research@hec - Issue #36 - (Page 2)

c sa trrt ao tue cghy e research hec To prosper in a crisis, adopt the strategy of large family businesses!  Family businesses are full of surprises. They have very strong roots while being highly international, they avoid layoffs while staying focused on profitability, they innovate while playing it safe, they distribute few dividends and acquire little debt, and, finally, they resist crises better than nonfamily firms. Their most remarkable advantage: a strong capacity for resilience! B iography Alain Bloch is director of HEC Entrepreneurs and co-founder of HEC Family Business. He is the Sales and Distribution Chair of the French National Conservatory of Arts and Crafts (CNAM), holds a Ph.D. from Paris-Dauphine University, and is vice president of the French Management Society. His experience as an entrepreneur (he was the founder in 1990 and CEO until 1995 of "L'Annuaire Soleil," the first competitor of France Telecom's "Yellow Pages"), has led him to focus his research on innovation, entrepreneurship, and leadership. Since 2011, he has chaired the scientific board of the Strategic Research Institute of the French Military Academy (IRSEM) and is also chamber president at the Commercial Court in Paris. 2 * j a n ua r y - Do family businesses really outperform others? While debatable, it all depends on the period of study. Alain Bloch, Nicolas Kachaner, and George Stalk show that family firms remain consistent through different economic cycles instead of mirroring them, unlike their nonfamily counterparts (see diagram). Thus, over the medium and long term, they generally appear better off than nonfamily businesses. The explanation is simple: Family-owned firms implement a strategy that promotes sustainability over short-term performance. This strategy, without necessarily being explicitly theorized, is the result of the common way in which they allocate resources. FRUGAL COMPANIES CEOs of family businesses manage the company's money as if it were their own. They do not spend more than they earn and borrow little. This policy can make them miss great opportunities, going against traditional management principals that advise going into debt to maximize leverage of investment, but prevents big disappointments. These leaders generally prefer organic growth, partnerships, joint ventures, and acquisition of small companies rather than large ones. Since they incur little debt, they are less likely to make financial sacrifices during periods of recession. INTERNATIONAL AND DIVERSE COMPANIES Their frugality does not mean that family-owned firms are complacent. In fact, they are strikingly more diverse and international than their nonfamily counterparts. f e b r ua r y 2014 Among the family businesses studied, 46% are very diverse, while only 20% of nonfamily businesses are. This surprising finding is the result of family firms' cautious approach: they do not put all their eggs in one basket. For them, diversity and internationalization are ways to ensure sustainability. When one country or sector suffers from a recession, they are supported by more profitable activities elsewhere. The need to diversify risk also leads them to be audacious. It is this unique way of combining ambition and caution that builds their resilience.* COMPANIES THAT CARE MORE FOR EMPLOYEES Another particularity is that family businesses retain talent better than nonfamily businesses. This is the case even though employees often receive fewer financial incentives. Significantly, family businesses avoid layoffs during downturns, which contributes to increased By prioritizing sustainability over short-term profits, family businesses are more resilient during crises. istockphoto @ © WestLight Alain Bloch

Table of Contents for the Digital Edition of research@hec - Issue #36

Cover & Table of Content
To prosper in a crisis, adopt the strategy of large family businesses !
Earnings from entrepreneurship: less than salaried employment or just less measurable ?
When should you spawn an innovation ?

research@hec - Issue #36