In my previous post, I shared with you the six fundamentals for small businesses to survive and scale up their business. Many of these small businesses are or aspire to be family enterprises. Let us now look at the family dimension.
Forbes says ‘70 % of the family-owned businesses fail or are sold before they are passed on to the second generation and almost 90 % don’t make it to the third generation.’ It need not be so if business families receive expert advice, mentoring, and coaching. After all, a large majority of Fortune 1000 firms are family firms that have survived and grown over several generations.
Here are six fundamentals for a business family to succeed.
First, family business leaders are required to make their business successful. If your business is successful, family unity & happiness are easier to achieve and there is a greater chance of the next generation wanting to join you to perpetuate your legacy.
Second, the family is an emotional entity. Relationships among the significant members of the family are required to be healthy. Differences are bound to arise. Mechanisms must exist to anticipate and manage differences and avoid conflict.
Third, a family member is required to understand when to play the role of a father and when to play the role of Chairman, when to play the role of a sister and when to play the role of an Owner. Each family member is required to learn to wear multiple hats so that the business is run objectively, and the family is run with love and care.
Fourth, passing the baton is a long process of preparation running into several years. Start early! Groom the next generation, make the business attractive to them, invest in their formal education, develop their business intelligence and emotional intelligence and get out of the way when they are ready.
Fifth, allow family members to experiment, start new businesses, but with your criteria of return on investment, family values, and ownership criteria. This will ensure that the spirit of entrepreneurship burns bright from generation to generation.
Sixth, as the business grows and the family expands, the family should gradually move from operational role to strategic role and eventually to investor role. This healthy distancing requires self-control, careful planning, and gradual implementation. That is how the family would be able to continually create the capacity to scale up.
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Business families need not suffer a high rate of mortality if they are willing to receive expert advice, mentoring, and coaching.