Family Businesses Are Experiencing the COVID-19 Crisis in Unique Ways
Skip to content
The Insightful Leader Live: What to Know about Today’s AI—and Tomorrow’s | Register Now
Entrepreneurship Leadership Sep 3, 2020

Family Businesses Are Experiencing the COVID-19 Crisis in Unique Ways

Lower debt, diversified portfolios, and longer-term horizons may be shielding family firms from the existential threats facing many other businesses.

Family business weathers crisis

Yevgenia Nayberg

Based on insights from

José Maria Liberti

Several months into the coronavirus pandemic, it’s become clear that economic pain is not being distributed equally, even within individual industries.

A business’s size does not necessarily predict if it will thrive or suffer. Many smaller businesses are getting hammered: a full third of all small businesses in New York City, for instance, may never reopen. But plenty of large, publicly traded companies are also experiencing hard times. Heavily indebted companies such as Hertz, J-Crew, GNC, and Cirque de Soleil have all declared bankruptcy.

But what about family businesses?

This important category of business has been largely left out of the public discussion, says José Liberti, a clinical professor of finance at Kellogg. This is in part because detailed data on family businesses can be tough to come by.

But the data that do exist suggest that family businesses are experiencing the current crisis in a fundamentally different way from other businesses, large or small. Liberti explains how their experience is shaped by long-term horizons, which often lead to less debt, a surprisingly diversified portfolio, and, sometimes, a nonmonetary definition of success.

Limited Data, Fuzzy Definitions, and Ill-defined Success

There are many reasons why family businesses aren’t regularly discussed in conversations about the economy. But a lack of economic might is not among them.

By all accounts, family businesses are a major economic force around the world. Liberti points to data from McKinsey, which show that family-owned businesses in the U.S. contribute 57 percent of GDP. And across Southeast Asia, Latin America, and India, more than 70 percent of companies with revenues greater than a billion dollars are family owned.

Still, family businesses as a category remain surprisingly under-analyzed. Part of the problem is that data on private companies—family owned or not—can’t be easily found or even pieced together from different sources. But another challenge is that not everyone agrees on what counts as a “family business.” Does a couple who owns a food truck count as a family business? What if their son helps out on weekends? And even if the whole family is employed, does this fledgling small business belong in the same category as a century-old family enterprise?

Liberti tends to think about multigenerational family businesses as distinct from first-generation family businesses—if nothing else, because they, by definition, are survivors.

“They’re really resilient. If you start thinking about families that are four generations, three generations, they have learned through experience and faced hardships through time,” says Liberti.

Even this group can be divided into those enterprises that are family owned and those that are family controlled. Take New York Times Company, which is publicly traded, but most of the voting shares are owned by the Ochs-Sulzberger family. This ownership gives them control of the company.

All of these factors make it exceedingly challenging to come up with useful statistics, such as how often multigenerational family businesses fail, or whether they are more successful than other kinds of businesses.

A Different Kind of Pandemic Experience

Still, however exactly you want to define family businesses, there is intriguing evidence that multigenerational family businesses are experiencing the pandemic differently from nonfamily businesses.

Liberti points to recent results from the family business advisory firm Banyan Gobal, which surveyed 190 family businesses from over 20 countries in 25 industries. Seventy-five percent of these businesses were at least in their second generation and 13 percent were in their fourth generation or older.

Most family businesses reported being negatively impacted by the pandemic. But Liberti was struck by what these businesses were—or weren’t—actively worrying about. Nearly all leaders were concerned about their short-term revenue loss and cash flow. But surprisingly few had deeper concerns about their survival and well-being as a family business.

“Shareholders penalize you for investing in something because they care about profits. Now, on the other hand, a family will invest because they have this dream.”

— José Liberti

This is different from the challenges facing many other companies, says Liberti.

“I see it as in some ways almost the opposite,” he explains. “They do not worry that they are going to lose their company. They do not worry about preservation of the culture. They do not worry about losing control.”

Rather, he says, they seem to implicitly know that they’re going to continue existing.

The Family Advantage

Liberti is quick to point out that he doesn’t know exactly why these businesses feel so confident about the survival of their firms, their family’s control, and their culture.

“The truth is I cannot quote a single well-done academic article that tells me why,” he says.

But in his view, it likely comes down to long-term horizons, meaning that multigenerational family businesses tend to define success in ways that go beyond short-term profits. For some families, success means providing family members with long-term employment or a way to pursue their interests; in other families, it means leaving a positive legacy. But it almost always includes an emphasis of longevity, which can provide enduring advantages during a crisis.

