The Hindu Business Line : Family business mantras

Many family businesses have recently begun to enjoy the fruits of rapid growth and success; but this has come at a high price since business and family are intertwined.

V. K. Madhav Mohan

New found economic freedom has unleashed entrepreneurship like never before in India. A combination of market opportunities, easier access to credit and fewer controls has motivated millions of people to take their economic destiny into their own hands.

Over the last 10 years, family businesses in India have grown substantially both in number and size. Many families have ventured into business for the first time and many business families have launched ambitious growth plans.

Family Business Dynamics

A business enterprise owned and managed by a family can broadly be categorised as a family business. The constitution of the enterprise can range from proprietorships to partnerships to companies.

While the financial ownership may vest entirely with one individual, many members of the owner’s family may hold positions of responsibility within the enterprise. The logic is to “keep all powers and ownership within the family”; therefore these enterprises exhibit a marked differentiation between employees and “family” even though many business owners proclaim that all employees are part of the family.

When a family plunges into business, the dynamics of familial relationships change forever.

Added to the familial roles is the weight of business responsibilities, financial risk and that old human failing, greed. The interplay of these complex factors can often unravel the closest of families; to retain the stability, affection and loyalty that keeps families together takes immense sagacity, maturity and generosity from all concerned.

Leadership & Role clarity

Leadership and role clarity is a foremost requirement for the success of a family business. Is the head of the family the defacto head of the business? Does he or she have the knowledge, skill and dynamism to lead the business ? If not, does a younger member of the family posess these attributes? When the head of the family is not automatically the head of the business, discomfort can arise if the roles are not clarified. In fact, which member of the family is responsible for what in the business needs to be specified clearly; this is the first responsibility of the business leader. Otherwise, family members will trespass into each other’s area of interest and cause strife.

Separating family AND business responsibilities

In the corporate or business environment, managers can put in a full day’s work, however stressful, and then go home to a completely different environment.

This luxury does not exist for people engaged in a family business environment. Since most often, they also actually live with their business associates and colleagues, the stresses can spill over into the home. This is particularly true of immediate families working together in business.

What impact can the business partner relationship have on, say, a husband-wife relationship when both are working together? Devastating, unless extreme care and understanding is exercised by both individuals.

Carrying the boss-subordinate relationship into the home is a recipe for disaster! In such a situation, it is very important for each person to understand who is the leader in the business and conduct himself or herself accordingly.

It is also vital to appreciate that the home is a place of harmony, security and love. Business differences and indeed meetings should not be extended into the home.

It is, of course, extremely difficult to manage these differing roles and relationships harmoniously.

People cannot switch between family and business relationships in real-time because they are integrated human beings; they carry thoughts, emotions and feelings from one role to another.

Therefore these thoughts, emotions and feelings must be understood, recognised and addressed by each person concerned. That takes a lot of effort, commitment and love but this is mandatory if relationships are to last.

The easiest thing to do is be totally self-centred and wade into the other person’s time, space, thoughts and self-confidence; you can then be sure to lose not just the business relationship but also the family.

Living within budgets

When you own a family business, it is natural for you to dip into the till for your personal needs as and when you feel like it. But that guarantees bankruptcy.

No business, however large, can withstand frequent onslaughts on working capital for ad hoc personal needs.

The business has to be viewed as being separate from yourself; it is in fact a living, breathing organism on its own with a need for cash like your own need for oxygen.

If you suck cash out of the system defaults will occur sooner or later. Even if you withdraw cash to take advantage of exciting new investment opportunities you’ll endanger your existing business for sure.

It is therefore critical to decide to live within personal and business budgets. This translates into fixing salaries for family members (based on needs, contribution and affordability) and eliminating all possibilities for ad hoc withdrawals.

The business too needs budgets for sales, cash and capital investment followed up with monthly reviews and constant monitoring. Planning is the key to maintaining growth and stability both in the business and in the family.

Professionalisation

Many family businesses have recently begun to enjoy the fruits of rapid growth and success; but this has come at a high price since business and family are intertwined. Expansion of size, scope and complexity requires expansion in managerial and leadership bandwidth. New skills, capabilities, knowledge and competencies are required to sustain growth and survivability. Therefore, family businesses have to induct professionals who can lead the enterprise into the next phase of growth with consolidation. This naturally means learning to delegate and support rather than micromanage. Professionals need time, space, respect and of course, accountability to operate.

Bringing children of the family into the business is complicated and exciting. The short answer to that is to ensure that young scions don’t assume that they can just walk in and take over. Instead, they must learn the ropes by starting at the bottom and earn their spurs. Then, when they understand the business and have earned the respect of the team they can be elevated.

As the Indian economy powers on, family businesses are bound to increase in size and importance. The social contours of India are beginning to reflect the impact of entrepreneurship on a grand scale. By understanding the nuances of managing business and family relationships, entrepreneurs will guarantee the financial and emotional future of their families and employees.

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