Marketers are always on the lookout for opportunities. They often ask if there is a different way to segment the market. Can we find hidden opportunities in a market space that is neglected? Are our competitors exploring areas that we have ignored? One segmentation criterion frequently missed in business marketing is whether the firm can be classified demographically as a family enterprise. This recognition has the potential to open doors into another market space.
Blind spot thinking
We often segment business markets demographically—use of sales, number of employees and asset size. We can also include the geographic areas they belong to as regions of a country and hope they have some market similarity. We could use sector market segmentation: energy, distribution, retail, agriculture, home-based, service organisations, etc.
In addition, we can use the stage in the firm’s life cycle. Younger firms’ behaviour might revolve around products and services that support their search for a successful business model. A more mature organisation might want offerings that assist it in growing or making its people more productive. A declining company might be searching for solutions to rejuvenate its trajectory and avoid the inevitable decline that some firms experience.
Still, firms often miss another segmentation selection. Companies can be classified either as family-owned/operated or not. This slicing might seem academic, but it has many benefits in market strategy formulation. Strategy, you might be asking, what are these advantages? Since segments must be different and valuable, as a market strategist, you must find compelling reasons to include these ubiquitous firms in your new marketing and sales plan.
Several things bug you about family firms. Many seem successful in the marketplace and are a dominant form of organisation, and they seem to amass a large asset base and keep developing innovative strategies. You point to Bhagwansigh’s conversion to self-service retailing, while their main competitors still have over-the-counter service—labour-intensive and low-impulse purchasing models. Family businesses are enterprising, but there is more to it than your superficial assessment.
Why family firms are super successful
The mega reason family firms can out-compete their counterparts is that they are entrepreneurial. While most firms have entrepreneurial roots, they become less agile, hire managers who focus less on innovation, and become less risk-takers as they grow. However, there is another dimension to family businesses’ entrepreneurial thinking: it is collective with many family members.
While family businesses may have started as a solopreneur embarking on a journey of discovery when the founder slowly and meticulously pollinated the other family flowers, they developed into an entrepreneurial bouquet over time. This development can be a formidable business strength.
This collective entrepreneurial intelligence of family firms can increase return on investment. Here is what happens behind the scenes. The family starts talking at the dinner table (their first boardroom) and then makes an investment choice with little delay. Frequently, mature firms misbehave in their investment decisions; they miss the boat of opportunity, and risk-averse managers subliminally think about how to improve their career options.
Behind the higher rate of return, business families are notorious for controlling their expenses. With shareholders and a family name at stake, managers will seek opportunities to reduce costs and have mastered another high cost. Unlike non-family firms, families have a longer investment horizon—they invest for the next generation and sometimes do not want their funds back.
Family firm dark side
All is not well with these unique firms. Sometimes, the trait that makes them successful can be a counterweight to their quick decision-making. Family conflict can take away and turn them into a bureaucratic organisation slowing down a time advantage built into this type of firm.
Family feuds can also lead to declining governance and chaos, ultimately leading to an organisation that does not have a competitive advantage. However, one of the most significant ailments is that families fail to transition to the next generation. In my book, Build Your Legacy Business: Solopreneur to Family Business Hero, I discuss developing a succession plan early and building a culture of continuity.
Still, some of the challenges that family businesses have may create opportunities for marketers, and their knack for wealth generation makes it an exciting mix for sellers. Before you develop your marketing strategy, consider their unique traits and how you can deal with them.
Opportunities for strategy
Probably the most significant opportunity for organisational sellers is the considerable buying power of families. Since most of the world’s entrepreneurial firms are family owned, they have amassed great wealth and offer potential for consumer, capital and investment-type products. Some family enterprises are so large that they have an arm called the family office, which searches for extra-family business investments.
All companies engaged in B2B selling should be concerned about the life of their business customer. This cognitive blind spot is seldom an issue for B2C companies. Still, business marketers should be alert for signs of decline. Suppose you are a commercial lender with long-term mortgages. In that case, it is common to have more than 50 per cent of your business clients as family enterprises (they often account for more than half of all businesses globally). This fact means your bank has higher risk exposure. Ask your risk managers what their strategy is if some large family firms fail due to the sudden death of the founder or CEO. Financial strategy professionals seldom know about this succession issue. However, financial services companies should have an advisory service (as their mutual fund managers do) that guides clients in dealing with these tough decisions.
What is a threat for some firms might be an opportunity for sellers. Sometimes family enterprises experience a sudden loss of a significant person, and this could make the transfer of leadership and ownership difficult. One way to fund the loss of a shareholder is insurance—keyman insurance taken out by the firm or its shareholders can cover the loss of another.
Family firms are the invisible double sword in the competitive landscape. If you miss them in your marketing strategy, your approach will likely be less than optimal. Family businesses subliminally hide as opportunities, but if you can unlock them, it could open a new market space for development.
Sajjad Hamid is an SME & Family Business adviser, author—Build Your Legacy Business: Solopreneur to Family Business Hero