Dynamics of a family-owned business
Asuccessful business, a dream many Filipinos strive to achieve, is a taxing feat. A successful family-owned business, one that aims to withstand time and generations, is its own distinct beast.
Family-owned businesses, while having a similar structure to large corporations, do business in a totally different manner, as the professional mixes with the personal, which can deter a once-simple venture from growth.
Renowned entrepreneur Francis J. Kong, who serves as an independent Board director of Primer Holdings, Incorporated and Mabuhay Vinyl Corporation, shared that issues on business heritage, resistance to change, and centralized decisionmaking are among the prevailing dynamics that harm family businesses.
"'We've always done it that way.' Those are the six most expensive words in business," said Kong in an SMX Academix forum entitled "Why Build Something That Will Not Last? The Role of Your Company in the Great Commission" held on April 25.
This mindset has fueled tensions between founders and their next generation successors, with leaders entrenched in old practices, senior officers feeling what Kong termed as "FOBO (fear of being obsolete)," and children of business people being hindered from exercising power over the businesses they will inherit.
He listed other dynamics like people fighting old battles, people feeling underappreciated, retention of loyal but incompetent people, less shareholder driven, personal finances crowding company finances, less reliance on outside expertise, and prioritizing generational links over competence.
Dynamics of a family business
While these are prevalent factors that lead to a failing business, it's not incurable. Kong cited four principal factors to be taken in consideration in a family business — size, age, speed, and friends.
"We now live in an age of slow growth and sticky and stubborn inflation, costs of supplies keep on increasing, interest costs alone occupies a major part of our expense. If you're doing business now, you have to understand one important thing. Your head count is an indication of your operational efficiency," he said.
While describing retirement as the "world's longest coffee break," Kong stressed that "age is arbitrary." As long as they are productive, their years of experience, work knowledge, wisdom, and networks and connections will prove to be an asset to the business.
"In today's economy, speed now becomes very important to getting things done. however, there should also be a balance between stability and speed, and the only way you can do that is through achieving. So, what you and I want, is a business organization that grows big but moves fast as well," he remarked.
Lastly, he noted the importance of establishing business partners and keeping them, but advised that "it's better to do business and then make friends, than to make friends first and then do business."
The multitude of these dynamics will remain to breed conflict, especially between founders and successors, but Kong insisted that successors must remain firm in their place in the business.
"Make a business plan, sell the idea, let your parents know you've got skin in the game. Learn how to harness the power of lambing," he said, stressing that founders must also endeavor to respond to their children's insights.
"Many family businesses use that model, and I've seen them rise to greatness. They spur their children, give them opportunity, and they're in the background and [serve an] advisory role. When a mistake is made, they are not scolded because ideas are encouraged for the future. If you block them, humiliate them, scold them, no ideas will come out anymore. They have to provide a safe laboratory for them to try," said Kong.
Keeping the family business alive
There are many roads to success as there are to failure. First and foremost, Kong said next generation leaders must respect the legacy built by their business. As it is an important learning from the past, they must also develop their own vision that is in sync with the company.
While successors may want to drastically change aspects of the firm, they must learn to balance risk and caution by not dismissing their parents' ideas or asking for a second opinion from an expert in the field.