In defence of family businesses

Rather than rushing to exit, entrepreneurs should consider building a business to last, says family business owner Andrew Nisbet.

by Andrew Nisbet
Last Updated: 13 Mar 2018

If you read the business pages regularly, you might think raising large amounts of outside investment is a rite of passage for a successful entrepreneur – something you have to do if you want to create a large, successful business.

But that overlooks the 4.7 million family owned businesses in the UK, including some of the country’s largest such as Bestway, Laing O’Rouke or Specsavers. In fact, family businesses collectively employ more than 12.2 million people, according to the Institute for Family Business (IFB), providing 36% of the UK's jobs.

As entrepreneurs continue to develop an appetite for going public, I would encourage ambitious founders to seriously consider this alternative: keep your company within the family. Not only will you benefit, the country and our local communities will too.

First, family businesses often have the freedom and flexibility to be more experimental and entrepreneurial. They can pursue ‘moon shots’ that may not deliver an immediate short-term return. If you take on outside investors, they’re likely to be keen to see a quick return – sometimes as soon as the next quarter – so your flexibility is curtailed. 

Family businesses, on the other hand, can commit to longer term projects; investments that might not see a return for 10, 20 or even 50 years, or experimental ideas with a higher risk of failure. Research from the IFB backs this up. Families strongly embrace 'creativity, experimentation, novelty and technological development,' often seeing innovation as a route to long-term sustainability and viability.

And that’s why family businesses make such a positive contribution to the country as well: they tend to be more focused on the long term. Unlike professional investors, who may hold stakes in many different companies, a family will likely hold most of their assets in one single business. As a result, they are constantly working to guarantee that company's long-term success.

In fact, many family owners, myself included, consider ourselves ‘company stewards’ rather than managers; overseers whose duty it is to protect the long-term interests of the business for future generations.

During times of short-term uncertainty, like the Brexit negotiations, family businesses maintain a calm, stable hand on the company tiller, largely unmoved by outside forces. We provide, as Galen Weston put it, 'patient capital'; we are investors who think in terms of decades rather than just years.

Family businesses also tend to make a greater contribution to their local communities, having been active regionally for generations. This often means we tend to employ a certain proportion of our employees locally. The figures bear this up. For example, family firms employ more than 1.2 million people in the North West, almost 40% of total employment – more than any other company type. 

Time and again I’ve seen family businesses commit to have their headquarters or factories close to where they live or grew up, when it would be more economic to shift operations overseas.

This is not to say that family businesses do not look globally. In fact, many of the country's biggest exporters are family owned, such as Swire, Dyson and JCB. According to the IFB, more than half (51%) of family businesses that already export are looking to increase that amount. Nisbets itself was awarded The Queen’s Award for Enterprise in International Trade in 2017.

So, how can we encourage greater use of this successful business model? Family businesses are often less visible in the entrepreneurial community. It would be helpful to reverse that – and show the next generation of entrepreneurs that bringing in large amounts of external investment is not the only way to build a large business and can often tie your hands.

Of course, specific policy measures to encourage family businesses would also be welcome. Perhaps the most valuable contribution would be smoothing rules around transfer of ownership. Some 100,000 family businesses transfer ownership to a new generation every year. Ensuring that this process is as smooth, tax efficient and simple as possible would do a lot to encourage families to retain ownership through the generations. 

Family businesses play a critical role in the economy. I would love to see the government and more entrepreneurs celebrate and champion this model.

Andrew 
Nisbet is Director of Key West Holdings, which holds the Nisbet family’s interests in catering equipment and property, including Nisbets.

Image credit: Toni Lozano/Wikimedia Commons

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