How can the Next Generation prepare themselves for revolutionizing their Family Business?
Family businesses are not only a source of economic stability, but they are pillars of integrity and legacy for a family. The founders leave no stones unturned to make a family business successful yet despite their diligent hard work, such businesses do not survive beyond the second generation. According to the statistics and data related to family businesses, less than 4% of such organizations can sustain their operations beyond the third generation.
There are multiple causes that could lead to the downfall of a family business but majorly the lack of interest and preparations on the part of the current & the next generation are what results in the failure of these businesses. Even though the senior members and founders can’t force the next generation to develop an interest in the business, they can try to inspire and prepare them for challenges that they will have to face in managing the business, while they learn to adapt to the new & changed scenario. There are some basic measures that can be adopted by the seniors as well as the young generation to prepare for revolutionizing their family business. Let us look at some of these approaches:
1) Become familiar with the reality:
When the founders and first generation of the family business are trying to pass on the legacy of the business to the coming generations, they should be involved in introducing them to the complete story of the enterprise. The story should include the real parts of the business no matter how harsh they are.
The business owners must pass on the stories related to the hardships along with the success stories of the business. This will not only help in instilling the interest in the next generation, but it would also be helpful in preparing them for the hurdles that they can face while running and managing the family business.
2) Viable Ideas:
The next generation comes up with novel and exciting ideas that require investments. Most of the ideas that young entrepreneurs bring into the family business are accepted by the senior generation, but one needs to stop and check the viability of these ideas before investing in them.
Every new idea has some pragmatic as well as unreal dimensions to it. The pros and cons must be measured before introducing any kind of innovation in the business. The older and senior generation is well-versed with the business operations and thus they must be consulted before implementing any new ideas into the business. The younger generation might have the belief that the older generation has an outdated approach to the business, but they tend to ignore the fact that they are the founding fathers of the business and have a better understanding of the core business model, even in today’s changed and a very dynamic time.
3) Learning Financial Fundamentals:
Finance is one of the most integral parts of any organization. When it comes to family businesses, the members from the next generation do not give due importance to the financial fundamentals, especially the cash flow and bottom lines.
To revolutionize the family business after the second generation, the younger members need to emphasize and learn about the financial health and history of the business. This would give them an upper hand in understanding the various aspects of the business and how to avoid a financial slump during the progression of the business to the next generations.
4) Align Business with Family:
A family business is not like any other business enterprise. Apart from the business fundamentals, the family business needs to inculcate the family values that are running from generations into the business operations as well. Some family businesses fail after the second generation when they are unable to blend the family values within the business operations. The values that a family business follows are essential and thus the next generation must not avoid these at any cost.
5) Managing the outsiders:
Usually, there is a misconception about the family business that it only has family members as staff and workers. This might be true for businesses that refuse to include outsiders in the managerial positions despite when there is a need to do so. These businesses fail to realize the role of outsiders in the business.
Hiring non-family members in the business can help your business in getting a professional involved in various business operations. The next generation needs to learn how to define roles and payrolls for the non-members as well as members of the family in the business without any biases. Role definition, (responsibility & decision making power) within the family are very critical and should be clearly outlined; but when it comes to an outsider joining in, there is all the more reason for it to not only be defined but also transparent and process oriented.
The next generation is responsible for carrying a family business to the next level and thus they need to start preparing and learning from an early stage about the business. If the next generation develops an interest in the workings of the business from early stages, then the family business can succeed beyond generations.
Chair, TiE India Angels
Founder, Oscar Expo Designs