Family businesses have been seen to flounder following the demise of their founders. Sometimes, the founders are alive, but internal squabbles arise that lead to the business going down.
Just recently, Nakumatt Supermarkets, a regional retailing powerhouse, shut doors as suppliers, creditors and landlords circled viciously demanding their dues. The family business ran by Atul Shah was founded by the embattled CEO’s father Mangalal Shah decades ago.
Wealthy and influential people who have built massive empires have left them to crumble at the hands of their heirs. Kenyatta era political bigwig Njenga Karume left behind riches that have seen his children engage in endless court battles, with John Michuki’s children wrestling over their father’s large empire too.
A study by PricewaterhouseCoopers showed that 70 to 80 per cent of businesses are family owned, which is a huge number of all registered businesses in the country. So what separates family businesses that live on and those that die?
1. A (clear) succession plan
Nearly half of family businesses don’t have a succession plan in place, and only half of those that do have it clear on specifics such as who should administer the business in the case of the founder’s death. Oftentimes, business founders are too preoccupied with running the business and end up ignoring the fact that time will eventually catch up with them and they will have to ultimately leave the scene.
Most of them are, as well, hesitant to leave their passion with someone else and finally die without having crafted a plan to ensure their exit does not lead to the business’ collapse.
A good business plan, a roadmap to business success, is a written document describing the nature of the business, matters such as sales and marketing strategies, and the financial background of the business, and containing a projected profit and loss statement. It may also include the heirs of the business.
What to do: Strive to empower people to take up your roles when you are gone because at one time, you will have to exit and if the handover is not done to well-trained and qualified persons, the businesses will not survive.
2. Professional management
There is no proof that business acumen is inherited. On the contrary, there are so many examples to show that it is not. As such, there might be need to delegate management duties to people who are not members of the family, but are well acquainted with the necessary skills of management.
This enables the business to run professionally even after the founders’ exit. However, most heirs to a business are unwilling to allow “intruders”, or outsiders, into the secrets of family business. They end up struggling with complex managerial tasks often failing incredibly. Take it upon yourself as a founder to have professionals handling tasks the heirs can’t.
3. Methods of operation
The observance of a business culture is often damaging to businesses. Some successors are adamant to stick to the ways of founders, in spite of changing times and trends, unaware that the founders took a certain route as it was the most appropriate at the time and based on trends of those times.
The belief that because the business was founded on certain principles and mode of operation and thus that has to be maintained to keep the business running is an oft damaging one. Businesses have to be innovative, inventive and the managers able to identify changes in market trends and adjust accordingly. Business heirs should be creative and open to new ideas, steering the business steadily in spite of possible deviation from the route taken by the founder.
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4. Social networks
Most founders are able to grow based on their abilities to create vast social networks. Starting from scratch, they create connections with suppliers, customers and other partners to grow their businesses. At some point, the businesses become synonymous with the founders such that when they finally leave the empires, the heirs are devoid of contacts to continue with the business.
Ensure that you arm potential heirs with skills to maintain and expand the social networks already in place while creating new ones. You should also link them to the very people that are the business’ support system and help them grow the connections.
5. Debt management
On mutual understanding with suppliers and creditors, there are so many businesses that are run on debt. The founders, having made deep, near-intimate connections with relevant parties, are able to keep creditors at bay as they navigate running business. Some of these businesses end up accumulating huge debts.
It thus happens that at the death of the founders, such businesses collapse as creditors lumber in, demanding for the payment of their dues. Founders should ensure that they have a good plan for debt repayment before their exit. Further, they should as much as possible avoid debts whose recouping would signify a business’ death.
6. Interest levels by heirs
If you started a textile business and then had children who, even if they helped you out in the business, ended up developing absolutely zero passion for tailoring, then it is expected that the business will end up collapsing. If the heirs are not mildly interested in taking the direction of the founder, that is recipe for failure.
A lot of times, they will be passive in the running of the business, lacking enthusiasm in decision making and other matters in the business. You should early enough, identify if your potential heirs are interested in business or if, indeed, you should bring in someone from outside the family to take over reins when you finally leave.
7. Distinction between family and business needs
The profits made should be set aside purely for the enlargement of the business empire. Needs of the business should not be overridden by those of the family. But most businesses make mistakes at this. When family and business matters are put in the same basket, even management of funds and personnel becomes difficult.
Managing people becomes a hassle as no one is willing to harangue his own family member over undone work. Usually, money meant for business growth will go into family matters. This hugely dents the business as results become slim. Business people should always strive to keep family matters as far away as possible from business matters.
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