Situation analysis

The unique strength of the German economy compared to other countries is based on its SME structure, with more than 99 percent of companies belonging to the Mittelstand. They account for more than 80 percent of all apprenticeships and almost 60 percent of all jobs that are subject to social insurance contributions. It includes traditional large family businesses, craft enterprises, freelancers and self-employed people, start-ups and many secret global market leaders in their markets. A strong SME sector also means a strong economy.

Even before Corona, there were already the first clear signals of a recession that threatened the structures, growth and competitiveness of SMEs. With Corona as a kind of fire accelerant, the existence of many SMEs is now directly threatened. Government measures and a lack of critical self-awareness on the part of those responsible are still preventing the crisis from breaking out openly.

Family businesses, often with a long tradition and rooted in rural areas, have always been considered particularly crisis-proof in Germany's economic structure, which is dominated by small and medium-sized enterprises.

The Family Business Foundation arrives at the following current definitions and facts in 2019: 90 percent of all German companies are family-controlled businesses. They are owned by a number of natural individuals, although ownership and management need not coincide. They generate 52 percent of sales and account for approximately 58 percent of all employment subject to social insurance contributions in Germany.

Owner-managed companies: They are owned by natural persons and at least one of the owners is also in charge - 86 percent of the total number of companies are owner-managed companies, and 53 percent of all employees in Germany work here. Owner-managed family businesses account for 47 percent of total German sales.

Family-controlled companies had sales of 2.8 trillion euros in 2017, and owner-managed companies had sales of 2.5 trillion euros. Family-controlled companies thus generate around 45 percent of the total sales of all companies in the economic sectors included here and 52 percent of the sales of private companies.

The family business thus has a special significance for Germany as a business location, even in times of crisis.

A large number of factors have repeatedly been cited for the high resistance of family businesses to crises, particularly in comparison to businesses with other forms of ownership:

First and foremost, long-term thinking is always cited. The thinking and actions of family businesses take place in periods of generations instead of years. The aim is to safeguard the company for future generations. What also makes a family business strong in a crisis is the fact that the goals and ideas of different stakeholders in a family business, which can rarely be reconciled over a period of one year, can ultimately be united over a longer time horizon of more than 10 years to form common interests. Family businesses are also more crisis-proof due to their often advantageous capital structure and financing. On average, they operate with higher equity ratios and often with higher profits than large German corporations. Medium-sized companies, and especially family businesses, generally have lower capital costs and are personally liable, as in the case of the managing partner. A more cautious approach to risk is therefore the logical consequence. Putting the company and the family at risk would be negligent in each case. A more long-term business policy, a proven business model that does not rely on short-term success, also makes it possible to persistently drive forward innovations, to approach investment projects with a longer perspective and not to speculate on quick and risky market entries and market successes. Crises require quick decisions and implementation. Family businesses in particular are often characterized by shorter decision-making paths. In family businesses, therefore, you find both step-by-step and radical innovation and investment decisions, especially when management and ownership are combined in one hand.

It is not only in crises that management and employees should have a strong sense of cohesion, which is what makes joint crisis management possible in the first place. Family businesses often have an advantage when it comes to employee-oriented crisis management. A successful business model, a shared vision and strong ties to traditional values passed down from generation to generation are decisive factors. There is often an employee-oriented corporate culture that is also exemplified by the business owner. Many family businesses convey values that are attractive for long-term employee loyalty to the company, such as a working atmosphere, autonomous working, flat hierarchies, career prospects, secure employment and a healthy work-life balance.

Thus, family-owned companies with successfully proven business models play a major role in shaping Germany as a business location and its medium-sized structure.

However, it is doubtful whether these strengths will suffice as solutions in the current Corona crisis. Unlike the 2008 financial crisis, which could be overcome with traditional crisis management, Corona is presenting our economy with completely new challenges. Individual markets, customers and supply structures are threatening to disappear, and entire industries are facing complete upheaval. Not all medium-sized companies in the automotive and mechanical engineering industries, for example, will survive. Medium-sized companies in particular are facing challenges that are as yet unknown to them.

Only restructuring approaches of the past are ruled out as possible solutions. Corona particularly highlights the weak points and structural deficits of companies. Today, every company must put successfully proven business models to the test and question its strategies, organizational structures and resources. Only a strategic business transformation that combines proven methods of classic restructuring with a strategy development process aimed at defining a new business model with competitive advantages and a competitive organization can point the right way to the future here, even for medium-sized companies. Immediate action is the order of the day. Sitting out the crisis and relying on the state and the recipes for success of the past are likely to fall short. The perseverance and ironclad adherence to the tried and tested - an original strength of SMEs and family businesses - can now become an absolute weakness in the Corona crisis.

Summary

Strong entrepreneurial owners of medium-sized companies with the courage for new business models and a strategic business transformation will be able to successfully overcome the crisis and emerge from it stronger.

Written by Dr. Thomas Forster