Experts at Banyan Family Business Advisors explain some of the key qualities marking out how a family firm can be resilient in bad economic times as well as the good.

Josh
Baron and Rob Lachenauer are partners at Banyan Family Business Advisors.

There was good news for family business
owners not long ago. In a comparative study, conducted over two business
cycles, family businesses turn out to “far outshine” publicly-traded ones when
the economy slumps. Why? “The simple conclusion is that family businesses focus
on resilience more than performance.”

The Harvard
Business Review article does an excellent job of identifying what family
businesses can do as businesses (for
example, low debt, frugality, diversification) to be resilient in down times. But
we must also understand how business families contribute to finding the upside during a downturn.

It sounds axiomatic, but the foundation of
family businesses is the family. Executives in even the best-run family firms
cannot manage for resiliency in their business unless there is a resilient
family. Family tensions are inevitable, and a business downturn can exacerbate
them. But the most resilient families provide stability to their business in
times of trouble.

How do these families provide stability?
How do they stay united during hard times? In short, what makes them survive
and thrive and be resilient? A colleague of ours, Diane Coutu, has written a
thought-provoking HBR article on how resilience works in business, which we
believe helps to define the resilient business family.

Coutu argues that in order to cultivate
resilience, organizations must follow three practices. They must: face down
reality, develop strong values, and continually improvise. Let’s see how these
three practices factor into the resilience of successful business families.

In our experience, the single most
important thing a family can do to face down reality is to develop a strong but
honest family narrative. Data that support our experience come from Marshall
Duke, who is a psychologist at Emory University who, with his colleague Robyn
Fivush, studied children in the aftermath of September 11 and discovered that
children who had more information about their family’s stories turned out to be
“more resilient, meaning they could moderate the effects of stress.”

Duke talks in particular about the efficacy
of the “oscillating” family narrative – a realistic account of the past that
includes both the ups and downs in the family. The resilient business family
learns from difficult times rather than glossing its troubles over. There are
few examples more powerful for the next generation than having the leaders of a
highly successful business talk about their struggles, about the times when
they almost lost it all, but kept it together because they stayed together as a
family.

In earlier generations, this narrative
develops naturally by swapping stories around the dinner table. As the family
gets larger, however, the narrative needs to be more explicitly created and
instilled. One excellent way of doing this is through a family history project,
where the younger generations are actively engaging in learning about, and
capturing, their shared history – both the good times and the bad.

The second practice that creates the resilient business family comes from their ability to generate values that help
people find meaning in difficult times. For family businesses, the willingness
to sacrifice for the good of the business is intimately connected to the
family. The importance of the business is about more than wealth; it is about
the identity of the family itself. We often hear family members say: “We are
special because we’re a business family. We’d just be another family without
the business.”

Moreover, family businesses think generationally rather than quarterly or
annually. Present and future identities are all wrapped into one. As one family
member told us:  “Anything we do in our
lifetimes dies with us, but what we do for our children lives on.” There is no
better motivation for self-sacrifice than concern for the well-being of the
next generation. Bringing this biological imperative over to the business
creates a powerful rallying point that helps family businesses weather severe
storms, such as economic downturns.

As with the family narrative, values tend
to develop naturally in the early stages of a family business. When families
get larger and more dispersed, it becomes increasingly important to define and
reinforce the family’s values.

Finally, the resilient business family is extremely skilled at improvising.
One way they do this is by setting reasonable – even low – expectations for
what family members will receive from the business. In economic downturns, when
money is tight, this provides the business leaders with the flexibility they
need. These expectations must be carefully managed as the shareholder group
grows. The consequences of failing to do so are huge: We know of one family
business that had to borrow money to pay dividends to keep the shareholders
happy. This family gave its executives no leeway at all, limiting their options
to no reinvestment in the business – or a massive layoff.

The resilient business family also tends to be good at improvising
because it is able to adapt and act decisively. Strikingly, many of our clients
who run large family businesses have only rudimentary organization charts. This
practice goes against everything they teach you at Harvard Business
School. But when problems
hit, the leaders are able to come together wherever they need to and are able
to make good decisions very fast.

The depth and complexity of the
relationships that family members have with each other is the foundation for
this flexibility. A lifetime of solving problems together enables family
leaders to improvise. Their corporate peers know only the highways, but The
Resilient Business Family also knows all the back roads. What appears at first
blush to be unrestrained creativity, even anarchy, reflects tacit rules and
processes that are deeply embedded in the business family.

Hard evidence shows that family businesses
fare better in a downswing, and the resilience of the business family helps
explains why. In a tough economy, families can ensure that their businesses can
stare down reality, find meaning in life, and improvise solutions. These are
the building blocks of resilience, and it is the resilient business family that will help your business survive
during turbulent times.