Lucas ' s Final Thesis

The advantage and disadvantage of family business

Introduction
What is Family Business? As we know, family business basic includes the following three distinct characteristics: Enterprise and majority stake are controlled by family; corporate decision-making power on major issues are controlled by family; Enterprise all the important positions held by family members. We have defined the enterprise against this background as a family business. According to authoritative statistics, the average life expectancy of American’s family business is about 40 years; the average life expectancy of China’s family business is less than five years. Every entrepreneur wants their companies to sustainable development and hope that their businesses to bigger, longer, and stronger. In the USA, there is 40% family business closed in first year and 60% family business closed in second year. So do you think the family business is good? In this essay, I will argue the advantage and disadvantage of family business. The whole essay has three parts and five paragraphs.

Advantage of family business
1. Family business has strong adaptability
There is a high degree of trust between family members in family business. The trust can make the cost of decision-making decrease. For instance, a family business in China, there is only 15 members of the family as the company’s all staff in the period of startup. It has simple structure, enterprise management level, fast information relay speed. With the help of family business model, the family business can change their decision quickly according to the change of market environment.
2. Family members do their best to improve the efficiency of the family business
In family business, every member is very hard work and individual potential often can show up to 80%-120%, this is the core competitiveness of the family business. The owner and operator are all the leader of family why make the decision layer and execution layer are overlay together. So information can transmit from leader to staff, the decision can execute in high speed and high efficiency, because the executor is often policymakers, which can help family business grab first opportunity and expand their market.
3. The demand of inspiring is very low
Because staff and management are related to each other, the benefit of enterprise are relate to the individual benefit. So everyone will work hard without inspiring. What is more, they have good cooperation result from family members are familiar with each other. The common goal of family and the consistency of same benefit of family members even can make all of them work without reward. Thus be able to get competitive advantage in a short period and quickly complete primitive accumulation of capital.
4. Family business can get start-up capital easily and quickly
Family business can get capital easily and quickly in the stage of start-up. With the help of the blood relationship, family business has wide social resources and social relationship that is why venture capital quickly gathered in low cost.

Disadvantage of family business
1. Family conflicts will penetrate the governance of family business
In family businesses, the family’s conflicts easy to transfer to the management of enterprise, what worse is that make family conflicts mix with business conflicts. This will give family enterprise operator a big problem of management, if not handled them properly, the problem may lead to the disintegration of family business. Because when a family business’s core layer face to cracks, several functions will be ineffective.
2. Family business management system conflict with modern enterprise management system, so it will restrict the development of family business
Firstly, the family business governance structure is not based on business principle, so its organizational behavior is based on ethics and but not according to the market rules, they maintain the survival and development of enterprise depends on the emotion and trust from family members, rather than purely interests. Secondly, managing mode of family enterprises is restricted by the development and expansion of the bottleneck. When the family business become a certain scale, the development power will decrease if not absorb foreign capital
3. Business environment change fast. It is easy to lead to the decision-making mistakes in family business
Family business needs to continue developing, so the internal and external environment will change greatly. Family enterprise’s traditional management mode of arbitrary decision-making progress will make decision error in new market environment, which are adverse for enterprise’s development, even may lead to the enterprise bankruptcy sometimes.

Response for the disadvantage
1. We should coordinate the relationship between family members
Family business must pay attention to the relationship between family members, establish the reasonable solution mechanism like set up corresponding processing departments. The head of department must be the family member who has the authority, which can handle contradictions between family members to avoid the family enterprise development reaction.
2. Improve the family leader’s traditional opinion is also very important
With the expansion of the scale of enterprises, it is very important for transfer some rights from the family to external managers .It requires the leader of family business must have strong awareness of change and development. Family business owners need to improve their own knowledge which can adapt to increasingly standardize market economic rules
3 .Management System Innovation is good for family business.
First of all, reduce enterprise management level and responsibilities, put forward specific competition strategy. What is more, pay attention to training employee and inspiring to innovation .Lastly, use advanced management method to establish a standardized management system.

Conclusion
To sum up, of course, the family business governance structure is not only a kind of internal institutional arrangements, in addition, it also need the help of the incentive mechanism. Meanwhile, its external management environment affects the development of internal governance structure. The governance structure should be changed gradually, this is benefit to the steady development of family business.

References
1. http://fbr.sagepub.com/cgi/content/abstract/7/4/377
2.http://www.questia.com/googleScholar.qst;jsessionid=Lv5H3mnLG3JN1tbXqvDprh22JLfWypKWwGXzGGLCBYqbVxCYZ5LD!1547632101!-2000885492?docId=5002338619
3. Glen E. Kreiner、Chamu Sundaramurthy[J]，1042-2587© 2008 by Baylor University.
4. SHARON M. DANES and JINHEE LEE，Department of Family Social Science University of Minnesota[J], 290 McNeal Hall，1985 Buford Avenue, St. Paul, MN 55108, USA .
5.http://www3.interscience.wiley.com/journal/119157401/abstract?CRETRY=1&SRETRY=0