Family Enterprise Foundation, in collaboration with Family Enterprise Barometer, analyses actions and possible initiatives for entrepreneurial families as they navigate the pandemic economy.
The pandemic is not going away. What began as a cause for concern in January rapidly morphed into a health catastrophe with punishing social and economic consequences. The dust of Covid-19 has yet to settle, and it is dawning on family enterprises that they must adapt to a new normal of deep uncertainty in a pandemic economy that shifts underfoot. What should owners do next?
Claremont Graduate University’s Kendall Cotton Bronk1 reckons as countless family enterprises come to grips with tighter cash flows just as many could be rethinking their business models. There are no atheists in foxholes, the aphorism goes, so as families operate in survival mode it’s as good a time as any to start looking inward.
“A crisis like Covid-19 presents a reason to re-evaluate what the family is all about and what it hopes to accomplish,” says Bronk, who has long studied the role of purpose in overcoming crises. She adds: The pandemic “could serve as a litmus test” for a family’s purpose to the extent that some may emerge from the crisis healthier.
Older and Wiser?
Was Nietzsche right? What doesn't kill you makes you stronger? Citing entrepreneurial families that have survived world wars, and who might view Covid-19 as less of a threat than younger businesses, Bronk ventures that older enterprising families, by virtue of their generational experience, might adjust to the pandemic economy with greater equanimity. A crisis like Covid-19 is an opportunity to look at what a family hopes to do, says Bronk. “Theoretically, a family with a clear vision of what it hopes to accomplish should be better prepared to weather a crisis.”
A clear vision to better weather a crisis
It is a truism that family enterprises take a long-term view. But given the intensity of current economic stressors, views may be shortening. Singapore Management University’s Annie Koh2 likens it to an acceleration of actions to ramp up for tomorrow’s post-COVID economy. Technology deployments, for one, could move up the catalog of enterprise priorities. Overnight, Zoom became the de facto client interface – uniting techno-laggards and digital-native Millennials alike – in a technology uptake that underscored the usefulness of deeper digitalization within family enterprises. “Family businesses are seeing an acceleration of trends from many different fronts,” says Koh. “Technology and digitalization in businesses, to reduce their reliance on manpower and increase access to new markets, are top of the list.”
The pandemic could also usher in a spell of greater closeness between family cohorts. Younger generations, says Koh, are living real-time challenges to fend off and navigate the chaos, and keep businesses alive in “on-demand” economies. “They are dynamic and can step up to do more in current times,” Koh says. “With regard to internationalization, business families are preparing themselves to rebuild and renew their businesses in a post-pandemic world.”
Young and Old
Tomorrow might already here for senior gens, adds Koh – not for stepping down but stepping up, to their roles as gatekeepers involved in top-line and bottom-line results. “As family businesses rebuild in the post-pandemic world, older generations will be called upon once again to be on the forefront to rebuild trust among clients, bankers, customers, and suppliers.”
Indeed, they will. As for the foreseeable future, business owners will use all available tools to keep cash in the business including cutting operating expenses, reducing dividends, and delaying capital investments, according to a survey by Banyan Global. Around 90% of the consultancy’s 200 respondents intend to use at least one of those cash-preservation tools with about one in four using all three. “We did this in 2008 when our revenues fell 35% in one year,” says a respondent quoted in the survey. “We know how to survive. We just need to execute.”
Like a stock market correction, the pandemic has forced families to take stock of the situation, put disaster recovery plans into action, and move forward. What’s next? “Most of them have finalized the crisis management period and are now focusing on how to better adapt their business model to the new normality, and how to better capture the opportunities that will arise from the present crisis,” says Jesus Casado3 of European Family Businesses, adding that the crisis has accelerated certain “dormant on-going business” processes.
Casado believes the next few months will see entrepreneurial families take a harder look at tools to help manage debt, improve governance, and cope with new short-term needs, whatever they may be. “They need to identify new talent, and the new leaders should have different skills than before the crisis.”
Others will be seeking opportunities with the help of their advisors. If boards are not already in top gear they will be, predicts Nortem Consulting’s Andres Rico4. Meanwhile, family enterprises with professionalized boards have been more proactive in dealing with the crisis, says the University of Ottawa’s Peter Jaskiewicz5. “The incompetency of boards with ‘many friends and acquaintances’ has become more evident.”
Harsh words? Perhaps. In a June report on emerging themes for boards, McKinsey & Company likened the plight of owners to a balancing act where boards strike a balance between hope for the future and the realism that businesses must-hear. “The balance between profits and cash flow is tricky, and essential to get right. Many companies are caught right now and are sacrificing their bottom line in order to pay for their financing.” That’s not sustainable, warns McKinsey. “Companies will need guidance on how to balance the two.”
On the return to work and the path ahead, the consultant is frank: “Some industries may never come back to pre-COVID-19 levels.” For the family enterprises active in those sectors, whatever they may be, it’s a warning worth heeding.
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- Jesus Casado is Secretary General of European Family Businesses, Belgium
- Annie Koh is a V3 Group Professor of Family Entrepreneurship at Singapore Management University, Singapore
- Peter Jaskiewicz is a Professor of Family Business and Entrepreneurship at University of Ottawa, Canada
- Andres Rico is a Managing Partner at Nortem Consulting, Colombia
- Kendall Cotton Bronk is an Associate Professor of Psychology at Claremont Graduate University, USA