Findings of a recent survey in relation to family businesses surprised many. Against the common perception; study of family businesses across the globe revealed that family businesses are able to create higher value, sustainability & wealth over their corporate and professionally run counterparts.
What if every family business is able to replicate this finding? What will it take for a family business to make it a reality?
Every market has their share of family business success & failure stories. Family business failures are mostly the outcome of inability to protect the business being taken for ride with conflicts, ego clashes, lineage claims and power struggle as the business moves from one generation to the next.
Off late we have come across many family business feuds and splits that have eroded the market share and impacted the brand. It is not unusual to see a particular member of the family unhappy with the way the business is managed. It could also be a possibility that one may have an excellent idea that is being neglected and it is quite possible that earlier generations may not be willing to change and adopt new ways of doing business.
It is therefore essential for every family business to establish clear road map for the future of the business for smooth transition.
The following 3 incremental steps & principles can help family businesses protect and prosper their business and move up from SME to Large & to conglomerate scale.
1.Principle One : Increase the pie
Most family businesses get split with increasing expectations of next generations to gain control and have larger share of the business, control & profits. They try to break the pie too early too soon. Wouldn’t each would gain larger stakes and money if the business grows from 100cr to 1000cr?
The biggest strength of family businesses is trust which should be used to multiply the business not divide. Focus on big picture, a larger vision and increasing the pie size instead of fighting over the existing pie.
2. Principle Two : Groom to scale
As the company grows, it is essential that family members are assigned different responsibilities and portfolios. From early days the next generation family members should be groomed to take on responsibilities of diverse functions and capabilities. It creates interest, capability & develop cross functional knowledge.
As the grooming completes and they are ready to handle the portfolio independently engage them incrementally in functional responsibilities followed by independent responsibility of a line of business based on strict selection criteria. As the business grows further these lines of businesses or geographies can become ( if required) independent companies within the group thereby providing each one an opportunity to run and scale the business with their own ideas and style.
Accelerated growth keeps everyone busy and restricts future anxieties. Create a clear picture of the future of business with roles, responsibilities, controls and stakes early on.
3.Principle Three : Choose Merit Over Lineage
Managing & leading Business need multiple capabilities. Visionary, Leadership & Management competencies, business acumen and ability to sense opportunities doesn’t come just by being born in business family. Those are nurtured on dining table, imparting through academics and testing on the job by moving the person across functions from lower to higher levels. Yet it is not everyone’s cup of tea. Therefore it is crucial to have succession planning well in advance so as to avid subsequent conflicts.
Choose merit over lineage. This will ensure business success and prosperity. Wherever the next generation lacks the will or capacity; it’s better to pass on the reins to professionals while managing the values, culture & intent by the promoters. It is worth to note that owning a company and managing a company are two distinct aspects.
Finally, if the first generation promoter is strong and well respected within the family, business scale new highs with every generation stepping in through smooth transitions.
In absence of such a situation, it is always better to engage a professional business advisor or mentor to ensure right structure and smooth transitions. A timely engagement can help the business prosper as against last minute involvement of an outsider to protect a splitting business.
In-Unison has the expertise to lead family businesses on 10X Growth Path. We have worked across family businesses of diverse size, scale & been involved into succession planning, developing strategies and structures, establishing LOBs and scaling business across geographies. Get in touch