SUCCESS IN FAMILY-OWNED BUSINESSES: THE FAST FACTS ON FAMILY BUSINESS
International consultancy firm, Vector Consulting, says the success of family-owned businesses is anchored on six pillars that guide their growth in uncertain markets.
This comes as family businesses across the globe play a critical role in economies contributing immensely to job creation.
They may start small but most of them have grown into large conglomerates with the Meikles group being one such example in Zimbabwe.
Most budding small to medium enterprises in South Africa are family businesses.
Profitability, risk, debt management, discipline, directorship and governance are the key areas that make family businesses successful,
85% of start-ups are established with family money ( FFI Data points)
70-90% of the world’s GDP comes from companies which are majority owned by a single family
Globally,33% of family businesses survive beyond the first generation, to subsequent generations.
In Africa though, only 2 % of family businesses last beyond the first generation. as identified by Vector founder and author Mr Ahmed Seedat.
On risk, Mr Seedat indicated that first- and second-generation families are risk-averse, cautious in their decision-making, and they manage their decisions with culture, norms and values. All decisions are made following careful consultation while debt management is crucial with families growing their businesses organically and take on as little debt as possible.
“This is because debt is viewed as a step towards greed,” said Mr Seedat.
According to the consulting firm, while directorships are assumed, there is a paradigm shift being witnessed, with families populating their boards with non-shareholder or “gene” directorships.
The firm maintains directorships are evolving from the later phase of the second generation to the third generation.
In addition to that, a balanced board brings
about better governance with family shareholders and independent directors which is better for all stakeholders.
On profitability, Seedat said: “The expenses are diligently controlled and there will be no venturing into products they don’t understand.
“Their capital base is adequately deployed so as to earn a desired return on investment. They work on a determined margin that has proven to be effective, investing profits conservatively to mitigate statutory payments in later times.”
On the last pillar, which is discipline, Seedat says the first generation instills discipline into the second generation, which then thinks out the box.
However, the second generation needs to be shown the correct methodology, to present ideas to the family in a disciplined manner, ensuring respect is maintained, according to the consulting firm.
Seedat said new entrants into business needed to be cognisant of these six pillars while understanding the culture of the business, the supply chain relationships and the stakeholder relationships.
Family-owned businesses are recognised today as an important and distinct organisation in the world economy and operate in every country. According to Reference for Business, more than 90 percent of the companies in North America and a majority of businesses located around the world are family-owned.