Family Business in Crisis
Conditions Facilitating Crisis Prevention
by Maximilian J.P. Graef
Originally published in: FUS – Family and Strategy, 11(4), 2021.
ABSTRACT
This paper aims to identify favorable conditions for crisis prevention in family businesses. Given the relatively limited research on this topic, an exploratory approach was employed. Through qualitative, guideline-based expert interviews, the study seeks to uncover ways family businesses can proactively avoid crises. Based on theoretical insights and empirical findings, a framework outlining preventive measures and recommendations for the early avoidance of crises was developed.
CONTENTS
I. Introduction
II. Brief Excursus on Causes of Crises
III. Research Design and Data Basis
IV. Presentation of Results
Presentation of Results According to Inductively Derived Dimensions
a) Succession Planning
b) Governance Structures (Family Charter/Family Constitution)
c) Family Influence ("Family Factor")
d) Characteristics of Family Entrepreneurs
e) Communication Behavior of Family Businesses
f) External Management
g) Crisis Causes during the COVID-19 Pandemic
h) New Paths Out of Crisis (Business Model Development)
Comparison of Theoretical Assumptions with Empirical Findings and Recommendations V. Conclusion
I. Introduction
The economy and society are in their second year of the COVID-19 pandemic, marked by unprecedented months-long lockdowns and subsequent business closures in certain sectors. The economic and societal repercussions are, from today's perspective, still difficult to fully grasp. The global economic downturn, the shift from fossil fuel combustion to electrification technology, digital transformation, and the pandemic-induced economic "near-standstill" in many industries have compelled family businesses, in particular, to rapidly reconsider their approaches. The impact of these far-reaching economic influences underscores the necessity for family enterprises to adopt comprehensive preventive measures against potential crises.
Furthermore, it is important to recognize that factors contributing to crises in family businesses can arise not only from external circumstances but also from the direct and indirect influences exerted by the owning family. This influence can make crisis management more challenging compared to other business forms. While preparation for exogenous, externally driven crisis factors is inherently limited, it is feasible to prepare effectively for endogenous, internally driven crisis factors. It is precisely in this context that family businesses must take precautions, as familial influences can create specific vulnerabilities. Entrepreneurial actions in family businesses are often heavily operational, driven primarily by performance metrics, and seldom prioritize crisis preparedness proactively.
Particularly, German family businesses, which represent not just a business model but also a mindset (Angela Merkel, 2013) and are colloquially regarded as the economic heart and backbone of our economy, face significant challenges in maintaining their operational capacity during difficult times. Consequently, they demand greater attention from the government, along with individualized support measures that extend beyond existing possibilities to maintain competitiveness. This includes fostering a constructive dialogue regarding whether the entrepreneurial spirit of family businesses is sufficiently encouraged, whether adequate support exists for founders, and if local conditions, assessed both broadly and individually, are sufficient.
II. Brief Excursion on Causes of Crises
A threat to the survival of an enterprise can originate from internal (endogenous) factors within the company or external (exogenous) factors that are beyond or only partially within its control. Endogenous crises arise when fundamental corporate internal conditions deteriorate significantly. In contrast, exogenous crises can occur due to force majeure or, according to Michael E. Porter’s model developed to analyze industry structure ("Porter's Five Forces"), due to competitive forces impacting the company (Fleege-Althoff, 1930; Porter, 1979).
To mitigate these threats, it is crucial for businesses to maintain transparent and proactive internal and external communication. Such communication strategies build trust between management, employees, and customers, fostering long-term commitment to the company and enabling innovative approaches to new product development. Consequently, these proactive measures ensure the resilience of family-owned SMEs, equipping them to respond effectively to crises and promote sustained organizational stability.
III. Research Design
Given the relatively limited research available on this topic, an exploratory approach was selected for this study. Qualitative, semi-structured expert interviews were conducted to identify conditions conducive to crisis prevention in family businesses. The interviews were guided by a framework focusing on eight inductively derived dimensions: succession planning, governance structures (family charter/family constitution), family influence ("family factor"), characteristics of family entrepreneurs, communication behavior in family businesses, external management, crisis causes during the COVID-19 pandemic, and new pathways out of crisis through business model development. These dimensions emerged from preliminary theoretical insights and were further refined through empirical investigation. The qualitative data obtained from these interviews provided a basis for analyzing crisis-preventive strategies and recommendations, with transcripts coded and analyzed systematically to derive empirical findings.
IV. Presentation of Results
1. Presentation of Results According to Inductively Derived Dimensions
a) Succession Planning
Ensuring generational continuity requires robust succession planning to maintain resilience against crises. Effective planning involves considering both internal and external succession alternatives, preparing for unforeseen events, and proactively preventing structural crises that threaten competitiveness.
b) Governance Structures (Family Charter/Family Constitution)
Governance structures, such as family charters or family constitutions, are vital for preventing internal disputes, which can significantly undermine value creation. These documents serve as clear guidelines for family interactions, enhancing decision-making and operational responsiveness, particularly during crises stemming from external factors.
c) Family Influence ("Family Factor")
Considering the "family factor" involves understanding how familial relationships influence the organization during crises. Strong, cohesive families leverage unity as strength, whereas weaker structures can fracture under pressure. A positively perceived family factor significantly aids crisis resolution and restructuring efforts (Rüsen & Fröhlich, 2020).
d) Characteristics of Family Entrepreneurs
Family entrepreneurs typically demonstrate resilience, responsibility, community orientation, and commitment to social welfare. They possess endurance, leverage past experiences, and benefit from clear roles and flexible decision-making, enhancing crisis management capability.
e) Communication Behavior of Family Businesses
Experts concur that family businesses tend to have limited external visibility and remain reserved in their communication. Effective media and communication management is critical, with clear, transparent external communication highly recommended.
f) External Management
External management can objectively assist in crisis detection and prevention. However, identifying suitable external managers capable of balancing company and family interests is vital, particularly during generational transitions.
g) Crisis Causes during the COVID-19 Pandemic
Contrary to the financial crisis of 2008/2009, the COVID-19 pandemic has disproportionately impacted sectors. A significant global economic downturn is apparent, with certain industries experiencing accelerated shifts toward electrification (e.g., automotive sector). The disruption of supply chains exacerbated vulnerabilities, particularly due to inadequate digitalization preparedness among German family businesses.
h) New Paths Out of Crisis (Business Model Development)
Experts anticipate significant structural shifts post-pandemic, predicting a reduction in business travel and the emergence of innovative collaborative business models. Leveraging Germany’s innovation and technological leadership is crucial for international competitiveness in evolving market environments.
2. Comparison of Theoretical Assumptions with Empirical Findings and Recommendations
This study systematically compares theoretical assumptions with empirical findings derived from expert interviews, generating actionable recommendations. These recommendations constitute a strategic framework for crisis prevention tailored specifically for family-owned SMEs.
V. Conclusion
The study aimed to identify conducive conditions for crisis prevention in family businesses, resulting in a strategic framework. Key recommendations include proactive succession planning, establishing a family constitution, clearly defining roles and responsibilities within shareholder agreements, implementing an effective early-warning system, enhancing crisis sensitivity at the leadership level, and continuously developing innovative business models to ensure sustained resilience and competitiveness.
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