A majority of the world’s wealth is created by family-owned businesses and worldwide, family-run enterprises remain a force to contend with. On delving deeper into the business landscape, one discovers that most successful businesses or corporate groups are managed by resilient family enterprises. Research indicates that family enterprises are more successful than their non-family counterparts and boast of long-term financial performance and robust revenue growth.
Privately-owned enterprises play a pivotal role in driving economic growth, more so in emerging markets. Such businesses support ecosystems by creating jobs at scale as well as revenue streams, thus providing numerous opportunities for stability and sustenance of their surrounding communities.
According to reports, 90 percent of the world’s companies are family-owned. In the Indian context too, a successful family-run enterprise is often considered the backbone of our society and family enterprises are an integral part of our culture. But how do these family-owned businesses continue to thrive in today’s competitive environment?
Primarily, because most family businesses are not only well founded but also well-run. They understand
the delicate balance of purpose and trust, of tradition and change, of financial flexibility and frugality. “Family” is the operative word here; family businesses lay a high premium on people. Family businesses consider each interaction as a unique opportunity to build trust. They harness and nurture employees, customers, communities, and the society at large. Family businesses also have next generation ingenuity as they involve the future generation in their workforce, including the leadership team. Leaders of family-owned enterprises are deeply committed to protecting their legacy for future generations.
Most family businesses also serve a larger purpose beyond profit for their stakeholders and for the community at large. A purpose-driven approach is at the core of all business strategies. Unlike most other corporates, they do not chase quarterly returns but work on a long-term horizon. Their inherent knowledge empowers them to strategically invest in innovations. While such businesses are highly focused on productivity and innovation with the right metrics and capabilities in place, their business strategies reflect the best interests of all stakeholders.
Family businesses are also known for their long-term vision. It is often said that family-run enterprises think in quarter centuries rather than in quarters like their non-family counterparts. This long-term horizon gives them a unique competitive advantage.
As the world grapples with the impact of the pandemic and multiple lockdowns, slow down in production, and constant supply chain breakdowns, businesses are being compelled to realign their business models to adapt to these constant disruptions. However, the good news is that experts predict that family-run enterprises are better poised to deal with disruptions and discontinuities due to their inherent resilience and long-term vision. Research also reveals that people instill more faith in family-run enterprises in times of crises expecting them to forge a road to recovery faster than non-family run enterprises.
That said, despite being widely acknowledged for resilience and agility, as family-run businesses expand, they face some unique entrepreneurial challenges. Most family-owned businesses start out with a handful of family members and a loose operating structure. Hence, navigating the complex dynamics of this closely-knit framework is fraught with risks. Without strict guidelines to govern decision making, families often struggle to agree on leadership choices and succession issues. A strong governance framework is crucial to accelerate growth and avoid conflict. Also, the transition of a business from one generation to the next is a tricky process, thus making succession planning a major concern. Research shows that 43 percent of family businesses don’t have a succession plan in place and only 12 percent make it to the third generation. A well-thought-out succession plan ensures a seamless movement of power and management for business continuity.
The COVID-19 pandemic further highlights the cornerstones of family-owned enterprises such as trust, values, purpose, culture, and legacy. However, to thrive in the current frenetic business environment, family-run businesses need to gear up to deal with disruptions and unprecedented challenges. Going forward, family businesses need to make strategic investments towards digitization and prioritize environmental, sustainability, and governance (ESG) issues. While developing their people and leadership team, they also need to foster a corporate culture of inclusivity to drive growth and build communities.
K.R. Sekar, Partner, Deloitte IndiaPorus Doctor, Partner, Deloitte India