Day in day out working with family businesses makes me think about the question, “Is the business for the family? or the family is for business?” and since family-owned and managed business dominates all industries, I felt it’s important to make an effort to mull over it.
Every family business journey starts with an entrepreneurial venture of the founder, who is often described as a maverick or a visionary. Everyone has a story to tell about this person. The majority of the family businesses start very small, struggle very hard to achieve success. In this journey, along with the founder, the family makes immense financial and emotional sacrifices.
In the initial phases the business is resource-starved and hence the founder opts for employing the family members in the business, which is not only cost-effective human resource for the business but is also dependable and loyal. In most of the cases, the business is the only source of income for the family and it generally gets paid last in the list of business priorities. During this phase, the business success is paramount for the family. This is the time we say that “the Family is for Business.”
With strong determination and vision of the founder and the unrelenting support of the family members, the family business succeeds and gets established. It becomes financially prosperous, and that is the time the family starts rewarding themselves by having a decent to prosperous lifestyle. This is natural and the family has right to get what they deserve and reward themselves for the sacrifices they have made in the initial stages. During this phase, the family starts rewarding the family members through generous compensation, perquisites, supporting in buying personal assets and making personal expenses that give social recognition. This maybe the period, we can call as “the Business is for Family.” But, this is a transitory phase in the lifecycle of the family business.
No founder starts the family business to stop at any point. Everyone wants their business to outlive them and grow beyond their lifespan. There is the secret desire to leave a legacy, which means the business should systematically and profitably continue to grow after the period of stability.
To accomplish the task to grow profitability the business starts posing new demands on family business owners like onboarding specialist key employees for heading critical departments like manufacturing, marketing and sales, finance, quality and human resources. Most of the time the loyal family or non-family members manage these portfolios, who may not be trained, skilled or qualified to manage the portfolio to meet the future expectations of the position.
As the business grows, the family also grows, and there are many family members who need employment but may not possess the right skills and knowledge for occupying business positions. Some may be interested, some may not be interested in the family business. The family enjoys a social status because of the business success. This is a crucial time when the family business needs to seriously think about the role of the family in the business, as there are many structural changes required if the business needs to continue successfully.
Firstly, there are business challenges of managing the change of business scale. The strategies to manage a 500 Crore business is different from managing a 100 Crores business; similarly, the strategies to manage a 100 Crores business is different from managing a 50 or 10 Crore business. The way of managing the business changes.
As the business grows, the business needs to be more transparent in terms of clarity on the bottom line and top line numbers, which necessitates the need for developing the processes of robust forecasting, planning and budgeting and the ability to execute through others. The business requires necessary systems and processes along with the critical timelines drawn for getting things done. It needs an accurate MIS required for making critical business decisions and to review the progress. And most of all, an ability to decide what we will NOT do.
The organisation culture needs to shift from loyalty orientation to performance orientation. The organisation values need to be verbalised and promoted not only through words but also through actions. The organisation vision and mission needs to be clear to all.
Secondly, there are challenges on the family front, where the family needs to seriously think about the family members role in the family business. Will they be managers – strategist or owners or all? The first thing to do is separate ownership and management of the business – as in family businesses, there is a thin line dividing the same. Define the owner’s roles, rules for ownership transfer and reward of ownership. The next is to define the rule of employment and compensation for family members working in the business in different capacities. This sounds simple but is very challenging to decide and implement.
And finally, there needs to be a mechanism for the family to bond together as a family. Maybe this is where the family needs to adapt again to the principle of “the Family is for Business” which will prove beneficiary for the business and help the family run it in a professional manner, and ultimately benefit the family as a well-run and prosperous business is capable to reward the family.
The point I want to make is, every family having a family business needs to address this question in their own way, as the future success of the family and the family business depends on their answer and how they execute in reality.
I have presented my thought process to address the challenge. Those who proactively address it will benefit in terms of their longevity and success. If we create awareness, maybe we can see a significantly higher number of family businesses continuing generations after generation…
By- Sandesh Vasant Mestry