Family Business Succession and Growth

Presented by: Rikita Agrawal (26) Pallav Pandya (19)

Entrepreneurship Development Institute of India (EDII)

Family Business

• A family business is a business in which

– one or more members of a family have a significant ownership interest

– significant commitments toward the business overall well-being.

– where the voting majority is in the hands of the controlling family including the founder(s)

– intend to pass the business

Some important facts about FB

• 90% ventures owned and managed by family

• 1/3rd (around 33%) of which survive till 2nd generation

• 10% till to the 3rd generation.

Building Blocks

• Major building blocks which responsible for the health of any FB are;

– The family

– The business

– The individual

Frequency of Conflicts

• 42% family businesses dealt with conflict three to four times per year

• 60% dealing with particular issues before a larger conflict

• 40% no communication about conflicts until a crisis takes place

Advantages

• Commitment

• Knowledge Continuity

• Reliability and Pride

Disadvantages

• Hesitates in appointing outsides talents

• Believe better to be 100% owner of stagnant business than to be 80%

owner of a growing business

• Lack of trust on next generation

• This high rate of failure among family businesses is attributed to a multitude of reasons. Some of these reasons are the same ones that could make any other business fail such as – poor management,

– insufficient cash to fund growth,

– inadequate control of costs,

– industry and other macro conditions.

Common reason for the failure of any form of business

Reasons for the failure of FB

• Complexity

• Informality.

• Lack of Discipline.

Conflict occurs?

• Lack of communication

• Lack of proper definition of boundaries

• No shared vision and mission

• The goals of a given family member does not harmonize with that of the family business

• Lack of information

• Disbelief of leaders in next generation

Conflict GOOD or BAD??

• BAD – Takes away attention from critical business issues

– Undermines self worth

– Leads to division / faction information

• GOOD – Results in clarification of important issues

– Leads to solutions to problems

– Encourage people to think differently

– Generate new ideas

– Help release emotions

Addressing these

• Annual Family Business Retreat

• Monthly meetings

• Governance structures such as a Family Council

• A written and shared Family Mission Statement

• Defining the operational systems

• Creating entry criteria for new entrant

These measure always solve conflicts ts

• Not always

• Many times these issues measure dose not solve conflicts & leads to litigation & hence breakup of Family business

• Which in turns results into decreasing economies of scales

• Also the business which was successful due to varied skills of different family members which is spread due to breakup such business flops when divided

Types of growth

Organic growth

Inorganic growth

• A business grow organically means that the company is using internal funds to expand the business, rather than purchasing another business or thru other partner-sharing business. An example of organic growth will be increasing capital using own money.

Organic growth

Inorganic growth

• A growth in the operations of a business that arises from mergers or takeovers, rather than an increase in the companies own business activity.

• Firms that choose to grow inorganically can gain access to new markets and fresh ideas that become available through successful mergers and acquisitions.

Succession plan

• Confidence level of family in next generation

• Entrance criteria had to be build

• Delegation of authority

• Choice & timing of successor

• Grooming of future leader

• Emergency transition Arrangement(EMT)

• Prepare FMS (Family Mission statement)

Ensure growth by ensuring proper governance

• A proper governance by making

– Family council

– Family assembly

– Business Board

Role of leader

• To develop mechanism for;

– Control

– Careers

– Capital

– Conflict

– Culture