A Family business is that where the ownership of the business is controlled by the family members who play an effective role in significantly influencing the growth of the business and passes on the control of the business from the current generation to next generation. It is one of the oldest as well as the most common forms of business. A family business also can have the family as owners while being managed by individuals who are not part of the family.
Role of Family business:
Family Business presently plays a pivotal role in the transformation of enterprises. It also engages in contributing to the economic development of the country through the morality of entrepreneurs, philanthropy and wealth advisory. The family business is seen as creating value locally with the Three circle model of family business system offering high-quality services and products, listening to customer needs and Feedbacks.
Based on a recent survey, 89% of family businesses in India use bank loans and credit lines to fund their business. Internal sources such as cash flows and family funds are also a lucrative option. Private equity (PE) and venture capital funds, as well as the stock market, are the final option for many family businesses.
‘For a good life, one needs to work and to love.’Sigmund Freud
How can family businesses be reinvented to grow faster?
Parallel planning is required to ensure that the success of the business does not create chaos between the family and the business. The key principle to look for is the capital, control, careers, conflict, and culture. It makes sure that the members of the family are interested in the business and play an active role in achieving the goal and objectives of the business.
The fair process lays a foundation for continued family participation over generations. An empirical study of strategic decision making in business emphasis that fairness displayed in the business showed a higher level of trust, commitment, and transparency that improved the performance of the business.
It positively affects not only individual satisfaction and acceptance of outcomes, but also generate greater compliance with the resulting decisions.
The most significant way in reinventing the business to grow faster is Adaptability – adjusting to market trends and new developments.
“We have always done it this way’’ – change management is a challenge when it comes to the family business. The struggle to go out of the comfort zone and take risks.
Strategies for Reinventing the family Business
Change Management: ” Tradition is not about worshipping of ashes but keeping it burning” said by a 2ndgeneration businessman when asked about the change management. Thus, said it is essential to rely more on being innovative rather depending on past ways.
Family companies have much to gain from professionalizing – Employing an outsider(professional) to keep count of the financials and policies will aid in acquiescing, making decisions easier.
Empowering women: Women Play a huge role in empowering for innovation and business success reaching new heights in the family business. Although in India the change is gradual compared to other nations still it is well appreciated and well needed to bring women in the forefront. Roshni Nadar Malhotra, Nisaba Godrej, Nandini Piramal, The Reddy sisters are some of the examples of women in family business forging their own path with ease.
Establishment of business: The key facilitator of growth is expansion into new markets/territories. Matching the cultures of the business and the family with the equity partnerthat they bring on, that’s important in the growth of the business.
The difference in the business: A Harvard school program Faculty chair advice that “when differences cannot be bridged in the business, execute buyouts in a way to maximize the momentum of companies and the future growth of family assets”. Family leaders who disagree or whose interests diverge can create much more wealth apart than together. The best example here is the Ambani brothers.
Next Generation: The next generation is the trendsetters for family businesses. They are brimming with ideas, knowledge, and information which can be implemented for faster growth.The young generation is capable, responsible and instrumental in the creation of large wealth. The experience of elders combined with modern knowledge and information as well as the passion of the next generation is the key to success.
Starting from the basic position in the business to attending board meetings even before a formal seat in the business. Even gaining experience outside of the family business,thenew generation is also keen to have alliances and a joint venture in India and overseas. Following the next-gen approach in financial services, Abhimanyu Munjal, of the India-based Hero Group, said they are incredibly successful. Tarini Jindal Handa of Jindal group, Rishad Premji of Premji and Jahan Tahiliani of Tahiliani homes are some examples.
Growth through Digitalization: Family businesses need to be deliberate about their adoption of technology for innovation purposes. Creating decentralized poles really paves the way to build local capacity, expertise, and economic growth. the race to embrace intelligent automation and machine learning (artificial intelligence (AI)) is an urgent priority for the family business to transform and reinvent their business.
Based on research, the next-gen leaders feel it is important to have a strategy in place for the digital age. This could very well be the reason why most lay emphasis on the need for a clear-cut, mid-term strategy, along with a clear and documented long-term plan. Networking is also a significant factor in the growth of family businesses.
Balancing of family harmony and the value of the business, keeping it protected and enhanced, Having Intimate knowledge with an understanding of industry developments gives an advantage in the family business to grow faster. The synergy lies in the strength and the values of the business.