Kieran McCarthy discusses the role of SMEs in Ireland and asks whether the term is holding family businesses back in the long run
This article was first published in the March 2015 Ireland edition of Accounting and Business magazine
It is interesting that the phrase small and medium-sized enterprise (SME) has become so widely and casually used. This is curious for two reasons: first, there is no single, worldwide definition of SME to make this phrase useful for global purposes and, secondly, the majority of SMEs are family businesses, which would seem an apt description. For example, in Ireland 75% of SMEs are family-owned businesses, while over 60% of all firms in most nations are classified as family businesses.
The move from family business to SME, reflects the need for governments to base employment and business-related policies on quantifiable entities. But family businesses also adopt the term SME.
Shouldering the burden
On the face of it, the SME sector plays a very important role in the Irish economy. It accounts for a large percentage of the country’s economic return, through employment, export and use of local suppliers and materials. The SME sector is vitally important to the economic wellbeing of Ireland, especially given that it employs seven out of every 10 people in the private sector. In Ireland, there are 139,370 SMEs, comprising a 99.7% share of the business market, which is a fairly astonishing level of participation. Of these 139,370 businesses, 75% are family-owned enterprises. This means 111,496 family businesses are creating jobs, earning market share and shouldering the burden of economic recession.
It may surprise people that we don’t know much more about this sector. There isn’t a huge body of research on it. Its size, significance and influence would lead one to think there would be a wide and growing body of knowledge on the SME; but, in fact, that knowledge is only beginning to be accumulated, and the necessity and ongoing importance of that knowledge is only now being measured. It’s hard to give a single definitive answer as to why there are so few statistics on the Irish SME, but it may be related to the prominence of family businesses in this sector. There is still a parochial view of the family business as old-fashioned and out of step with the times, and limited resources in government departments have prevented keeping the statistics of these businesses up to date.
Whatever the reasons, the family business/SME is becoming the focus of ongoing, interesting research across a wide range of topics, such as economic contribution, business psychology, consumer perceptions and so on. The new approach to the sector is illustrated by the opening in 2014 of the DCU Family Business Centre, with its promised aim of a ‘focused research agenda’. This is to be welcomed, along with government initiatives being spearheaded by various departments and by Ireland’s SME envoy to Europe, minister of state Gerald Nash.
Family business or SME?
So, why do the general public and businesses adopt the term SME?
One of the reasons why the figures for the number of family businesses operating in Ireland are so astonishing is that so many of these firms do not promote their family-owned status. The public are not really aware that so many of the businesses they engage with are, in fact, owned and run by family members working together. Could this in turn be related to the media’s and businesses’ widescale adoption of the term SME? Are they hiding their family roots behind the anonymous banner of small to medium-sized enterprise? A survey by Family Business United found that 63.6% of respondents believed that family firms do not ‘make sufficient use of their heritage and history in the way they promote themselves’. There are, of course, very high-profile and successful companies who trade on their family background, which suggests that there is significant advantage to promoting the family business as exactly that. So, why are many family firms slow to do this?
Although economic times are changing, the traditional narrow view of family business continues to exert some control over the thinking of owners and consumers. Family Business Ireland lists the top challenges facing family enterprises as: family feuding, nepotism, letting emotions run the business, losing non-family employees and lack of a succession plan. These factors dovetail with research showing consumers’ negative perceptions of family businesses, in which they report notions of ‘keeping it in the family’ at the expense of staff and customers, bickering and rivalry affecting the business and ‘smallness’ that is uncompetitive and generally uninspiring. It is not surprising that modern, forward-looking, innovative family businesses would wish to distance themselves from such notions, which may account for the rush to embrace the term SME. The results of these unique challenges can be destructive: it is estimated that less than 30% of family firms pass into the second generation, with only 10% passing to third and subsequent generations.
SME as an umbrella term
Are family businesses right to stand under the umbrella of SME? In my opinion, the answer is no. There is much to celebrate and promote under the family business banner, and family entrepreneurs must reclaim their rightful title and stand proudly, holding it aloft for all to see. It is time to turn family business into a vital business concept and marketing buzzword, to use it to enhance the business and secure its success. In truth, small to medium doesn’t reflect the scope and ambition of the modern family business owner, who works hard to compete on the international as well as national stage. The family business is streamlined towards success, viability and sustainability and is not governed by a desire to remain ‘small’ in any sense of the word.
Benefits of the family business
The benefits of being a family business should not be underestimated. The family enterprise is a tightly run unit, with a huge bond of trust between staff, suppliers and customers. It is hallmarked by owners, managers and staff who know the products inside-out and are passionate about informing their customers and selling to them. The make-up of the family business means that, under pressure, it can quickly adopt, adapt and survive in aggressive or recessionary environments. The entrepreneurial spirit imbues and informs the family business, creating pride in the process and the product. There is a strong sense of shared history, shared vision, shared values and shared future, which again imbues and informs the business’s structures and ambitions. There is a focus on doing the job as well as possible, and not falling for the shimmering promises of risky diversification. Family business is synonymous with loyalty, top customer service, reliability, quality across the board and a sense of community that creates social responsibility. When a family business is run well and operates effectively, it can achieve its dreams and ambitions: ‘A good family name is a powerful brand and can communicate strong values such as trust, integrity, honesty and reliability to the consumer; for many customers, it is a choice-editing tool in a crowded market.’
The success of Irish family businesses speaks for itself, showing how, from modest beginnings, families can create thriving businesses that generate wealth for shareholders. Listed among Ireland’s top companies are many family-owned groups, including the Musgrave Group, Dunnes Stores, Kilkenny Group, Dawn Meats, Sisk Holdings, Maxol and Keelings. These modern, progressive companies illustrate the look of the new family business, which is a far cry from the one-shop, modest-earning, safe business of old. These enterprises are competing at the top of their game, constantly seeking to consolidate their position nationally and internationally, providing a guiding light, a beacon to entrepreneurs and family start-ups everywhere: we did it as a family business; you can do it, too.
Kieran McCarthy is partner, Hughes Blake Chartered Accountants