Brought to the business
Colli (2003) has provided an analysis of how FOBs function and has commented that such companies are able to quickly change their direction and strategy in exploiting different market opportunities. The FOB is able to quickly change factors such as pricing, appoint new dealers and distributors, change commission rules, set up new branches and enter new markets. The author contends that while financial support is needed for any investments, the decisions can be much more quickly formed, than compared to corporate which need to pass resolutions through board of Directors, give sufficient notice of any events and meetings, etc.
Rothausen (1999) has pointed out that FOBs face threats in the form of not being able to adapt to market changes since they may not have the means to support financial incentives that come through. The author also reports that internecine struggle for power, poor preparation of a successor, lack of coordination among future generations, distrust and feelings of being sidelined, etc. are some of the threats that FOBs face. The author also reports that the heads of some FOBs are reluctant to hire competent staff in the fear that their authority and power may be challenged and this culture is transmitted down the hierarchy.
Pieper (December 2007) has commented that the FOB field is growing at an increased pace and is gaining relevance in the business research field. The author has commented that a few models have been developed that explains the structure and complex intersection of the family and the business. The models that have been framed to explain family businesses include family business dimensions and attempt to create important relationships among subsystems that may influence family business behavior. The author comments that some of these models are framed at basic levels of abstraction, which do not allow for feedback loops and reciprocal influence.
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FOBs grow through a life cycle just like any other type of business but this time with the added dynamic of a family. Family businesses move through the following five stages (Sirmon, 2003): Family Employment Firm (FEF) – as many family members as can be accommodated are employed in the new endeavor. Family Management Firm (FMF) – family members with formal education move into management roles. Family Governance Firm (FGF) – family members move out of direct daily management and into roles as officers and board members.
Family Governance and Investment Firm (FGIF) – the family firm is now moving into community involvement and creating/funding new family ventures. Family Firm Turning Point – time at which the family decides to cease being a strictly family owned firm. Sirmon (2003) has proposed a resource-based view of entrepreneurship theory and the exclusive characteristics of FOBs and these are: Human capital – can be both a negative and a positive encompassing the knowledge and skills of each family member in regards to the business. The negative is when family membership eclipses knowledge and skill that can be brought to the business.
The positive is exemplified by via the stronger dedication and servitude a family member brings to a family legacy business that an outsider would rarely feel. Social capital – human capital is focused on the individual, social capital is focused on the relationships between individuals. Supplier, resource and finance ties to outside stakeholders are a few examples. Strong social capitalties have been shown to be invaluable in training subsequent generations in operating the family firm. Survivability capital – resources the extended family is willing to expend in support of the business; for example, loans, gifts, and labor.
In other words, a family safety net. Patient capital – family firms are not interested in quarterly reporting nearly as much as they are interested in generational advancement. While family-owned firms may be limited in the capital they can raise, they are usually not limited to short term financial thinking. Governance structure -cost of monitoring, controlling and punishing those who manage the firm. Family responsibility, and let’s be honest, family guilt, keep these costs relatively low compared to non-family owned firms.