Survival Mode for Family Businesses and SMEs

I was recently impressed by the hard hitting statistic coming out from the Chamber of SMEs research which outlined that 68% of SMEs in Malta felt that they would not survive more than 12 months in the current conditions (even with the present level of Government Assistance).There are various research studies presently taking place across the world, to identify what actions SMEs & Family Businesses have taken to survive so far. Below are some identified actions that are emerging from this research.

Securing business continuity
To actively manage the crisis to secure business continuity, many family owned SMEs focused on establishing agile crisis structures and pushing for courageous change. There are very obvious crisis mitigation measures that have been taken which include:-

  • Establishing a COVID-19 task force
  • Assessing and adjusting the supply chain
  • Managing financial resources
  • Implementing a process to systematically collect and analyse information from a wide variety of sources (e.g., public health experts, economists, government)
  • Keeping in touch with important stakeholders like key clients, suppliers and financial providers and keep them informed and up to date about how the company was managing the crisis.
  • A digital push that forced many companies to radically redesign their business models.

Employee well-being and mental health
Given the nature of the current crisis, taking care of employees’ physical safety, as well as well-being and mental health, was paramount for many SMEs & family businesses. Many made sure that employees felt safe and taken care of. Measures included providing masks and sanitizing products to employees both at their workplace and for their homes; increasing cleaning within the facilities; putting up physical dividers in places where social distancing was not possible; and dividing their workforce into cohorts that operated independently. Companies were also quick to resort to remote working where possible – and were usually generous in how they handled the unique challenges associated with remote working during a pandemic. While working from home, many employees had to juggle their regular workload and childcaring (and virtual schooling) responsibilities simultaneously. In many cases, this led to a heightened anxiety because of the blurred boundaries between the work and private domains. Many SMEs regularly surveyed their employees to make sure their mental health needs are being met.

Go Back, or Keep Going?
Research is indicating that SMEs & Family Businesses are adhering to one of two underlying beliefs: that going back to the old normal is an option, or that it isn’t. This affects how the companies and families approach this crisis. “Old normal” companies are eager to surpass the pandemic. Any crisis mitigation measure is deemed temporary and is regularly revisited. Such companies might try to get their employees back to the workplace as quickly as possible. They tend to think that the crisis will be over soon, and see no fundamental changes to their organization and the way things are done, to their industry, and the economy at large.“New normal” companies, on the other hand, have already let go of the idea that returning to “before” is even an option. This approach is rooted in accepting a changed world and wanting to learn from the crisis rather than simply overcoming it. They are looking at the changes they have made over the past few months and making permanent those measures that have proven to be most effective. They survey their employees to find out about their ideal long-term workplace scenario: fully remote, face to face, or a hybrid solution. They are analysing their current supply chains, running scenarios to identify the most effective sourcing, and building a resilient stream of supplies going forward.

SMEs & Family Businesses will likely lean towards old normal or new normal depending on factors such as their organizational values and culture and their general openness to change.

Effectively Managing the Family Shareholders
Family alignment and cohesion are paramount to overcoming any crisis. If the family shareholder group remains united and committed to the commonly shared purpose, they remain able to make decisions, and thus remain actionable even under pressure. Many families reported having significantly more interactions (albeit virtual) with individual family members as well as the family shareholder group as a whole during this pandemic. Most families have never talked more than in recent months, which is why family members feel closer to one another. Based on this experience, many families are eager to continue on this path of increased communication and exchange, rather than resorting to previous levels of interaction. Members of the younger generation and non-operational shareholders particularly benefitted from this sudden inclusion in frequent conversations about the business’ future, which strengthened their commitment to the family and the business.

In this context, a key area of family longevity relates to how well-equipped family members, and in particular the next generation, are to perform their various roles in the family and the business effectively. Making systematic ownership competence development a strategic family priority, and dedicating adequate funding to make sure your family members are competent, responsible owners, are key characteristics of successful multigenerational families. This is a great time to begin thinking about such things and to discuss the next generation’s educational and self-development needs in settings like family meetings, a family assembly or the family council.

Many families have experienced serious conflict around how the pandemic is affecting dividend payments. In the face of a looming recession, many deemed it risky to distribute capital that might be needed in the future. Furthermore, those companies that cut salaries across the board found it challenging to justify dividend payouts. This remains a serious issue for business families whose members rely on dividend payments as a key source of income. Families should regularly revisit their family financial goals in relationship with the business. As the family grows exponentially, the business cannot keep up with the financial needs of the shareholders. The family sets itself up for failure if they don’t adjust the dividend policy to the changing reality of the family, or set up other ways to remunerate family members if a crisis prevents dividend payouts.

On the other hand, conflicts related to postponed or cancelled dividend payouts might also reflect either a lack of emotional commitment to the business, or a lack of understanding of how the business operates (these two are likely related). Families experiencing this issue might consider shareholder education and measures to strengthen family cohesion.

Conclusion
In many ways, any crisis acts like a proving ground. A crisis will only exacerbate any tears in the fabric of the family or the business. We can’t expect individual family members to make sacrifices for the greater good if the family lacks alignment, if individual interests are prioritised over the collective goals and the collective wellbeing, and if no compelling goal unites the family. Investing in family alignment and cohesion has never been more important. It’s more important than ever to keep the family and other stakeholders engaged, and to keep talking with them and making them feel included. In crisis situations, there is no communicating too much – only too little.

At EMCS we specialise in our coaching service intended specifically for SMEs & Family Businesses to help them survive this crisis. Feel free to drop me an email on silvan.mifsud@emcs.com.mt to have a chat on how we can help.

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