Family businesses in the U.S. are more confident about their growth prospects than their global peers—93 percent versus 81 percent—and are poised to capitalize on new opportunities, according to a new survey by PricewaterhouseCoopers.
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While economic challenges top the list of near-term concerns for U.S. family businesses, with 68 percent citing market conditions as a main issue over the next 12 months, those concerns have waned since a previous survey by PwC two years ago in which 88 percent cited market conditions as a main concern, suggesting that family businesses have adapted to the new normal of market volatility and economic uncertainty.
Companies are also feeling more optimistic about their future based on internal factors. Seventy-six percent of U.S. family businesses plan to hand the reins to the next generation, according to the survey, the highest percentage since 2007, when U.S. companies first participated in PwC's Global Family Business Survey, and a significant increase from the 55 percent reporting the same two years ago. Nevertheless, just over half of family business leaders (52 percent) intend to transfer both ownership and management of the business to family members. Nearly one-quarter (24 percent) plan to pass on ownership but bring in outside management to run the company.
Family businesses are taking a more conservative approach to strategic planning, with most (82 percent) expecting to grow steadily over the next five years, while only 11 percent of businesses expect to grow quickly and aggressively. Family-owned companies are nonetheless showing a greater appetite for actively investing in growth initiatives, compared with two years ago, focusing on areas such as innovation and international expansion.
Family businesses' emphasis on the need to out-innovate peers to ensure the long-term viability of their companies has clear implications for succession planning. While the majority (58 percent) of U.S. family businesses cite the need to continually innovate as a top challenge over the next five years, nearly as many (50 percent) voice concern that their potential successors do not have the required drive and aptitude to steward the business into the future.
U.S. family businesses are also increasingly looking to international markets for growth. Nearly half (47 percent) are venturing abroad, selling goods and services outside their customary domestic markets. Fifty-four percent also expect to be selling internationally in the future. This represents an increase from two years ago when just 30 percent of U.S. respondents to the survey said they were planning to develop business in markets abroad.
"We've noticed an attitudinal shift among many U.S. family businesses in the past two years," said PwC U.S. family offices services leader Alfred Peguero in a statement. "They've gone from warily eyeing their next big bet to actively seeking business growth opportunities. Companies recognize now more than ever the need to out-innovate their competitors and seek new avenues of growth in order to thrive in a fast-evolving business landscape. Fortunately, family businesses inherently have the entrepreneurship that is needed to keep pace in the global economy. Their challenge is fostering the same entrepreneurial spirit in future generations."
While many U.S. family businesses expect steady growth in the years ahead, external and internal headwinds remain strong. Chief among them are tough competition, cited by 61 percent of respondents, and the ongoing challenge of finding workers with the right skills and talents (52 percent).
"U.S. family businesses are still navigating a slow-growth economic environment and increasingly competitive marketplace," said Peguero. "The talent shortage in particular has been a persistent challenge for companies, as we've seen in the past three consecutive surveys. This is where family businesses can step up and become part of the solution. Through on-the-job training and partnering with local schools, they have an opportunity to play a vital role in creating jobs and growing the economy."
Technology and succession planning join innovation, talent, and international expansion as key focal points for family businesses in the coming year and beyond.
Family businesses realize they need the right technology to function successfully in today's business world. Technological advances such as social media, mobile devices and cloud computing have leveled the playing field for many privately held family businesses, allowing them to do things on a scale that in the past would have been cost prohibitive.
To continue reaping these benefits, family businesses will need to keep pace with and effectively harness new technology that emerges in the coming years. This fact is not lost on family businesses – 39 percent of them say that the need for new technology will be a substantial challenge in five years' time.
Nearly the same percentage of family businesses say that succession planning will pose a substantial challenge five years from now (38 percent). Too often, family businesses either do not have a formal succession plan or, at best, have a loose one that is rarely revisited. Lack of a formally documented and routinely updated succession plan can adversely affect not only the company's longevity, but also its near-term health.
“Business as usual won't suffice if family companies are to maintain and grow market share in today's business landscape,” said Peguero. “Future leaders of family businesses will need to be prepared to pursue opportunities in faster-growing markets, develop new products, and explore alternative business models to stay relevant and ahead of competitors, both domestic and global. In the process, they'll also need to be comfortable assuming a degree of strategic risk-taking.”