For one, long-term horizons make family businesses more risk averse and less likely to be weighed down with debt. This can make it easier to weather rainy days.

A long-term horizon also makes family businesses more likely to branch into new areas of business, particularly areas that are unlikely to pay off for years or decades. As an example, Liberti describes a former student—a fifth-generation member of a family business based in Nicaragua.

For generations, the family was focused on its sugarcane farms. But eventually, a family member said, “I want to have a rum company and to be one of the best in the world,” says Liberti. “As you can imagine, rum requires a long-term horizon, yes? To produce good rum, you need a minimum 25-year run.”

His students’ family was cross-subsidizing the liquor division—up until the day it finally produced a good rum. “It was the sugar division that was producing money and financing, basically, the rum,” says Liberti.

Small, fledgling businesses rarely have the capital to take on such long-term endeavors, while most public companies face shareholders unwilling to move profits from one part of the business to support a less profitable division.

“Imagine you’re in a public company, and a division is losing money. This is when you’re going to start hearing people say, ‘No, you need to spin off that division,’” he says. “Shareholders penalize you for investing in something because they care about profits. Now, on the other hand, a family will invest because they have this dream.”

And ultimately, he says, that dream may save them.

When a crisis hits, these businesses, spanning multiple unrelated divisions, tend to be far more diversified than public companies, which are only likely to invest in areas where they have a short-term competitive advantage.

“What you see is that these companies invest much more in divisions that are not related,” says Liberti. “You diversify into things that may not look very profitable in the short run but may look profitable in the long-run. So they are more able to diversify away the systemic risk that comes from the pandemic.”

Liberti points out that it is impossible to say which of these many factors and strategies—from diversification to risk aversion to the commitment to a family legacy—is most important for keeping family businesses afloat during the COVID economy.

“Disentangling which weighs more in the success of family firms is still an empirical question for scholars,” says Liberti.

But together, he argues, they give family businesses the edge over firms with more dispersed ownership structures. “They all prove to be important key success factors in times of crisis,” he says.

Featured Faculty

Joseph Jr. and Carole Levy Chair in Entrepreneurship; Clinical Professor of Finance

About the Writer
Jessica Love is editor in chief of Kellogg Insight.
Most Popular This Week
  1. Understanding the Pandemic’s Lasting Impact on Real Estate
    Work-from-home has stuck around. What does this mean for residential and commercial real-estate markets?
    realtor showing converted office building to family
  2. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  3. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  4. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  5. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  6. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  7. For Students with Disabilities, Discrimination Starts Before They Even Enter School
    Public-school principals are less welcoming to prospective families with disabled children—particularly when they’re Black.
    child in wheelchair facing padlocked school doors
  8. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  9. Leaders, Don’t Be Afraid to Admit Your Flaws
    We prefer to work for people who can make themselves vulnerable, a new study finds. But there are limits.
    person removes mask to show less happy face
  10. Got a Niche Product to Sell? Augmented Reality Might Help.
    Letting customers “try out” products virtually can give customers the confidence to take the plunge.
    person testing virtual reality app on phone
  11. Take 5: How to Improve the Odds of Breakthrough Innovation
    Thorny problems demand novel solutions. Here’s what it takes to move beyond incremental tweaks.
    New invention sits on a shelf unused.
  12. Why Well-Meaning NGOs Sometimes Do More Harm than Good
    Studies of aid groups in Ghana and Uganda show why it’s so important to coordinate with local governments and institutions.
    To succeed, foreign aid and health programs need buy-in and coordination with local partners.
  13. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  14. How Peer Pressure Can Lead Teens to Underachieve—Even in Schools Where It’s “Cool to Be Smart”
    New research offers lessons for administrators hoping to improve student performance.
    Eager student raises hand while other student hesitates.
  15. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  16. How Much Do Campaign Ads Matter?
    Tone is key, according to new research, which found that a change in TV ad strategy could have altered the results of the 2000 presidential election.
    Political advertisements on television next to polling place
  17. Executive Presence Isn’t One-Size-Fits-All. Here’s How to Develop Yours.
    A professor and executive coach unpacks this seemingly elusive trait.
    woman standing confidently
  18. Take 5: How Fear Influences Our Decisions
    Our anxieties about the future can have surprising implications for our health, our family lives, and our careers.
    A CEO's risk aversion encourages underperformance.
More in Entrepreneurship