I have written this article in response to several suggestions from my senior students who come from business families and have been either working in their family business or thinking of doing a venture in active collaboration with their families. I have cited some secondary sources to find relevant study material which should fulfil the learning appetite of my such readers.
A family business is, like the name suggests, an actively owned and/or managed by more than one member of the same family. It may also mean that a group of people belonging to one or more families run one business enterprise. In this arrangement, the family exercises control over business in the form of ownership or in the form of management of the firm where family members are employed in key positions. Family business in India is largely caste-based. The succession of family business goes to the next generation.
Multiple generations in a family hold the command to lead the company, set its vision, mission, goals, and objectives, and take all crucial decisions in a family business set-up. They are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack this multigenerational dimension which brings with it unique dynamics of relationships within the family businesses.
The term – Family Business (FB) – has always been familiar to me. I was brought up in a joint family which was involved in the textile business. My thinking was largely influenced by my father and other three uncles who could think and talk of nothing else but business. Consequently, I developed a liking for business. Business jargons like planning business, cost-benefit, growth, and profitability, sounded familiar and natural to me.
Although now I am better known for my work as a Professor, Consultant, Mentor, and Blogger, these have been my new names which I acquired after I turned 60. Before that, for about three and a half decades, I was working in a variety of roles in several organizations like a Chemical Engineer in Nylon Polymerization Unit in Kota, Rajasthan (India), a Project Engineer in a Design & Engineering Company at Jharkhand in India, as Deputy Manager in a renowned Central DFI (Develop Financial Institution) at Kolkata and Mumbai Regional Offices.
I was also an HOD in a Multinational Corporation in Mumbai looking after new ventures and diversifications of a Chemicals Conglomerate and as General Manager (Special Projects) for a large telecom company in Mumbai. I also promoted an independent FMCG company of my own in active participation and collaboration with my family in Lucknow (India). I was the designate Managing Director of this company, managing its affairs daily for almost 14 years in a row.
So, you can see, how my active life of over 3 decades from the age of 24 to 60, I was engaged in business the whole time, either for myself or for someone else who had employed me to take care of production, marketing, project planning, or some other business function. During this period, I had opportunities to put on many hats as an entrepreneur, intrapreneur, profit centre head, HOD, and as a Business Planner. I also handled many exciting roles as a front-line functionary. These experiences provided me with umpteen number of opportunities to learn about business through real-life situations involving both family and non-family businesses.
Some common problems that can occur in family-owned business include:
There can be arguments among family members and others over daily operations. There are differences in opinion about dividing and spending the profit. Many people feel that they are underpaid, but what do you do when relatives are unhappy with their share of the profits? Different opinions do not always produce disagreements. However, the emotional relationships between family members can make it hard to make objective decisions.
If any special allowances are made, it leads to ineffectiveness and a growing perception of unfairness. The roles and responsibilities for all employees, including family members, should be clearly expressed. The authority to suspend or discharge any staff member that violates company rules should also be clear.
A weak succession plan can also lead to serious conflict. So, there should be a strong succession plan that can guide your business through a change in management. The question of who will take over the business, if something happens to the family member who owns or manages it, must be addressed at the earliest.
One of the most common issues in a family business is the pressure to hire a relative. The emotional aspect of family relationships can make it difficult to refuse the request. Try to make the decision based on what is best for the business and not on emotional connections. If you do hire a family member, it should not affect the relationship that you have with other members of your staff.
Holding relatives to the same standard as non-family employees can prove challenging. Some family-owned companies have trouble with high turnover among their non-family employees. An exit interview gives departing employees the chance to explain why they are leaving, which can help you understand why turnover is happening. Once you know what factors are affecting turnover, you can take steps to address them.
Some common practical tips for family business are:
- When presenting new ideas for business improvement, particularly where spending is involved, base your information on facts to provide an objective perspective of what is best for the company. Family members can then make an informed decision based on concrete information.
- You can also hire a business advisor. Relatives will sometimes accept the credibility of advisors – such as bankers, accountants, or lawyers. Paid consultants can also help confirm the value of expenditures for the business and can devote additional time and effort to specialized projects that could require further research.
- Benefits like deferred profit-sharing plans, pension plans, and insurance programs can also be used to divide the profit. Providing benefits can satisfy family members and help them build their personal assets.