Can the family business survive in the era of technological monopoly?

Digital Transformation

We’re living in a land of tech giants. Big ‘digital’ corporations are popping up in every profitable sector. In turn, the “big tech” have the capability to wait out until certain unprofitable sectors have further evolved, relying on their huge consumer base to help them thrive once the time to enter the sector is right.

Digital monopolies: good or bad for consumers?

Monopolies are everywhere you look. Amazon owns tons and tons of brands. Some have speculated that it could become the next Telco. They are also growing in the food delivery industry. Facebook and Google also share this same inclination for the food delivery business and both are investing in the money transfer industry. Google is also focusing on telecommunications services and the list of sectors of interest continues: media, transportation, entertainment.

Meanwhile, in a paradoxical universe in which the only real winner is the consumer, the big “conventional” corporations end up financing these monopolies through advertising or transaction commissions, and what they receive in return is being swallowed up little by little by these giants. In my opinion, we may be heading for a scenario in which only large digital companies (and ancillary or dependent companies) or otherwise very small companies have a real chance of succeeding in the mid-term.

The purpose of this article isn’t to overthrow these monopolies – as proposed by some industry leaders and government officials (it’s difficult to prove that these monopolies actually harm consumers). We’re not going to comment on that age old debate around the effectiveness of private vs. state run businesses either (when it comes to communication, the state offers us the postal service, Facebook offers us WhatsApp). We’re also not interested in what could happen if these private companies accepted new cryptocurrencies, one of the pillars of states.

The family enterprise has the advantage

In this complicated competitive environment, family businesses can have an advantage. The 2019 EY and University of St. Gallen Global Family Business Index provides us with some significant insights around family owned businesses. In terms of revenue growth, between 2017 and 2019 they outperformed Fortune 500 companies by 15%, in other words, they’re outperforming listed companies.

On the other hand, despite the risk of little diversity in management committees, something is changing. The presence in management of professionals not linked to the family that owns the company has increased from 23% in 2017 to 27%.

What’s driving these developments? Family businesses are very strong in four of the key areas required by firms that want to operate in a digital world:

  • Employee ownership and commitment: Family businesses tend to treat employees as an extension of their own family. There are some disadvantages associated with this model, but often this environment is able to create a culture in which employees feel more identified with the services and products they sell. At the same time, they care about their company and their customers and are more willing to adapt to meet the demands of digitization.
  • Smart risk: Family businesses tend to have fewer debts. In the past, when growth was king, this would have been a burden. But now, we are in the age of adaptability. For example, family business founders are much more likely to take high risks when it comes to research and development, and that’s critical when it comes to taking advantage of change in a digitization-driven world.
  • Transparency: Family businesses tend to be more transparent than larger corporations. If you combine this transparency with good talent management, they are able to continue growing faster and faster.
  • Stability and long-term commitment: While adaptability is key, a clear long-term vision – something that listed companies cannot always maintain – is essential in an era where brand loyalty is declining.

So do family businesses have the strength to stand up to technology giants and win? Perhaps more than we think. It is important to bear in mind that family businesses can suffer from a lack of structure and internal struggle when it comes to the “line of succession”, but if they are able to work on the right strategic framework, they have the best chance of surviving during periods of uncertainty.

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