Family Owned Businesses
Written by Leigh Rautenbach
Family-owned businesses produce a staggering 70-90% of global GDP, offering huge opportunities for those who do business with or within them, so it is surprising that not more attention is given to the very particular advantages and challenges facing them in a highly competitive global economy.
When PWC released Africa’s Family Business Survey earlier this year, their key finding was that although family-owned businesses are trusted more than other businesses historically, that trust has been eroded over the last decade.
“Family businesses know that the trust of customers and family members is essential, but those businesses need to be more proactive in building trust with their wider key stakeholder groups, especially employees and the general public…” says Andrea Benkenstein Kruger, PWC South Market Family Business Leader. The survey revealed that many family businesses in Africa are not focused on the issues that matter to their customers, like
environmental concerns, equity, and diversity.
We asked seasoned executive search leader, Mike Beaumont, about his experience working with family-owned businesses, and he concurs. “It is well known that the survival rate of businesses beyond the founder’s generation is extremely low. Research suggests that 3rd generation family businesses tend to experience a decline in performance, due to factors linked to complacency like a lack of innovation. Those companies that do succeed beyond 2nd generation demonstrate an ability to reinvent themselves, embrace change, and adopt new technologies in line with changing market conditions.”
In Mike’s experience, succession challenges are the single most important issue facing family businesses, especially the transition from 2nd to 3rd generation. In situations where the decision is taken to bring in an external CEO or shareholders, NOT being able to let go of control is the key reason why succession planning fails. In his experience, only 20% of such situations have been seriously successful. If not successful, the company is vulnerable to a take-over or may actively seek a new majority shareholder/buyer.
The Key to Success: Succession
As family businesses grow, it is important that they retain their unique values and hold onto what made them winners in the first place.
Mike recounts being retained to find a new leader to take over from a talented CEO, who also happened to be the largest single shareholder in a thriving business. “The chairman actually apologised for having handed me a ‘poisoned chalice’, after the CEO always found a reason to reject some potent shortlist candidates! That company was eventually acquired by a private equity firm and unbundled.”
In an agri company he worked with, “…the 2nd generation brothers could not agree – and established competing companies in different locations – fortunately both successful but at huge personal cost.”
As family businesses grow, it is important that they retain their unique values and hold onto what made them winners in the first place. But how to stay innovative, while honouring the knowledge and experience of the founding generation, and bringing in new technologies and approaches that the younger generation has embraced?
Parima Ijaz writes for Forbes Business Council that “with confidence, humility and a collaborative approach” the transition between generations can be as smooth as possible. She put some safeguards in place when taking over the family business from her father – steps as simple as discussing business over lunch together every Sunday.
She also says, “For anyone who might feel obligated to take over their family business, I advise you not to do it unless your heart is in it.”
Mike Beaumont has seen family-owned businesses rise and fall, succeed and fail. He agrees with Parima that “open communication, shared strategic vision for the
future and effective conflict resolution can mitigate the challenges associated with family relationships.”
With a wealth of experience and grounded knowledge, he continues to collaborate with family enterprises throughout Africa.
Contact Mike: mike@talentnetworkglobal.com