Definition of family business A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being. A business actively owned and/or managed by more than one member of the same family or a corporation that is entirely owned by the members of a single family. A business actively owned and/or managed by more than one member of the same family .
Stages of Family Business Development The typical family business goes through four stages in its development: 1. Entrepreneurial 2. Functionally-Specialized 3. Process-Driven 4. Market-DrivenSource:http://www.isb.edu/FamilyBusinessConference/India%27sBusinessFamiliesDefiningtheRoles.pdf
Example : Dabur India Ltd.In 1884, SK Burman began a direct mailing system to send his herbal medicines to villages from his shop in Calcutta. His mission was to make available healthcare at affordable prices to all people.In 1993 in order to grow, the company needed to go public. Needless to say, family members were somewhat sceptical.Source :http://www.dennisjaffe.com/articles/DaburFamily.pdf
Six key aspects of Family Head of the family takes all decision. All members live under one roof. Share the same kitchen. Three generations living together (though often two or more brothers live together, or father and son live together or all the descendants of male live together) Income and expenditure in a common pool- property held together. A common place of worship. All decisions are made by the male head of the family.
Problem with family business The interest of one family member may not be aligned with another family member. Example: a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business.
Common Family Business Issues,Deciding…• Who will participate in the business?• How leadership and ownership will be transferred?• How to help the founder change roles or leave the business?• About liquidity and estate taxes?• If and how to attract and retain non-family executives.• About family compensation – equity (genes) or merit.• How to choose successors?• How to strengthen family/shareholder harmony?
Communications, conflict resolutionand decision making require. Formalized structures Agreement about how to do these actions A safe environment in which to conduct the business (often requires a neutral facilitator) Separation between business and family And what else?
The strategies behind successful family businessis tied directly to how well a company managesthe five unique resources every family businesspossesses. Human capital. Social capital. Patient financial capital. Survivability capital. Lower costs of governance.
PROPOSITIONSProposition 1: A business firm may be considered afamily business to the extent that its ownership andmanagement are concentrated within a family unit.Proposition 2: A business firm may be considered afamily business to the extent that its members strive toachieve, maintain, and/or increase intraorganizationalfamily based relatedness.Proposition 3: A business firm may be considered afamily business to the extent that its ownership andmanagement are concentrated within a family unit, andto the extent its members strive to achieve, maintainand/or increase intraorganizational family basedrelatedness.
Families exist to care for and nurture their membersand provide safety and refuge in an impersonal world.Success in family is measured in terms ofharmony, unity and the development of happyindividuals with solid and positive self esteem.Business, however are economic entities wheresuccess is measured in terms of productivity andprofitability Ownership is based on yet another set of rules. Success for owners is measured in terms of return on investment, protection of ownership interests and in terms of owners values and philosophy of business.
CHARACTERISTICS OF A HEALTHY FAMILYBUSINESS Individuals can manage themselves and relationships with others Family has the ability to resolve conflicts with mutual support and trust Boundaries between work and family are appropriate and respected Knowledge is used wisely and isnt blocked by unresolved relationship problems Communications are open and clear Individuals are flexible and able to use advisors wisely Family has the ability to make decisions and move forward Family is clear about goals and navigates towards the goals Family has good direction and leadership Transitions are managed and marked by rituals and Intergenerational boundaries are appropriate and respected
CHARACTERISTICS OF AN UNHEALTHY FAMILYBUSINESS The family has poor communications skills and is unable to manage conflict There is low trust between family members The goals and values of the family are unclear Family members’ roles and obligations are unclear The business lacks a sense of direction and does no strategic planning The business lacks sufficient expertise – the family tries to do it all There is little thought to succession planning There is little collaboration between the family and non-family employees There is not a functioning board of directors There is no one to turn to for advice and help with key problems Family issues spill over into business issues and vice versa and Boundaries between work and family are unclear