Entrepreneurship

Family Business Plans – How to hold them together?

During these years of growth, since independence, family driven businesses have contributed significantly towards the economic growth of our country.

In last six decades of independence India has transformed itself from being and underdeveloped nation to a leader in the emerging markets and has created a mark for itself.  Especially in last two decades the economy has grown significantly and is marching towards becoming a super power.

During these years of growth, since independence, family driven businesses have contributed significantly towards the economic growth of our country.  Today more than 85% of businesses in India are family driven.  On one hand when the country’s economy is doing so well business families on the other hand are disintegrating.

Research shows that less than 8-10% of family businesses survive for three generations. Let us take a look at the Indian business families and you will realize that most of them have disintegrated before the business moved from one generation to the second or from second to the third. And ironically the companies that these people created typically survive for decades.  When the companies they created have managed to stay together, then why can’t these families who own these companies make better business plans? Family businesses need to realize that they don’t need to stay together but they must learn to co-exist together. That is what Family Business plans are all about.

This goes back to our ancient History

Is this a new issue in our society? No, we can trace these family squabbles way back to ancient mythology.  And yet, we haven’t learnt from our past. If we take a quick glimpse into history, we realize that most of the kingdoms lost their legacy and fortune mainly because they fought among themselves. Brothers and families fought with each other and in the long run lost everything they had. Not because they were not brave or capable but because they didn’t have the larger perspective in mind. They fought for power and wealth. Power is more mind driven and intangible BUT wealth is very tangible.

Have things changed now?  We can broadly classify most issues or challenges we face into tangible and intangible ones. Tangible issues like wealth, stake, properties etc. could be a significant reason for most disputes. And this happens due to lack of clarity & a sense of insecurity which then leads to litigation. We read a lot about such issues in the news, even today some industrialist brother is fighting with his own brother for more stake and share in the business. Political parties’ cubs fight for wealth, a developer’s son and father file cases against each other and so on.  A significant number of business families take to the court to resolve their disputes. The unfortunate truth remains that most of these issues could have been predicted and handled better by the patriarchs.

How to form effective Family Business Plans?

Instead of fighting with the competition and creating more market presence we tend to in-fight and expend our energies unnecessarily.  Mukesh and Anil may have arrived at a settlement between themselves but have they planned for the next generation? If not, then, will the history repeat itself?

 

Are these problems always related to tangible issues? NO.  Let us take an example from a popular mythology lore, Kai Kai had issues with Ram being a successor to the throne instead of her son Bharat. In this case was wealth a litigation factor?  May be not. It was more about why him and not me? syndrome. Such is the nature of intangible issues. More often than not, we are all fine till we are ignorant about what the other person owns. Once we do, the real problems arise.

 

I remember my own life before becoming an entrepreneur – most issues started when I got to know that my colleagues got a salary hike or promotion etc. This is not restricted to corporate life alone but is a common human tendency.

My own Learning

I have dealt with a number of business families and three issue top the charts:

  • Lack of clarity,
  • Patriarchs not ready to let go
  • Procrastination

Most of these issues are predictable and can be addressed well in advance. Why do you want to wait and push things till they get too far? Work with a family business advisory expert and have a family arrangement drafted with a formal family business plan in place where all the members can arrive at an agreement and follow it. Do it when things are fine and issues haven’t blown out of proportion. The cost and pain of going through litigation is far more than dealing with family complexities.

 

Earlier, I mentioned that companies set up by these family businesses have survived for longer and this is because of multiple reasons. I believe that this is mainly because processes, policies and systems are well defined for companies. All stakeholders have clarity on what needs to be done. The promoters are running and managing the company and they know their duties, the shareholders know that they will get dividends and the employees know that they will receive salaries. We can use the same methodology for families too, so that they can survive over and beyond the first generation.

 

So my dear business families don’t delay and duck. Be wise and proactive.

 

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