Building Enduring Family Businesses – Sustainability

In the first post, we looked at the importance of family businesses and how they are built.

Sustainability In Family Businesses

Most family businesses that have endured started small, so husbands and wives that have the mindset of leaving a business legacy behind can start one. However, they must have core philosophies or principles that they hold dear right from the time of the founding members.

They are also very ready to adopt and adapt to generational changes, challenges, and opportunities. The family members must see it as their own and that their future depends on the business as much as the business also depends on them. They must see the symbiotic relationship. They must respect it as an entity that has a life and an identity. One thing I found out is that all the educational pursuits, marriages, and friendships must be tailored to build the family interest and vision first. They must not bring their family viruses to the business.

Even though many of these businesses were in monogamous homes, there were two solid fronts—the home front run by the matriarch, who holds the family together, and the business front, which is solidly manned by the husband, who is the patriarch of the family.

Polygamy can be a killer of family businesses during the life, and after the death, of the patriarch.

Sibling rivalry and jealously must never be allowed to have a foothold even though it attempts to rear its ugly head. Hedonism, particularly the hedonistic treadmill mindset, conspicuous consumption, and wastage must be discouraged in the family. The children must be introduced into the family business very early.

Trust issues should be handled very dispassionately. When such issues arise and a family member is involved, such an individual should not be put in areas where finances, security, and trade secrets are involved.

People must be placed according to their competencies and capacities using the formula of the Rothschild—the Kalman principle. Kalman was one of the Rothschild who was not very adept in business skills. The family catered for his needs and prevented him from being sent to any country, not to cause scandals or diplomatic rows that might adversely affect the family business.

• There must be a strong board and bond within the family—all for one and one for all.
• There should be respectable and independent advisers on the board.
• There should be defined and clear succession plans in place—What happens when the patriarch or matriarch dies? It should be written on paper, usually by establishing a trust. The ownership and responsibility structure should be spelled out.
• There should be clarity on what happens in the event of other grave mishaps such as disinvestment, divorce, or disinterest. These are critical issues that must be addressed.
• There has to be a detailed appraisal of the worth of the family—assets, liabilities, the growth rate of the business, the sources of funding, etc. because money is the blood of business. Every business must do an analysis of the strengths, weakness, opportunities, and threats.
• At a point the family must decide on what percentage of shares will be sold to outsiders and what contribution they have to make as shareholders.
• There must be a way of checkmating risk taking. A lot of them avoid delving into politics but remain king-makers and sponsors. Habits like gambling, drug addiction, and racketeering are usually not tolerated in very disciplined families.

Why So Many Family Business Failures?

ENTREPRENEURSHIP

In my post on Youth Entrepreneurship In Nigeria, I talked about the types of entrepreneurs—necessity, opportunity, and visionary—and how this mindset affects affects the lifespan of of a business.

Necessity entrepreneurs see business as a burden, hence, they have very poor customer relations. Many African businessmen/women are necessity entrepreneurs, resulting in the high rate of failure in family businesses. A lot of us have a very wrong attitude to work. We see it as a burden, suffering, and even derogatory with such mindset we can’t do well in business.

LACK OF APPRENTICESHIP AND MODELING

Africans have not seen the need to see a job as an opportunity to learn to become an entrepreneur. Apart from the Muslims of the Fulani extraction, who have been involved in the Trans-Saharan Trade for ages, most Africans are satisfied just being workers. Even those who have worked in oil companies retire without establishing an oil servicing company. They don’t know how to turn their work experience to a business. There is no reason why a retired police officer or soldier cannot become a security consultant or investigator and build a business around his job experience.

Most times we fail to copy from the owners of our business. We are only interested in the luxuries associated with our offices and sometimes the glamour of our fathers’ wealth, without knowing how the wealth is generated.

POLYGAMY AND SIBLING RIVALRY

Polygamy creates divided interest and rivalry. The family business becomes like Nigeria, where everybody wants to share the national cake, without thinking of baking it. When the founder dies, often times, without a will, there is a scramble for the assets like how Europeans scrambled to partition Africa. Even if there is a will, there are still several court cases that linger for years and eventually further polarize the family and paralyze the business. Sometimes big and extravagant funerals are planned, because of the large family, that will eventually sap a lot of the money from the business, thus leaving it financially anemic and eventually comatose.

EXTRAVAGANT LIFESTYLES

We cultivate very extravagant lifestyles for ourselves. Most times, these lifestyles are not sustainable. Sam Walton, like Warren Buffet, taught his children about frugality.

If you see some rich people live what looks like extravagant lives, don’t be deceived; many of them have learnt to spend from their profits. And some of their expenditures are very insignificant parts of their wealth.

JOB MENTALITY

Instead of building on the family business from the level of the founding parents, Africans prefer to seek employment with multinationals. They are not interested in working for a while and transferring their work experience to their family business. They even work into old age with their parents’ legacy left desolate.

OVERSEAS MENTALITY

When the next generations are sent overseas from the income generated from the family business, many African children refuse to come back home. They settle for the comfort of Europe and America, instead of coming home to develop the family business. They cite irregular electricity supply and insecurity as limiting factors; true as that may be, there are, however, businessmen like Dangote and many others, who are global citizens but are doing great businesses in Nigeria.

LATE ASSUMPTION OF RESPONSIBILITIES

Many times, parents don’t involve their children early enough in their businesses. If children are introduced early into their family businesses, they undergo direct apprenticeship and mentoring and learn from the masters. These skills can become, even, a family inheritance that are more valuable than the business itself. If you read the book, My Vision — Challenges in the Race for Excellence, by the ruler of Dubai you will understand what I am saying much better. We must introduce our children to our businesses such that they see it as part of their tradition. In Mauritius, entrepreneurship is like a national philosophy.

We see our children as too young for too long and are usually not willing to take their suggestions. The resultant effect is that the children withdraw from the family businesses.

LACK OF INNOVATION AND STRATEGIC THINKING

Family businesses must learn to innovate and improve on their services and products. There are facilities that have been into soap production for the past 400 years in Nablus but they have improved on their production process, packing, and marketing. Any family business should think strategically and put down systems and structures that can anticipate and adjust to generational trends and changes in government policies.

Sometimes, recklessness in the choice of marriage partners in subsequent generations can ruin a great family business—the Onassis Family is a typical example.

Business started with fraudulent money will eventually end up in disaster. This has been the problem in many African nations. When politicians or civil servants steal from the common wealth of our countries and establish businesses, such wealth and businesses are cursed and they will not prosper. Many enduring family business were grown gradually and legitimately, but this generation that is in a hurry to get rich, usually takes unnecessary risks apart from curse of God that is upon ill-gotten wealth.

My hope and prayer is that this message will stimulate you to start something that your family would become known for over time and that will endure.

Check out these books on businesses and legacies – Creating Wealth, The Dynamism of Wealth, Don’t Drop the Baton, The Philosophy of the Ant, Money is an Idiot, Digging Your Gold, and many more.