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Rod Shrader

Rod Shrader

Posted April 24, 2009 | 07:26 PM (EST)

Family Businesses May Have Advantages in Dealing With Recession


When the history of this recession is written, it will be the story of how business responded to the challenge, worked its way through an enormous set of problems, and ultimately got back on track, generating profits and providing jobs. So much attention is focused on that single word "business" that it can be easy to forget just how varied the sector is. The history lesson, properly done, will include special chapters about the ways different forms of businesses regained their footing.

The reason I have been thinking about this is that the Family Business Council, which has its home in UIC's College of Business Administration, just held its annual Family Business Day on April 22. Those who gathered for the event focused on topics like buying and selling a family business and how to set up a family business council -- the type of issues that make a family-owned business distinctive. As soon as the word family is put next to the word business, special situations emerge that make an organization like the UIC Family Business Council a valuable, local resource.

This is not exactly a boutique segment of the business sector. A conversation with Ernest Barrens, director of the FBC, left me curious about how many family-owned businesses there are in Chicago and the surrounding region. It is not an easy number to nail down, but David McSweeney, director of information and data analytics at Diamond Marketing Solutions, was able to give me a pretty good estimate. The numbers are jaw dropping.

Using compiled marketing data, McSweeney estimates that of the approximately 66,900 businesses in Chicago, almost 23,000 -- well over one-third -- are family-owned. More than half of the family businesses, about 15,300, have annual sales of $5 million or less, while just under 1,200 have sales of $5 million to $50 million, and just over 220 have annual sales of $50 million-plus. The firms with sales of more than $50 million make up almost one-half of such businesses in Chicago. Family-owned businesses represent an enormous slice of the business sector in Chicago.

My own work is focused on entrepreneurship, and I've always assumed that an entrepreneur owns his or her business. I've always focused on questions like how an entrepreneur navigates business issues but have never really dug into the family question. Barrens gave me a few examples of ways in which family-owned businesses have special advantages in dealing with the recession.

He told me about Cari Murray, who is president-elect of the UIC Family Business Council and CEO of Chicago-based manufacturing firm Mellish & Murray, a company with a 115-year history that continues to thrive even though it faces the twin challenges of overseas manufacturing and the down economy. A firm like Murray's, said Barrens, almost defines the idea of long-term focus in figuring out how to deal with business issues. While they certainly pay attention to quarter-to-quarter results, they can also look to family history for guidance about how earlier generations managed adversity. "How did grandpa weather the Depression?" would not be an unreasonable question since he was running the business.

Another advantage of the family-owned business that I can identify through my own work with entrepreneurs is the idea of high sweat-equity and low capital. It is very typical for a family-owned business not to be burdened by debt. When tough times hit, those involved roll up their sleeves and work harder. The larger the business, the less this is a factor. However, the sheer numbers of family-owned businesses with sales of under $5 million suggests it is important here in Chicago.

Finally, Barrens pointed out the relationship that family-owned businesses, in general, have with their employees. They are much more likely to go to the mat for them, using staff cuts as a last resort.

Here is what it all seems to add up to. Family-owned businesses face the same array of complicated issues as any other form of business. But there is an overlay of matters that need special attention -- succession questions, compensation matters, management and more. There are also special advantages. Helping to steer the focus onto those needs and opportunities is the reason organizations like the Family Business Council exist.

When the history of this recession is written, it will be worth paying special attention to how family-owned businesses weathered the story.