Australia's growth is all in the family

Family businesses are not often glamorous, but their strong entrepreneurial spirit – not to mention the contribution they make to the economy – plays an important role in Australia's future prosperity.

When Kim Jong-un had his uncle executed last week, there were perhaps a few family business scions in Australia who allowed themselves a quiet smile of recognition. North Korea is, after all, just another family business in which the third generation is trying to consolidate itself. I have encountered a few third genners like young Kim in my travels through the world of Australian family business this year, who would have cheerfully murdered their uncles and cousins.

Just kidding. One of the hallmarks of family businesses in this country is that they usually get on: there is very little bloodshed, metaphorical or otherwise, because blood is thicker than the ink on shareholder agreements.

Family business is not just a job. The commerce mingles with love (although sometimes those strong feelings flip into the opposite of love – just ask poor old Jang Song Thaek).

Another important difference between family businesses and all the others is dividends – there usually aren’t any. By studying family businesses for my weekly profiles of them, I have come to understand why Warren Buffett doesn’t pay dividends either: because that’s how you grow.

The other great thing about family businesses is that they almost always start with a start-up, rarely an acquisition. The reason it then morphs into this thing called a Family Business is that there isn’t an exit.

Nothing wrong with exits. I had one myself last year when we sold Business Spectator and Eureka Report to News Corporation. And many start-ups, like ours, continue to grow and benefit their new hosts and make the world a better place.

But an entrepreneur who doesn’t exit and passes his or her creation onto the children… Ah, now that is something very special.

Take Haymes Paint, the Ballarat-based business started in 1935 by Henry Haymes with his brothers and now owned and managed by his son David, after he bought out his uncles.

Haymes has held out against waves of industry consolidation, knocking back offer after offer to keep the business in the family, and is now the only true independent left in the business. And it’s valued: in fact there’s a painter working on the outside of our house at the moment who swears by Haymes Paint.

Or Ray White, a 1902 Toowoomba start-up that is now Australia’s largest real estate agency, in the hands of the third generation and about to pass to the fourth.

I have spoken to a few dozen like them this year and have always come away inspired – by the business and by the family.

The question for the nation as it searches for post-GFC growth in an era of struggling manufacturing industry is: how do you bottle this? How does government policy encourage more Hofmanns, the family in Perth exporting high-quality engineering products to China? Or more Tim Reids, the Tasmanian farmer who sends Japanese cherries to Japan? Or more Paechs – the South Australian family exporting jam around the world?

The answer is it probably can’t. The best any government can do is get out of the way.

A lot of family businesses start because someone lost their job and had to do something – that was how Bates Saddles began during the Great Depression, after George Bates was sacked from his job sewing saddles.

But most start because someone wants to get rich, or because they want to control their own destiny, or simply because the urge to create can’t be denied.

These are yearnings that cannot be manufactured by well-meaning ministers because they already exist – in plentiful supply. Governments can only crush them.

These days a lot of start-ups have something to do with the internet. Those are mostly aimed at a cash exit, not at the creation of dynasty.

We live in a globalised age when a small group of great start-ups – Google, Facebook, Amazon, eBay, Twitter – hit the jackpot and became the Andrew Carnegie, William Randolph Hearst and Henry Ford of the modern era.

The influence of these businesses on the world is impossible to exaggerate. The immense wealth they have generated in a lot less than one generation is inspiring millions of wannabes and funding thousands of exits. The new game in the world of entrepreneurship is to create something that Google or Facebook, or one of the other tech consolidators, buys out.

As a result, to some extent the 19th and 20th century ambition to leave a business to support your children (and their children) is being replaced in the 21st century by the less complicated objective of cash.

But to be honest, most start-ups and family businesses are not glamorous. They are small, mundane affairs that just happen to employ the largest number of Australians.
They are the cafés, clothing shops, legal practices and trucking businesses, the mowing franchises and architects that sit on every second street corner, and are working in every second house.

Mostly they are just getting by, paying payroll tax and doing their quarterly Business Activity Statement, and often ploughing every spare dollar back into the business, trying to grow it and employ more people.

It’s on these businesses that the nation is built and will rely on in future. They are the mammals that will outlive the industrial dinosaurs.

The Abbott government has declared that one of its key aims is to support small business and independent contracting by cutting red tape and getting out of its way.

Let’s hope the louder bleating of dinosaurs doesn’t distract them from this task.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles