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Would a family business by any other name be as profitable?

When they start a business, many people naturally give it there own name. It suggests solidarity and trustworthiness, and helps a lot in meetings. But is there a moment when it's no longer desirable to be inextricably tied to your family's business?
Would a family business by any other name be as profitable?
©Oliver Campbell

Earlier this year the French luxury group Pinault-Printemps-Redoute changed its name to Kering. In doing so, it took big step – it shed the family name. The decision to do so was taken by the chairman and CEO, Francois-Henri Pinault, who is the son of the business’s founder (the Printemps and Redoute are from various takeovers). Pinault cited perfectly sound business reasons for the rebranding – chief among them that only 5% of the group’s sales now come from France. Nonetheless, this is a Rubicon many family businesses would struggle to cross.

It is hardly surprising that when many people look to name their businesses, they look no further than the mirror and use their own. From local shops and cafés to some of the world’s biggest organisations, companies the world over bear the names of those who founded them – often these companies continue to be owned and run by the descendants of their founders. And, at first glance, having your name on the business would seem to be a very good thing – but is really the case? Or are there potential downsides too? Might Kering have got it right?

Of course, there are positives. Family business consultant Peter Leach says: “I think it’s a brilliant thing. People are much more likely to trust you if you have your name above the door. It shows you’re going to take the long term view, not the short term view and it creates a feeling of family-ness.” Joachim Schwass, Professor of Family Business at Swiss business school IMD adds: “It distinguishes you from others and shows that there’s a family behind the company – and there are individuals with a face and a name who have values.”

Paul Senger-Weiss of the Austrian logistics business Gebrüder Weiss says: “The upsides are that our family name is known as brand and has been for 40 years. Because it’s so well known, when we introduce ourselves, we often don’t even have to mention the company. It certainly doesn’t hurt business.”

Internal effect
Nor is this just an external effect. It can be good internally, too – as many of the factors that attract customers also attract staff. They feel someone cares, they feel that people are in it for the long run and they feel the business is about more than just the bottom line. In fact, as Leach notes, the feel of a family name is such that many firms retain their family names long after the eponymous founder has departed. “If you look at Hornby trains, it’s no longer in the hands of the Hornby family,” he says. “And if Dyson decided to sell, I doubt the buyer would want to change the name.”

Indeed, the power of the family name is such that some businesses go as far as to create fake family-sounding names. Especially in areas like food service and coffee, there are plenty of brands that sound like they’re family-run businesses but are nothing of the sort. Philip Graves, author of Consumer.olgy says: “What a lot of brands are trying to do is what small entrepreneurs actually do.”

A notable example of this is the UK Harris + Hoole coffee chain, which recently came under fire for being 49%-owned by Tesco despite appearing to be a family-owned independent. Interestingly, the remaining share is actually owned by three siblings, although none of them is called Harris or Hoole.

For some the value of a family name is such that it’s worth resurrecting it from the dead. Two years ago Jamie Doig-Wilson restarted Doigs of Troon, a family Scottish food business that had been dormant since the 1980s. “My grandparents started the company in 1935 and it continued through into the 1980s, but my parents weren’t very interested, so there’s been nothing for the last 15 years,” he says.

One of the best things about resurrecting a family business, he explains, is that you can really build on the heritage: “The delivery vans used to go up and down the west coast of Scotland so we’ve used them in our branding. We play on our history and people love hearing about how we revived the business.”

Abstraction
However, he adds, it’s not just about history: “When you have a name that’s part of your surname, it makes a real difference when you’re dealing with people face to face. When they see that your name is on the product, they really feel as though they are talking to the man himself.”

But this is at the small end of the spectrum. As you get larger, it may be that the family name matters less. Graves says: “If you look at companies like John Lewis, McDonald’s or Disney, the name has become a kind of abstraction. When you get to a certain point, it doesn’t really matter any more.”

Indeed, if you take at a business like Walmart which is a family business that involves a number of the founder Sam Walton’s descendants, very few people think of it as a family business, with family values. So, there may be a kind of upper size limit on this sort of thing, around, say the Jack Daniels mark. Professor Schwass notes: “If you’re a corner shop or restaurant it’s quite easy. If you’re a large corporation, you need a very well thought-through strategy.”

Other problems can arise too. Professor Schwass says: “The cons are that there can be implications for the family and what the family does. They must follow certain rules and behave in a certain way.” Again, this probably isn’t much of a problem with smaller businesses, but when you have a hundred family members who are shareholders, some of who may be third generation, you often find some apples have fallen a considerable distance from the tree.

“You often do need a kind of control,” says Professor Schwass, “Some families have rules where they never talk to the media, never speak at any event and employ professional PR departments.” Author Graves adds: “It helps if the second generation reflects and recognises the values that made the business successful up to that point.”

