Outsiders Take Away Family Business “X Factor”, Says Timpson

In a recent Telegraph column, John Timpson, fourth generation chairman of multi-service retailer Timpson, criticised the idea of bringing outside professional managers into family businesses, stating they are at risk of losing their “x factor”.

Timpson went on to say that professional managers have failed to match the performance of their family based predecessors, citing Marks & Spencer, Dixons and Morrisons as prime examples. He also stated that if he had to hand Timpson over to an outsider, he would “almost certainly sell the business”.

Although Timpson has strong opinions on family businesses, it is not realistic to assume that a family business can sustain success across generations. In fact, figures recently released by the Business Families Foundation stated 80% of family businesses fail due to a lack of unity, and only 13% of family businesses make it to the third generation.

Bringing the Outside In

Hiring an outside manager for a family business can help preserve the value of the family’s financial stake in the operation over the long term. Professional managers can provide family businesses with balanced advice that, perhaps, family members with close ties may not be able to do due to emotional investment. Such advice can be critical to the future of a business, particularly when there are considerations regarding succession planning or developing an exit strategy.

Selling a business, or even a stake in a business, is a time when an outside perspective is essential. Able to offer objective advice and a much needed dose of reality, a professional manager from outside the family can help to mediate when there are differing opinions.

This objectivity is also key in one of the most important areas when discussing the sale of a business: valuation. There is a tendency that valuation is taken personally by those who have built the business from scratch, especially if the valuation is lower than expected.

Hiring an Intermediary

For some family businesses, taking on an external professional can be a step too far and not deemed as an essential investment. In this instance, hiring an intermediary may be a preferable option, especially if it is the right time for a business to develop an exit strategy.

Entrepreneurial owners, particularly those running family businesses, often run their businesses without the sort of infrastructure or institutional experience that strategic and/or financial buyers are used to seeing. An M&A advisor will be able to offer objective input and advice to ensure all members of the business are up to speed with any changes.

The continued success of family businesses is substantial and the family business “x factor”` that John Timpson refers to is certainly valid. However, the very same thing can be the factor that pulls businesses apart, making external, objective support invaluable.

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