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How Family-Owned Businesses Can Thrive in a Time of Crisis

 In our third and final session of Thriving in the New Business Landscape, experts identified how family businesses can not only recover right now, but can also prosper amid the challenges this year has brought.

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This year has been tough on virtually everyone, but it’s been an especially tough year on business owners. In our third and final session of Thriving in the New Business Landscape—a three-part live online series offering insights from Deloitte Private professionals, entrepreneurs and business leaders as investors, privately owned businesses and families of worth look to reset into a “new normal”—we discussed with Wendy Diamond, tax partner and national tax leader for Private Wealth at Deloitte Tax LLP, Michael Nathanson, chairman and CEO of The Colony Group, and Wolfe Tone, U.S. Deloitte Private Tax Leader at Deloitte Tax LLP, how this year has impacted family-owned businesses, what they need to consider now and how they can align with their stakeholders.

“I think 2020 has really brought to light a number of different components of why there has to be consistency and unity and uniformity between the family structure, the family strategy and the family-owned businesses,” Tone said. “Oftentimes, situations of crisis highlight both those organizations that are well-aligned, but it also will showcase those weaknesses. The companies that I’ve worked with that have proper alignment have managed, have pivoted and have recovered much more quickly than those organizations that have not. And it’s this interconnected relationship between the family, the business and society and the community that’s driving this.” 

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“When I think about what the strategy needs to be as we look forward, it’s a time to reflect,” Tone continued. “It’s time to reflect upon what’s gone well, what has not, as well as if you have an organization that is properly aligned, is there an opportunity to take advantage of what could be perceived as opportunities in the marketplace? Is there an acquisition opportunity, is it an opportunity to look at…your technology? Clearly all of us are working from home right now. Those organizations that had the platforms to quickly pivot from being in the office to work from home on a dime quickly were able to continue business. Those organizations that weren’t are struggling, and it was tough. And so, again, this price highlighted the weaknesses. And to the extent that you can either eliminate or mitigate some of those weaknesses, great, to the extent that those were past you. Now, you can look forward and take advantage of what could be perceived as opportunities elsewhere to gain market share.”

And while there are certainly opportunities coming about now, family businesses have had quite a bit of difficulty this year.

“There was a Harvard Business Review article that I saw a while back earlier this year that did a survey, and family businesses had reported that 90 percent of them had been negatively impacted by the pandemic, probably no surprise,” Nathanson said. “My experience is that it’s really been an uneven effect…As for failures, I think we all know that there is a typical failure rate—7 to 10 percent or so of all businesses are closing each year. We don’t know exactly what the total impact is yet for family businesses. What we do know generally is that of all the businesses that are currently closed, probably half of them are not going to reopen. But again, we don’t have specifics on family businesses. Here’s a little bit of my take on what I’ve seen so far. Family businesses are generally quite resilient. And they’re largely focused right now on short-term performance, and they’re not really as worried as others—I’m being general, of course—about survival. And why is that? And I think the reason for that is because of the fact that family businesses typically have lower debt levels, they are typically focused on a much longer time horizon, they’re typically more risk averse, they’re typically a bit more diversified, and these things are all serving them well right now. And also keep in mind that for many families…sure it’s a business, they’re all in it to ultimately make money, but in addition, they’re thinking about mission, they’re thinking about vision, they’re thinking about their values, they’re thinking about their reputation. And they’re not only focused on economic performance, and again, I think right now, that’s helping them as well.”

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Tone continued: “Without a doubt, 2020 has been rough. It’s been rough for every business. I love this statistic that Michael just threw out. I mean, without a doubt, every organization has been impacted. Now, with that being said, there are some organizations that have done quite well. And I look at the positives being that, you know, the fact is that they aren’t short term. Private businesses, family-owned businesses aren’t driven by quarterly earnings reports, in general. And that provides a tremendous amount of both flexibility and ability to pivot when opportunities present. At Deloitte, we sort of identified three stages of recovery: Respond, recover and thrive. And the ability to move from each one of those stages, from responding to this incredible pandemic, to recovery and trying to get the house in order, to then thriving and identifying opportunities. To me, I’ve seen organizations come closer together, both management teams to family and the business itself have become closer because they’ve identified that there is this incredible symbiotic relationship that, when working together for a common purpose, they can then pivot quickly to identify those opportunities, to move through those stages and quickly move even into a thriving stage.”

With all this in mind, we can’t forget about the role stakeholders play in family-owned businesses and how important it is to make sure the interests and efforts of the business are aligned with its stakeholders. 

“I think it’s really important that the stakeholders understand the business and they understand both the short- and long-term needs of the business, and how future capital infusions are going to be needed to grow the business,” Diamond said. “Hard decisions have to be made in times like these. But there could be great things in the long-term based on the decisions that companies are making today.”

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