By: Terrence Teh, Strategy Director, Pitcher Partners
With news coming out of the Australian state of Queensland recently that a family-owned hardware store was forced to close after 37 years when a national competitor set up shop across the road, it rang alarm bells for the many family businesses around Australia that are continuing to struggle in the face of the pandemic.
Recent statistics suggest family businesses make up about 70 per cent of all businesses in Australia and have an average turnover of $12 million AUD.
It is in this context that owners need to think about the sustainability and governance of their businesses through three lenses: strategic objectives for growth; governance in family businesses; and building digital capabilities.
Strategic objectives for growth
Private businesses are no different to large corporates; the need to understand how to compete and grow in an increasingly complex business world is critical for survival and ongoing success. Many private businesses do tend to start out as family businesses, which over time grow and expand into substantial business operations.
With the recent pandemic, and relative upheaval of the global environment, this has caused many business owners to take stock and rethink the direction of the business.
Any previous plans or strategies to grow in a “normal” environment is no longer relevant, and creates an opportunity for all business owners to think, “What does it mean to compete in a world post-covid? How different will the landscape be and what does it mean for my business?”
We recently completed a survey in the SME sector, and found that businesses that engage in long term planning of their businesses are focused on the following elements; technology advancements and applicability into their business, and changing consumer preferences driven by a world coming out of a pandemic.
At the same time, the top 3 elements driving strategy re-planning include:
- Market changes and how to adapt (53.2 per cent)
- New direction and focus (43.8 per cent)
- Cash flow management (30.9 per cent)
And the key focus for owners and management underlying all strategic planning is helping find new sources of revenues.
Governance in family businesses
As part of strategic planning processes for private businesses, succession planning is a critically important aspect to consider. Businesses with longer-term planning often engage in succession planning (47.7 per cent) are significantly more confident about their businesses, the effectiveness of their decision-making processes, and their future success.
Interestingly enough, succession planning in overall business planning enables both family and non-family businesses to see their organisation’s future and what will happen once the current management changes.
Our firm has seen time and time again that succession planning can be hallmarks of businesses that are superior strategic planners, and experience better business operations and outcomes (when compared to the market and competitors).
Businesses that had engaged in succession planning were significantly more likely to have been presented with the key opportunities that arose during the COVID-19 pandemic: (percentage with succession planning vs percentage without succession planning)
- Increased workforce flexibility (31.3 per cent v. 22.3 per cent)
- Improvements to staff satisfaction (20.6 per cent v. 6.4 per cent)
- Improvements in technology (29.5 per cent v. 10.6 per cent)
- Ability to streamline operations (22.3 per cent v. 4.6 per cent)
- Cost reductions (29.9 per cent v. 18.0 per cent).
For many middle-market and family-owned businesses, succession planning is part of strategic planning as the business owner’s personal and business affairs often have some degree of overlap.
Building digital capabilities
Future family generations must be tasked with “forward-looking” duties: how the family business can maintain visibility of digital or sector disruption; and, what the business strategy should consider to ensure viability as a going concern well into the future.
The businesses that will come out of this global pandemic and thrive will no doubt be a digital-first type of business.
This means taking the time now to reconsider the direction of the business, and what change it must do to adapt and pivot.
For businesses that have “ignored” digital technology, now is the time to reset and redistribute capital across the business.
For businesses that already started the digital journey earlier, this means doubling-down on investments and using this as an opportunity to get ahead of their competition.
Our recent work on digital in the SME sector has highlighted different business personas on this topic.
Our experience has shown that “digital warriors” are the types of businesses that will have the greatest potential to expand and thrive in a new world, where digital technology will underpin every aspect of the business.
For most SME businesses, these can mean starting with the basics of building digital sales and marketing capabilities, so that they know how to shift existing customers and acquire new ones through a digital channel.
It also means knowing how to combine data and customer experience design thinking, to re-create what it means to engage with customers on a digital platform.
From my experience, knowing what levers to pull in the business has seen some of our clients experience nearly 100 to 200 per cent increase in conversion rates, and 10 to 30 per cent increase in average transaction sizes. These results only come from knowing how to implement digital technology properly, and having a digital plan that is integrated and aligned to an overall business plan.
Running a family business is tough at the best of times, and the ongoing pandemic has undoubtedly made things more difficult.
However, I have seen these businesses adapt so much more quickly, because unlike corporates; the passion to make their businesses succeed in such challenging conditions – just helps fuel their hunger and desire to succeed.
As a firm specialising in the SME sector, we see them as the ‘engine room’ of Australia’s economy and continue to believe in their incredible contribution to our economy.