When External Factors Increase Internal Pressures
Midland businesses, both family and non-family-owned, are being impacted by the coronavirus pandemic. How they respond provides important insight into what makes family businesses different. Family businesses located in Midland Texas are unique, with many advantages that stand them in good stead during times of crisis. While there are unique strengths for family-owned firms working in a world changed by COVID-19, family businesses also need to be aware of unique risks they face and how a business valuation may impact them directly. While some families will clearly suffer personal and financial losses due to the pandemic, the good news is that for many family businesses the challenges and invitations offered by the pandemic can allow them to emerge stronger than ever, both as families and as enterprises.
Loyalty
Midland based family business owners are notoriously loyal to their employees – especially long-term employees. For example, when Malden Mills burned to the ground just before Christmas of 1995, Aaron Feuerstein, the owner, kept everyone employed and rebuilt – at great personal cost. This commitment to one another is often reciprocated. In the case of Malden Mills it is interesting to note that during first year of operation after rebuilding productivity among employees rose 40%. When economic challenges exist, long-term employees of family businesses are more likely to work with family owners that have gone above and beyond for them in the past. This will have a long-term impact on a Midland company’s flows, profitability, and business valuation.
Examples of loyalty like this are commonplace in Midland owned family business, and they demonstrate how family business leadership with “the long view” in mind can unify family owners and employees to sacrifice and stand together through a crisis. Commitment to the livelihoods of the employees who work for them is a hallmark most family businesses, as is the dedication of those employees to each other and the Midland business.
The crisis can make the ties among stakeholders stronger than ever by giving the stakeholders an opportunity to make their commitment clear. When the pressure is on, the act of putting values into action can have transformative power. We expect to see many examples of the same gestures of solidarity during this crisis.
Persistence—and Pressures of—Identity
When a family business faces financial uncertainty and market challenges, Midland stakeholders are more likely to dig deep to keep their businesses alive. They will re-invest family capital to keep it afloat through difficult times and roll up their sleeves to work harder. They don’t look for another job or another investment, but rather stay the course. This long-term outlook will strengthen a Midland business valuation.
This is because it’s more than a business and more than an investment to the family owner. The family stakeholder’s identity is often tied to their business – their name is “on the door” – either literally or metaphorically. Their commitment to their enterprise may span generations – including future generations. Keeping the business going is much more than a financial decision. It is one of honor, purpose and identity and will help to get many family businesses through this difficult time.
Predisposition to Conflict
Here is where Midland family businesses might struggle more than many non-family-owned firms. Because the business is often so central to the family in its emotional and financial impact, and because family members play so many varied roles in the enterprise, stakeholders often have conflicting opinions, goals, and histories that drive their behavior when it comes to the business. Those decisions may have an impact on company efficiencies, cashflows, and the business valuation.
Normally, at least in well-functioning family businesses, stakeholders have reached a stasis in which they can manage their differences so the Midland business can flourish. But when a shock to this often-fragile system comes, as it has with the COVID-19 pandemic, it can disrupt the system and destabilize the status quo. While this can lead to putting aside disagreements and increasing focus and alignment on the emergencies at hand, it can also lead to family business conflict, with tempers flaring and walls going up that stifles decision-making at a time when timely responses are critical.
It is important for enterprising families to remember that COVID-19, and the economic challenges it has caused, are what we call “external factors.” An external factor is nothing that any stakeholder can influence or control, yet it stresses the system. External factors do play a role in a Midland business valuation; however, they can be mitigated with internal factors. While stakeholders can control how they react to it, no one has experienced this external factor before, and nobody in the family is at fault. Everyone is trying their best in uncharted territory.
It is important for family business stakeholders to see these external factors for what they are: outside threats that will naturally make tensions rise and cause very normal human responses of fear or anger. Trying to stay focused on what is known and unknown, on what’s working and not working, can help families avoid unproductive conversations about what or who is “wrong.”
An external factor, such as coronavirus, will naturally upset individuals and the ecosystem of the family business. There are enormous perceived threats coming from this crisis: personal and family health, business issues, and global economic issues. These existential fears naturally trigger the fight/flight/freeze mechanism, a natural human response to perceived threats that can make people angry, fearful, reactive, and lead to conflict.
Being aware of these automatic responses to threatening situations can help families focus on what is actually within their control. Staying focused on long-term objectives will ease the current burdens and will smooth out variations in a Midland business valuation. This will be key in working together to navigate the ever-evolving circumstances created by the pandemic. It will help families be clear about what valuation decisions must be made and avoid further disruption or damage by managing conflict.
What to Do Now
While there are clear threats that come from the coronavirus pandemic, there are also opportunities that can arise out of such crises. While no one would argue that there is anything positive about the pandemic, family businesses are uniquely prepared for this challenge. There is an opportunity here for those who choose to approach the crisis with creativity and the commitment to bring family closer while leaning on the values that will keep your family enterprise strong. One of the positive features of the pandemic for companies focused on long-term sustainability, is the opportunity for Midland acquisitions. Companies who are not focused on the long-term and allow themselves to be rattled by external factors will realize a lower Midland valuation, which can be taken advantage of by a family business. If your family is seeking to make an acquisition during or after the pandemic, hire a Midland Business valuation firm to make sure all of the risks have been identified.
The pandemic forces everyone out of the status quo, inviting stakeholders to develop innovative solutions to fully respond to pressing needs of today. If family businesses focus on what they know, who they are, and where they want to be, this crisis may, in fact, be a transformative opportunity.
