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The business of family business
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Bikky Khosla | 08 Apr, 2014
In India, a whopping 95 percent of all businesses are family-owned, according to a newly released guidebook for family businesses. In Latin America, 90 to 98 percent businesses fall into this category while in North America they account for 80 to 90 percent. In the US, family-run businesses generate 60 percent of the country's employment and 78 percent of all new job creation. On a worldwide basis, these businesses employ more than 75 percent of the workforce. These figures demonstrate the significant role family-owned businesses are playing across the globe.
What is the key to success in a family-run business? I would like to share briefly some of the recommendations I have found interesting in the guide: first, having a clear vision and sharing it with the family, board and employees of the company; second, putting a strong corporate governance structure in place; third, analysis of every possible legal aspects of the business; fourth, building a competent advisory board; fifth, motivating and respecting the needs of the human resources; and last but not the least, having a good succession plan.
Most of our family-run small businesses do not pay much attention to these things. While running a business, they like to rely more on common sense and less on rules. They know the right thing but lack the urge to carry it out. Many a time, they just procrastinate and procrastinate. Such an approach, however, may prove fatal for a business, particularly when it starts growing to a higher level -- without a corporate governance structure it may end up in ruins; lack of knowledge about the legal aspects of running the business may lead it to legal hot water; not having a good succession plan may result in a split, and so on.
Recently, I had a discussion with some small business owners on this issue and they pointed out some common features successful family businesses typically share. According to them, these businesses are usually frugal in both good times and bad -- they focus on resilience, carry little debt and invest more equity into projects. Also, they draw a clear line between family and business. In addition, these firms successfully create some committed entrepreneur-like managers (non-family) who run the business as if it is their own. These firms also show a good level of diversification and a willingness to expand into export trade. I think these views are worth giving a thought.
There is not an iota of doubt that running a family business is a wonderful experience. Your family is in it, you all come together to make the business work, and you all share the success and together face the difficulties. It has immense potential and you can hand your business down through generations and leave a legacy. But a family business -- besides being vulnerable to the same pressures as other businesses -- comes also with some unique challenges. In order to address them, you need to plan and follow the best practices.
I invite opinions from all of you. Share your story: What do you think is the key to success in a family-run business?
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Family Business
Danny Meyer, SMEs Compete, Windhoek, Namibia | Sun Apr 20 15:53:48 2014
Good editorial.
In my experience of working with entrepreneurs here in Namibia over the past decade, succession planning is a major challenge experienced by family owned enterprises. This includes the firm's founder handing over the baton to the next generation and clearly defined roles and responsibilities for family members.
FAMILY BUSINESS
PRAMOD SACHDEVA | Fri Apr 11 12:04:03 2014
It was wonderful to read the article on Family Business but the point is when the differences comes and start growing it result in to shut down with a slow process of communication gap. The head of the family missing creates Avery great impact almost closure of the business.
Much more can be added to the plus or negative role being played by Family business.
Well I like readers to start their best imaginations, so my best wishes are with readers.
May we have the references and interviewee profile
Samudragupt | Fri Apr 11 11:51:47 2014
Please post references for % share of family business in different countries and also quote references and interview profile of people interviewed for "discussion with some small business owners" thing....
The above might prove beneficial for us, since we ourselves are riding in similar boat regarding clarity in succession plan.
Family Business
Ram P Nanda | Fri Apr 11 11:02:55 2014
This is a wonderful article & in my opinion one has to constantly innovate, modernize & add products and services to keep growing.
About challanges
Rahim Hudda | Thu Apr 10 06:39:36 2014
Its an important to handle following challenges to lead in to the respective industry
1. Next generation: gap b/w two generation
2. To attract & Retain Non family employees
3. Women of family joining family business
Family businessess
Sreenivasan | Thu Apr 10 06:22:21 2014
I read & liked this topic very much. We are also a family run business & face more or less the same challenges which u have mentioned in your article. Please talk more about how family run businesses must solve issues related to various problems so that we can take a cue from your advice.
the business of family business
Suraj Dialani | Thu Apr 10 02:25:37 2014
introducing myself as Suraj Dialani (heading a shipyard in Goa established by my Father),for success in family run business in todays dynamic industrial environment ,especially if one intends to grow ,we need to make ourselves well aware of following ,1. govt compliances , taxation laws -more than often receipt of notices from depts derail the focus of owners and wrong taxation applied causes unwarranted loss to client or to the owner themselves which then leads to owners defaulting causing mental stress and drop in productivity .interpretation of laws and compliances as per visiting govt officers is more of to demean the employer and make him defensive rather than ensure relative compliance . (2 )finance planning - bank guarantees are becoming order of the day for large projects and it is necessary to load the cost of credit and finance as extended delays in payment on large projects is becoming regular feature and this impacts daily cash flow if not planned at start of project .(3) labour turnover - employees are in ever mode of looking to move elsewhere for better prospects and while key personnel may be well anchored ,skilled manpower shortage can cause grave issues in project execution and completion . mistakes/errors committed by same workforce need to be accounted for at planning stage and close monitoring on implementation needs to be done to avoid irreversible damages/delays .
Family business
RJ | Wed Apr 9 12:00:59 2014
Most of the family businesses today are 4th or 5th generation. Although most of them are successful, the business ethics of the first few generations is almost diminished. The younger members of the new generation needs to learn to give respect and trust the older employees of the business. They need to communicate more with employees and build a relationship to make the organization stronger.They should be more open to employees and encourage them to come up with ideas to grow the business.
Essentials of family run businesses
Ramji Mangukia, Director, Agriland Biotech Limited | Wed Apr 9 06:21:21 2014
Editorial author has quoted many facts and figures that are prerequisite of family run businesses. I loved author's advice on family run business with an instinct of big corporates who led the world. Legal compliance has again should be a welcome step. My suggestion as almost similar to author's model for ideal family run business, is to form a very good and proactive business ecosystem whereby senior employees should be made small business owners. We should give to senior, talented and ambitious employees not only feeling of ownership but the best opportunity to earn many fold more than what they need for their livelihood. They should not worried of their future. Instead should be more and more excited to work with happiest with themselves as well as their family members.
Agree: commitment of family, non-family members the key
Abhijit Kothari | Wed Apr 9 04:16:06 2014
I agree with you. As someone who teaches Family Business Management, the biggest positive that I see in Family Businesses is the tremendous commitment that the family (including the successor generation) has towards the business. A major detractor is the deep-rooted conviction that outsiders (i.e. non-family members) do not (cannot?) have the same commitment. This factor, more than any other prevents growth & progress in small family businesses.
Validating quoted statistics
Michael Woodhouse | Tue Apr 8 23:41:36 2014
The figures on family businesses across the globe are very interesting, but as happens all too often in business discussions, not referenced and so not validated. Too often "80% of statistics are made up on the spot" and business credibility suffers.
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