Even well-managed family businesses are not immune to challenging times; economic cycles, intensive competition, slowing growth, shrinking margins, talent crunch, excessive debt, funding shortage, or changing regulations.
It’s not easy. It never is.
Let’s say you have inherited or built a successful business with a rich legacy. It has paid for your villas, fancy cars, exotic vacations and kids’ education abroad. There is a lot of sentimental value attached to it, but, if this business is not giving you appropriate returns, despite your investing all your years and efforts into it, ask yourself – is your capital and time better used elsewhere? Would it be better to invest the funds in a fixed deposit, in bonds or elsewhere? Why should you have it locked in? And what if your next generation is less willing or less capable of taking it forward? Do you have options of realising the value of that business now? These are tough questions to deal with.
Choosing a worthy successor is always a challenge not just for family-owned businesses but for large corporations also. It is unrealistic to assume that leadership qualities are inherited with the assets, or that CEO potential can be imbibed from birth, generation after generation. The statistics of continuity and success in family-owned businesses is not encouraging. For instance, according to a study done by Family Business Institute, a professional service that helps businesses in succession planning, only about 30% of the family-owned businesses make it to the second generation, 12% to the third and only 3% to the fourth generation.
A case in point – Ranbaxy. Started by Ranbir Singh and Gurbax Singh in 1937, by 1961 Ranbaxy was at its pinnacle of growth in the pharma industry, with the launch of its blockbuster drug, Calmpose, and by setting-up a series of manufacturing plants outside India. However, when Malvinder and Shivinder, sons of Parvez Singh, took charge, things started spiraling downhill. In 2008, the Singh brothers had to sell their stake to Japan’s Daiichi Sankyo for $2.4 billion, which they subsequently invested in Fortis Healthcare and Religare Enterprises. Conditions did not improve and today, the brothers are on the brink, caught in a bitter family feud.
This is not an isolated case. There are several other examples - Kingfisher, Nokia, Kodak, Scindia Shipping, indeed the list is inexhaustive.
When Bhavin Bhagat, the founder of Indiabizforsale, returned from UK after an MBA degree, he refused to join dad’s decades-old pharmaceutical business. Instead he chose to invest and build a platform to buy and sell businesses.
Another heir, Nishank Shah, wasn’t convinced he wanted to join the family’s construction business and instead floated Duro Green, a company that manufactures composting machines.
There are those who inherit land that they then sell to divide the value or to use proceeds for other exigencies. But when you own a business, it’s a different story altogether. There are many such instances, where head of the Indian business family decided to relinquish management, when it became more important to protect the existing wealth, rather than hang on to it for sentimental value. Apparel company Gokaldas sold its business to an investor group. Famy Care sold its well-performing business to US giant Mylan. This is likely to be an emerging trend of the future. It is important for the owners to act and in time. Your business may be more valuable in someone else’s hands…
Even the largest of businesses are constantly evaluating their businesses. Times of India, Reliance Industries, Birla, Tata, Godrej, Google, Unilever – are all working hard to stay relevant and successful in the New Economy. They also have dedicated departments to be on top of trends, build networks and to look for newer opportunities.
For a mid-sized business owner, it is important to do that too.
It’s time you ask yourself:
- Do I see growth in my business?
- Do I have the funds and the expertise to continue to grow?
- Should my joint family continue running this business?
- Do I have a worthy business successor in mind to take over the reins from me?
- Will my children be able to lead my business in the future?
These are the questions only you can answer.