Familiar FAMILY-business faux-pas

A family business for many of us conjures the images of the neighborhood grocery stores selling from bread to batteries. Over four-fifths of businesses are family-owned, generating over two-thirds of global GDP, with mom-and-pop shops forming the bulk.

Strange as it may seem, but over 70% of the family businesses do not last over one generation. Family businesses run the world, and yet most of the time, they themselves cannot comprehend how to continue running. 

The biggest mistake family businesses commit is finding it difficult to handover the business baton to the next generation. Squabbles over succession and patriarch’s belief that he is indispensable, kill generational entrepreneurship.

It has been observed that when the patriarch hands over to the next generation, most businesses fail. This is the ‘crunch time’. It will be a mistake if business families do not take heed to this historical evidence. 

Let us take a few recent instances where lack of foresight on the part of immensely successful patriarch may kill their business in the near future. The veteran Italian octogenarian designer Giorgio Armani has not announced who would replace him at the helm of the company. A similar story goes for the other fashion designer known world over – Roberto Cavalli. He too has so far failed to find someone to take over the company that bears his name.

These two instances of Italian fashion gurus not deciding on their successors could be recipes for an impending disaster when it comes to maintaining the legacy of the hard work done to build the internationally known high-end style brands.

Statistically speaking, globally 1 in 2 families will need to pass their baton to their next generation in the next 5 to 7 years. Just imagine the risk these businesses run, if they do not handle the next-generation transition well. Theoretically, there is a fifty percent chance that these businesses may turn turtles sooner than later!

What is the lesson to be learnt from the mistakes of many?

Do as good chefs do for complicated recipes – break it up into stages and cook!

To avoid internecine tussles and to display professionalism, business reigns could be handed over in stages. First hand over the management control and ownership. The founder-entrepreneur could pass on the management to his children or siblings retaining the shareholding with himself. This is a good way to handle a generational transition.

Bharti, Bajaj, BMW, Fiat, and Ford have executed generational change very well down the ages.

Not taking seriously successful succession subjects will be a grave disservice to business continuity.

                                                                                                                          

To Know more about Family Business faux-pas check out our latest book Who Blunders and How? by Robin Banerjee 

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