Family Business versus Non-Family Business

Family business integrates the business life into the family. The principles in which the family business operates differ when compared to non-family business. As a result, operation and performance of family firms have developed into key study interest for scholars. Businesses is important to economies by generating income, providing goods and services and taxes to the government. The key aspect for comparison between family business and non-family business include performance, business lifespan, organization culture and founding principles. The studies on these aspects are important because about 11.5% of families in the U.S own at least one business.

The main aim of businesses is to make the profit regardless of the structure of ownership. Thus, whether a business is family owned or non-family owned, any institution attains the tag business based on merchandise turnover or services for profits. The management structure introduces an array of approaches that affect the performance of that business. The extent of such performance determines if any model should be considered superior based on economic and financial results presented by a company. Though the need to make the profit is shared by both family and non-family businesses there are a number of differences between the two.

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The family business is a business that is organized and managed by a family. Thus, its risks are borne by a family. The business also employs two or more members of the family (Jennings, Breitkreuz & James, 2013). Formation of such businesses is critical because of the role it plays in the economy of the country. Formation of startups is seen as a strong economic tool for job creation, innovation and economic recovery (Zahra, Hayton & Salvato 2004). For the matter of that, the United States injected $ 30 billion for small businesses from 2008 to 2010, while the Canadian government has placed more than $ 50 billion in startups since 1961. The Australian government invested $ 2.1 million in 2009 while the Kazakhstan government has invested about $100 into similar programs. The above statistics is a strong indication of the impact of family-owned businesses in the global economic arena. America and Europe have over 10 million families engaged in business. In 2008, it was estimated that about 11.5% of families in the United States owned at least one business (Jennings, Breitkreuz and James 2013).

The report is structured into three chapters. They are the introduction, findings and summary and conclusion. The introduction gives insights on the study topic. It also lays the background for the study topic thereby making findings discussed thereafter relevant. Subsequently, the introduction is followed by the findings chapter that includes a detailed review of scientific materials to assess the various comparison topics between the family business and non-family business. The study topics include business life, performance and organization culture. The topics discussed in the findings show clear comparisons between the two business models. Finally, in the summary and conclusion chapter, details of the findings are previewed in a snapshot to show their relevance to the discussion.

 

Findings

Family firms have been studied by various scholars from different perspectives. The documented fields include the lifespan of family firms, the impact of businesses on family ties, the relationship between socialization and career objectives of firms and performance between family and non family businesses (Morris, Allen, Kuratko., & Brannon, 2010; Wilson, Wright., & Scholes 2013; Banalieva & Eddleston, 2011). According to Jennings, Breitkreuz and James (2013), a number of 2,240 articles were founded based on family business as the search word between 1985 and 2010. However, the search excluded entrepreneurship. As a result, the relevance of family business is important to the academic field as scholar continues to investigate various components of the business.

Foundations

According to Morris, Allen, Kuratko and Brannon (2010), there are differences between founders of the family business and the founders of the non-family business. Family business indicates more dependence on family social capital that is important in controlling business performance cognitively and physiologically. Family founders face more conflicting family and business environments when compared to non-family business founders. During formation, founders of family business operate in an unguided internal business environment. Entrepreneurs are influenced by beliefs, goals and perceptions. These characteristics affect the rationality of the founders. To non-family business founders, there is less attachment to the business. For them, existing experiences is less threatening when compared to family founders. The study strengthens a phenomenon whereby family-run businesses tend to be conservative with investment decisions.

Performance

Wilson, Wright and Scholes (2013), reviewed the performance of family and non-family business. They noted that the success of the family business is a function of the lifespan of the family, bankruptcy and risk-taking. Family businesses are greater risk takers than non-family entities. Surprisingly, family firms record less failure than non-family businesses, because family business put up boards that are stronger in resisting failure. The boards have the ability to hold together against difficulties such as averting bankruptcy. On the other hand, independent directors, change of directors and reduced proximity of directors to the business work against non-family businesses. In family businesses, directors are engaged in the daily operations of the business. This engagement is ideal in identifying problems and their causes and subsequent solutions.

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According to Chrisman, Chua and Litz (2004), family business and non-family business face the same economic performance with reference to short-term sales. They, however, found out that the effect of the sales was a function of strategic planning for which non-family firms are likely to benefit from more than family firms. Within the agency perspective, the owner of the business can comprise standards in the business or extend a spot to family members thereby introducing agency costs that impact negatively on the business. Thus, agency costs can impose a barrier in the development of firms. The agency problem greatly increases with the succession of the business. The existence of such cost reduces in non-family firms. However, family businesses may exist for other reasons other than economic gain thus the adoption of the agency may be relative. According to Davis, Allen and Hayes (2010), family business outperforms non-family business because of superior attitudes held by family owners. The guiding principle in performance is ownership, whereby family owners bear the full responsibility of business failure, unlike non-family members.

