Multi-generational family owned small business, and their secret recipe

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While family run businesses are backbones of many econimies, their longevity is often dependent upon the founder. In this paper, we describe some novel approaches family businesses pursue to sustain multi-generational enterprises

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Multi-generational family owned small business, and their secret recipe

  1. 1. Browne and Mohan Board & CEO Advisors, Management ConsultantsSustaining Multi-generational family business
  2. 2. Browne and Mohan Board & CEO Advisors, Management ConsultantsFamily run businesses are a significant segment Most successful families created space for theof any nation’s industrial structure. 5% of US elder siblings to graciously side-step and allowGDP is contributed by family businesses and younger, more focused leadership to emerge.35% of Fortune 500 is family owned. They Family elders played a significant role ingenerate close to 50% of employment and 59% establishing the business parameters,of all new job creations (Institute of Family discussed and communicated the same acrossowned business, 2011). multiple interest groups to buy the succession plan well in advance.In India 95% of business are family run, and 30%of BSE listed companies are family owned (CII, Case in point is a Bangalore based trading and2010). Multi-generational family run business real-estate business family, which realisedare commonly involved in trading, textiles, despite being a Charted Accountant, the elderhospitality, healthcare, accounting, agro-based sibling of the family of six, did not have theindustries. According to Small Business zeal or intensity to carry the business to nextAdministration Office of Advocacy, only in one level. The third sibling with background inin three businesses succeed in making from one engineering, good admin skills and ability togeneration to other. There are no official figures network with power be was identified as thefor closure/exit rates in India, but informed next family leader. The elder sibling continuesestimates are one in five businesses survive to be invested with all the ritualistic values inbeyond second generation. Many family run a traditional Marwari family, and the businessbusinesses life span is highly correlated with growth has multiplied many folds.their founder.Our experience indicates successful family run 3. Plan and go geographicallybusinesses have few things in common. Going regional and international is very1. Diligent accounting and thrust on profitability important for family business. One they offer spread of existing business, but moreMost successful multi-generational family importantly hold the interest of nextbusinesses believe in managing with numbers. generation to continue and expand the base.Often the family dinner times are quick and dirty The promise of new land and new countryreview on day-to-day basis and a formal business helps in continual investment in the familyreview monthly. Major expenses are reviewed business, but also can add reverse flows to theand risks are discussed. In a novel method, one parent overtime. A leather company in Agraof the Sindhi family made this a ritual to be over two generations has pursued a simplediscussed in their prayer room and all major strategy of moving its eligible next generationfinancial discussions were done under oath. family member into key cities in India first.2. Succession based on capabilities and passion, Over time, it moved couple of newly wed NOT on tradition or gender families to Russia, UK and USA. Over time, each of these nodes not only do substantialIn cultures where first-born enjoys higher share imports from Indian parent, but also haveand is considered a natural leader, many families diversified into exports to India and otherbuild their succession on the tradition. markets.
  3. 3. Browne and Mohan Board & CEO Advisors, Management Consultants4. Empower and Mentor early Brand recall, upselling and economies of scope across generation are the benefitsOnce a future leader is identified, successful gained the family gained.family businesses start mentoring the personthrough on-the job exposure and empower him 6. Create a corpus for growth andto learn and implement changes. An IT company challenging timesinto 3rd generation ownership has an interestingtriad of mentoring process. Two CEO’s who had Like families saving for the rainy days, mostgrown the business doing an informal mentoring successful family business believed inand an external professional guiding the investing for a corpus to fund expansion anddesignated leader on formal process and decision growth. The funds were administered by amaking. professional investment group and the inter- generational leaders had mandates to plough5. Preserve roots and diversify in x% YoY as the corpus. They set explicit rules for dipping into these reserves andMany successful multi-generational businesses what process to follow.diversify and build around the personalities andinterests of each generation. The idea is similarto a Bricolage, allowing each generation to add 7. Create rituals and process forand extend the enterprises and cash-in the intergenerational bondingrelational assets built across generations. Someof them devised simple mechanisms for The adage family that eats its meals togetherbreakouts or cashing out by next generations and stays together is apt for success of familydesigned appropriate methods to preserve business too. Successful business familiesmultigenerational legacy and continuity. used festivals and rituals to bond, create relationships and preserve the club. FamiliesA third-generation jewellery family in Chennai, also used these occasions to mollycoddlehad a peculiar problem. It was located in elder siblings who have been replaced ontraditional area of Chennai, most of its current business front, and reinforce their positionsclients were in the age group of above 50’s. They and value in family tree. One Gujarati familyhad three traditional gold jewellery shops that into timber business for last 3 generationshad crafted pendent, chains, etc. against an had an interesting Hundi concept. Allorder and with newer make-to-stock Kerala branches of the family contributed 2% ofbased jewellers entering the market they were their revenues which was used for threeunable to attract newer customers. Their current purposes: education, pilgrimage, andgeneration wanted to look beyond traditional investment. Only 15% of the contributionsbusiness and the family invested in two could be used for education and pilgrimage.businesses, traditional attires and other The allocations were chaired by the seniortraditional art. The clients for all the three most siblings of multiple generations tobusinesses were common, 73% of them being ensure all family members get their turn tomulti-generational clients for the parent. tour and rest. However any investment
  4. 4. Browne and Mohan Board & CEO Advisors, Management Consultantsrequired formal family votes by all the family Browne & Mohan insight are general in nature and does not represent any specific individuals or entities.members. While all efforts are made to ensure the information and status of entities in the insights is accurate, there8. Plan and infuse professionals can be no guarantee for freshness of information. Browne & Mohan insights are for information and knowledge update purpose only. Information containedSuccessful family business realise the value in the report has been obtained from sources deemed reliable and no representation is made as to theof bringing in professionals. They can bring accuracy thereof. Neither Browne & Mohan nor itstransparency, drive and divergence to the affiliates, officers, directors, employees, owners,business and can propel new directions. representatives nor any of its data or content providers shall be liable for any errors or for any actions taken inMany business families also bring external reliance thereon.professionals to mentor their wards to givethem the advantage of 3rd party neutralinsights. Successful family business brought © Browne & Mohan, 2012. All rights reservedin professionals after a thorough vetting my Printed in Indiamultiple generations and activelyencouraged dual reporting (to two differentgenerational leaders) for the outsideprofessional to ward any leanings andquicker induction.

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