When family and business go hand in hand

Monday 8th June, 2015

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Are relatives a help or a hindrance when running a business? Upstart considers the benefits and pitfalls of spending a lifetime working alongside your family members.

Everybody in England knows a cosy family-run pub, the kind of place where the staff call you by name and genuinely care about how you’re doing. But just imagine the space behind the counter being manned by four generations of the same family.

James Smith & Sons opened on New Oxford Street in 1830

While we all love the homely environment in that pub, most of us can’t cope with our own mother-in-law, or even our brother, after the first few days of the Christmas holidays. So imagine the difficulties of spending a lifetime managing a business alongside your family members. That’s a real 24/7/365 job.

Micro businesses (with fewer than 10 employees) account for 96 per cent of family-run businesses in the UK, according to a report from the Institute for Family Business (IFB). It says there are almost three million family-run businesses in the country. That is two thirds of all the private sector companies.

In spite of these large numbers, research done by the Family Business Institute in the US  shows that two in three family-run firms globally don't reach the second generation. Only 12 per cent still operate into the third generation and about three per cent into the fourth or beyond.

Sometimes it’s hard, especially for those who like things as they have always been. But it’s key to realise when you have to change

“If you look at how many startups don’t survive the first two years, you realise that this is a very normal number,” explains Sabine Rau, Professor of Entrepreneurship and Family Business at King’s College London.

“Although entrepreneurs who start a firm in order to add something valuable to society usually dream that the legacy they build will survive, often their idea of a long term horizon only extends to the first generation,” she says.

The firms built by entrepreneurs who are mindful of creating something for their children tend to be more stable, with a focus on customers rather than rapid growth, says Rau. “If you think your firm will belong to the next generation, you are very careful to take risks because it might ruin not only your wealth but your reputation.”

Arthur Probsthain has specialised in Oriental and African books since 1903

But avoiding risk taking doesn't mean becoming complacent and getting stuck. Christopher Ma is the fourth generation to run family-owned bookshop Arthur Probsthain, a small shop and gallery in front of the British Museum specialising in Oriental and African books since 1903.   “You need to move forward. Sometimes it’s hard, especially for the older ones who like things as they have always been. But it’s key to realise when you have to change,” says the bookshop owner.

His charming shop maintains the same atmosphere it had a century ago, when Christopher’s grandfather’s uncle set it up.

There have been changes made to the internal appearance though - the last being the addition of an independent tea room downstairs in 2011, managed by Christopher and his brother Tim. “The business was suffering because of the new competition from online book retailers and this idea worked very well to keep it going,” he says. “There will be probably be a fifth generation. That is why things have to be modernised.”

Something similar happened at Il Portico, the Italian restaurant in Kensington High Street that claims to be “London’s oldest family restaurant”. After five successful decades of serving classic Italian food, a member of the third generation decided to expand the business, opening a new pizzeria earlier this year .

James Chiavarini successfully set up Pizzicotto, a pizza restaurant he describes as being “reimagined for present day London”, just five doors from the original local, with his wife Marianna.

Christopher Ma serves afternoon tea every day inside his family bookshop

So what about the relatives? Are they a help or a hindrance when running a family business? It seems there is no clear pattern.

In some cases, like the Arthur Probsthain bookshop, these relatives have never got involved. In others, like umbrella store James Smith & Sons in New Oxford Street (established in 1830), they were the ones who saved the firm, taking up the baton when the original family stopped having children.

“The rules of entry and exit have to be clear from the beginning” is Professor Rau’s only advice. “If somebody is tied to the family firm and they want to leave but can’t, the firm and the family will suffer.”