Banalieva and Eddleston (2011), note that the level of success between the family business and non-family business varies in the scope of business coverage. A family run business focuses on home regions for markets while non-family businesses have incentives of facing global markets. However, the leadership style adopted in family businesses influences its performance. The study justifies diversity of non-family business that is likely to promote the exploitation of new markets. Family businesses face conservatism that ground the firms to the local markets were they are established.

Business Life

Family business and non-family business differ in the span of their business life. Zellweger, Sieger and Halter (2011), compare the intentions of founders of companies and intentions of the family successors. The study noted that there is a divergence between the two intentions. It is an indication that children have career objectives different from those of the parents. The students from a family with business ties bear sacrifices and isolation from parents, and as a result, deter from self-employment. From this perspective, it is an indication that family businesses have a short life and may cease to exist with the founding owner.

According to Schjoedt (2013), family ventures may not be a prerequisite of a lone entrepreneur, because the establishment of new ventures, in most cases, requires teams that often consist of people with family ties. It is increasingly becoming uncommon for sole entrepreneurs to establish and run businesses. Business environment faces various challenges that require a team. Schjoedt (2013), notes that family businesses only suffer when the engagement of family members is either too much or too little. When there is too much involvement of family members, the business losses productivity since members become conservative in business operations. In instances of too little engagement, members dissociate with the business and have little attachment for it. Adequate engagement promotes an entrepreneurship culture within the families.

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Organization Culture

An organizational culture is a great tool capable of developing the competitive edge of a business. Organization culture is a set of beliefs and values that present solutions to problems in an organization. As a result, it promotes learning, innovation and risk-taking. Families that promote individualism build strong entrepreneurial spirit amongst its members. However, the members suffer the inability to work in a team (According to Zahra, Hayton and Salvato 2004). Nevertheless, family firms maintain stronger entrepreneurial characteristics than non-family firms.

Summary and Conclusions

Family businesses are important to the economy of any nation due to a number of benefits. Family business and non-family business have various key differences. However, they share the same goal in the business where firms have to fulfill the obligations to obtain profits. In terms of performance, family business outperforms non-family business since the businesses are greater risk takers. Any business plan is designed to prevent bankruptcy. Further, the responsibility to succeed falls on the owner who bears the full responsibility, unlike the non-family run business where managers have little or no responsibility for business failure. However, the life of the business is pegged on family socialization with respect to how the business is succeeded. If children are positively engaged, they are likely to develop the interest in the business unlike in instance of divergent careers. Non-family businesses have smoother transitions.

In conclusion, family businesses are the greater performer than non-family business. However, the performance of the businesses, in this case, is measured in terms of bankruptcy and risk-taking. The most striking observation is the likelihood of a family owned business breeding entrepreneurs from the children than non-family business. Family businesses encourage entrepreneurship culture. The children can, therefore, consider other investment destination including non-family businesses. Thus, family businesses are great tools in expanding economies by building an investment culture.

References:

  1. Banalieva, E. R., & Eddleston, K. A. (2011). Home-region focus and performance of family firms: The role of family vs. non-family leaders. Journal of International Business Studies, 42(8), 1060-1072.
  2. Chrisman, J. J., Chua, J. H., & Litz, R. A. (2004). Comparing the agency costs of family and non-family firms: Conceptual issues and exploratory evidence. Entrepreneurship Theory and Practice, 28(4), 335-354.
  3. Davis, J. H., Allen, M. R., & Hayes, H. D. (2010). Is blood thicker than water? A study of stewardship perceptions in family business. Entrepreneurship Theory and Practice, 34(6), 1093-1116.
  4. Jennings, J. E., Breitkreuz, R. S., & James, A. E. (2013). When family members are also business owners: Is entrepreneurship good for families?. Family Relations, 62(3), 472-489.
  5. Morris, M. H., Allen, J. A., Kuratko, D. F., & Brannon, D. (2010). Experiencing family business creation: Differences between founders, nonfamily managers, and founders of nonfamily firms. Entrepreneurship Theory and Practice, 34(6), 1057-1084.
  6. Schjoedt, L., Monsen, E., Pearson, A., Barnett, T., & Chrisman, J. J. (2013). New venture and family business teams: Understanding team formation, composition, behaviors, and performance. Entrepreneurship Theory and Practice, 37(1), 1-15.
  7. Wilson, N., Wright, M., & Scholes, L. (2013). Family business survival and the role of boards. Entrepreneurship Theory and Practice, 37(6), 1369-1389.
  8. Zahra, S. A., Hayton, J. C., & Salvato, C. (2004). Entrepreneurship in family vs. non-family firms: A resource-based analysis of the effect of organizational culture. Entrepreneurship theory and Practice, 28(4), 363-381.
  9. Zellweger, T., Sieger, P., & Halter, F. (2011). Should I stay or should I go? Career choice intentions of students with family business background. Journal of Business Venturing, 26(5), 521-536.
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