owned and considered some of the largest companies in the world. These companies have evolved over several generations to the present position. Some examples of these companies will come later.

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How does the Family-Owned business model work?

The family-owned business model is for companies that involve two or more family members in their control. These members own the majority of the ownership or control of the company. Often, these companies also originate from the partnership of related individuals. In the US, about 90% of businesses are either owned or controlled by families.

As mentioned, the family-owned business model starts when family members or related people start a business. The people involved may bring specific skills. However, they may also participate in it for being a part of the family. While some external people may also be a part of the business, they don’t usually own or control it.

One common characteristic of the family-owned business model is succession. When family members leave their positions in a family-owned business, they usually transfer it to another member of the same family. This practice does not apply to businesses outside of this business model. Therefore, the business usually remains family-owned even after generations.

Some family-owned companies have modified the business model to their advantage. While keeping the business within a family has some advantages, it can also limit funds. Therefore, some companies have gone public with their family-owned businesses. However, they still keep the majority control or ownership within the family and its members.

What are the advantages and disadvantages of the Family-Owned business model?

The family-owned business model has many advantages. That is why it is prevalent and highly successful around the globe. These advantages come due to the family-based business in this model. However, it also comes with disadvantages. Some of its advantages and disadvantages include the following.

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Advantages

The family-owned business model allows owners and shareholders with shared values to do business. When members of the same family start their own business or company, they usually share common values and goals. Therefore, it gives them a better view of what they want to achieve with lesser conflicts.

The family-owned business model also promotes loyalty. Strong personal bonds mean that family members are likely to stay together through rough times. Therefore, family-owned businesses usually go longer without closing and are more successful.

Family-owned businesses may also come with lower costs. Since only family members are a part of the company and hold prominent positions, they might be willing to sacrifice for the company. Therefore, these family members will accept lower pays if it ensures their business’s and the family’s well-being.

Disadvantages

The family-owned business model promotes succession among family members. Therefore, members who are not competent may also take a prominent position in the family. These members can cause the business more harm.

Similarly, as the family-owned businesses progress through generations, the newer generations may not have the same values. Therefore, the company may lose focus of its goals and objectives and fail as more family members get involved.

Similarly, with progressing generations, competition within the family increases, which can cause a fight for power and internal conflicts.

Examples

Walmart, the world’s largest retailer, is a company that uses the family-owned business model. The company’s ownership is among the Walton family. Similarly, companies such as Volkswagen, Berkshire Hathaway, Ford Motor, Tata Sons, Dell, ALDI, etc., are family-owned companies.

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Conclusion

The family-owned business model is for businesses that are owned or controlled by family members. It is one of the most prevalent and successful business models.

Some characteristics are common to the family-owned business model, such as succession or closeness. Despite its highly successful nature and advantages, the business model can also have some disadvantages.

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