Kennedy-effect
As well as wayward members of corporate dynasties, there can be other problems too. Some people may be uncomfortable with the kind of Kennedy-effect celebrity that being part of large and well-known family brings. Moreover, while having a high profile in the community is great when times are good, it can be a burden when times are tough. If you have to lay off hundreds of workers, suddenly being associated with a brand doesn’t look so attractive.

“Although it’s generally a positive thing, you can see why some families would want to stay anonymous and lead a quiet life,” opines IMD’s Professor Schwass. “If you’re running a big company, there could even be security issues.”

So, would you ever want to change a family name? Well, perhaps. Leach says that one reason to do it is “if something as gone wrong and you need to distance yourself from it.” Graves notes that the connotations one has with a family name could work against a business with global dreams, “If you are starting a family business and have aspirations to be the next IBM, then a family name could cause people to perceive you to be small and work against you.” Finally, you may find yourself uncomfortable if you are associated with certain products, such as arms and tobacco.

However, while there are plenty of family-sized family businesses, where the name does matter, there are quite a few where it doesn’t. The Italian coffee company Lavazza, for example, is named after the founder Luigi Lavazza and run by third and fourth generation Lavazzas. But many of the company’s customers, especially outside Italy, don’t even realise that Lavazza is a family name.

In fact, some think the name doesn’t really make much difference. Bella Hopewell (née Hoare) of the private bank Hoare & Co, says: “ I’m not sure that the name is that important. The main thing is whether the family is active or not. Some named family businesses don’t brand themselves as family companies and you wouldn’t know they are. Other companies don’t have family names but do have that ethos. If you look at the US-based Jersey Shore Steel, it’s an exemplary family company with a family running it and a place in the community. The fact that it’s not called Schultz Steel is completely irrelevant.”

She adds, “I suppose it does have some use. If you say: ‘I’m Alexander Hoare of Hoare’s Bank’, you do get that instant connection and recognition. But if you don’t have a certain set of values it doesn’t mean much. In the end, it’s just branding, and it’s what you do that matters.”

Senger-Weiss says: “My daughter’s children won’t carry the name. But one of them may well be an executive at the company. The main thing is that the family stays in a close relationship with the family business. If the name stays, that’s nice. But if it goes it’s not important.”

The limits of the family business ethos?
Walmart is the family business that has probably done more than any other company to change the way America, and increasingly the world, shops. The company’s founder Sam Walton opened his first store, a Ben Franklin franchise, in 1945. By 1960 it was the company’s biggest franchisee in the US. But Ben Franklin couldn’t hold Walton.

He developed an interest in both out of town shopping and self-service, when both these were very novel concepts. He took them to the company’s management, but they weren’t interested, so he struck out alone. He opened his first Walmart in 1962 and by 1969, he had 18 Walmarts and 14 Ben Franklins.

The latter were phased out and, in 1971, Walmart went public. Sam Walton, despite sometime being the richest man in America, retained a kind of folksy charm and continued to drive an ancient pick-up truck. He died in 1992, and, due to their shareholdings in Walmart his children are usually among the 10 richest people in the world. His eldest son, said to be worth over $20 billion is chairman.

Walmart is the US’s biggest family company – the Walton’s still own 45% of the business – but despite the family pedigree the company’s detractors claim that its aggressive tactics and discounting have done much to destroy small American family businesses. Its treatment of its employees, poor wages and harsh anti-union measures have also come in for considerable criticism. “Mister Sam” may have had considerable charm, but in many ways the company he founded behaves in the opposite way to the way that family businesses are expected to.

NOTABLE FAMILY-NAMED BUSINESSES
Mars
Founded by Frank C Mars in 1911, Mars is the third largest family-owned business in the US. With revenues of approximately $30 billion, it makes food products ranging from confectionary to pet foods. It is a popular misconception that the Mars bar is named after the planet, not the family.

Koch Industries
Started in the 1940s by Fred C Koch, Koch industries employs approximately 70,000. Its core business remains petroleum products, but it is now a diversified conglomerate. Over the last decade the Koch brothers, who are CEO and vice-president, have attracted much attention for devotion to US conservative causes and the amounts of money they spend funding the political right.

JCB
A contraction of JC Bamford, the founder, who started the firm in 1945, the UK earth moving equipment business remains in the hands of the Bamford family, employs 7,000 people and had revenues of £2.75 billion in 2012. The firm’s diggers are so ubiquitous in its home market that the term JCB is often used generically to mean diggers.

Laing O'Rourke
The largest privately owned construction company in the UK, Laing O’Rourke’s involvement in large scale civil engineering projects make its name a familiar sight. Founded in 1978, it employs over 17,000 people and its founder Ray O’Rourke, remains its CEO.
 

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