Family Businesses Challenges

All businesses face challenges, whether it is dealing with the changing economy, finding and hiring the right employees, or increased competition in the market. Family-owned businesses are not immune to these challenges. In fact, there is also a unique set of challenges that family-owned businesses have to face as a result of the nature of their business structure. It is important to understand what these hurdles are so that if you find yourself facing these issues, you can not only identify them, but you can proactively develop ways to overcome them.

Let’s take a look at ten of the most common challenges facing family businesses today in the MSME Segment in India.

  1. Family problems. Physical, emotional and financial problems among family members can greatly impact the day-to-day operation of the business.
  2. Informal culture and structure. For many businesses, having a laid-back culture is a positive. However, the informal structure and culture found in many family businesses can equate to a lack of documentation, policies, and defined strategy and goals.
  3. Pressure to hire family members. It can be difficult to resist the pressure that comes along with requests from family members who want to join the business. This becomes especially complicated if they lack the basic skills and experience needed for the position.
  4. Lack of training. The informal culture found in many family businesses can result in a lax approach to training new employees, whether they are family members or not.
  5. High turnover of non-family employees. Non-family employees may feel that greater opportunities exist within the business for those who are a part of the family and may grow tired of the culture.
  6. Sources for growth. A huge challenge for family businesses can be determining where and how to get the capital and resources needed to grow the business.
  7. Lack of an external view. While family members may not always have the same opinions, they often have similar upbringing and life experiences which may lead to a uniform view of the business. Businesses need to have external views of their company and their competition in order to thrive.
  8. Misunderstanding the value of the business and how it is to be divided. Owners of family businesses may have varying opinions on the value of their business, or even worse, they may have no knowledge about the value of the business and what things contribute to or detract from that value. Further complicating this matter is determining how to split the profits of the business or owners’ stakes.
  9. Who will take over the business? It is important for family businesses to plan ahead for business succession. Many family-owned businesses do not have a plan in place and this can be a source of heated debate and intense family politics when the time arises to select new leadership.
  10. No exit plan. Family businesses often lack a defined strategy for what will happen if an owner wants to retire, sell the business, or transfer responsibility. This goes hand in hand with succession plan issues. All businesses need a plan for the future.

While family businesses may be a major economic driver, only a mere 30% endure into a second generation, 12% last into a third generation, and just 3% make it to the fourth generation.

What’s the secret for a successful family-run business? We’ve rounded up eight tips to ensure your family business, or the one you may be working for, endures through the generations.

  1. Communicate
    Families have their own way of communicating, and, as many family therapists will tell you, it is not always the best way. Defy convention and make open, regular communication an essential part of your family business. When you sense communication problems, confront them immediately. Larger issues at play? Bring in an outside consultant.
  2. Evolve
    When it comes to longevity, and the success that comes with it, changing with the times is essential for any business, especially multigenerational family businesses. Whether it is an aversion to new technology or resistance to changing cultural norms, a family-run business—and the people behind it, regardless of age—must evolve or risk alienating both employees and customers.
  3. Set boundaries
    Leaders of flourishing family-owned businesses know that setting boundaries is critical to establishing and maintaining success. Institute and uphold a clear separation between family and business. In other words, keep family issues out of the boardroom, and keep work at the office.
  4. Practice good governance
    Setting boundaries also extends to the governance of family-run companies. Good governance requires the involvement of leaders outside the family. This oversight—employed by leading family businesses worldwide—typically takes the shape of a professional, advisory, or supervisory board comprised of non-family members with a limited number of family representatives.
  5. Recruit from the outside
    Just as it is crucial to establish governance with non-family members at the helm, it is essential to recruit outside your family for both staff and leadership positions. There is a world of talent out there. Successful family companies tap into this talent pool for skills and expertise family members don’t have.
  6. Make it optional
    A good family business doesn’t strong-arm or guilt relatives into joining the business. It makes working for the company optional. Any company, family-run or otherwise, needs employees who are passionate about both the corporation and their role within it. Allowing family to come to the company on their own leads to happier employees and better business.
  7. Plan for the future
    Successful family businesses don’t just let the chips fall where they may. They plan for the future, creating family business succession plans long before they actually need them. They also identify talent in employees, both within and outside of the family, investing in them early on to ensure excellent leadership in the future.

This is the first of the series articles that is being written for the benefit of family business in India with a specific focus on MSME segment.

In the subsequent articles we shall be focusing on each of the specific areas mentioned about in detail.

By Dr N. Krishnan – Family Business Advisor

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