Survival guide for keeping a family-managed business afloat
Testing times like the COVID-19 pandemic have really posed a challenge for new as well as well-established family businesses to stay afloat. But a lot of family managed businesses (FMB) have actually taken it as an opportunity to grow like never before.
Any family business with right values, good intent, efficient systems, defined policies, fair communication, good control on cash flow, agility in adapting to changing environment, lean fixed costs, and loyal stakeholders will never find it difficult to stay afloat no matter how testing the times are.
Let us understand in detail on what helps FMBs in not only surviving but also be a thriving business in testing times.
1. Division of responsibilities, onus of decisions, and right communication
All stakeholders, especially the family members, should divide roles and responsibilities function wise for smooth running of the family-managed business.
Everyone needs to be clear about their responsibilities and function in such a way that each family member is accountable of his or her own function. For eg., if a family member is looking after marketing, they should have a free-hand for decisions as well as accountability for results for this function.
On the other hand, for bigger strategies and long term actions, decisions should be taken together. All the stakeholders should sit together to come to a final decision. Once a decision is made, everyone should stand by the decision.
Nobody should take the credit, try to disown the decision, or blame it on others at the later stage in case of a favorable or unfavorable outcome. Taking credit or disowning shouldn’t happen and the onus should be on everyone. Be it achievements or failure; own it together to avoid a rift.
Also, resolve issues when they are small. Don’t let a small problem linger and become big, till a point where it is beyond your control.
2. Run your family like a business, and the business like a family
Run your family like a business. Just because your family is doing business together, don’t neglect family time, and be passionate about both. Create systems which promote communication and bonding between the family members like planning a yearly family trip or monthly dinners.
On the other hand, treat your business like a family. My father has treated our business as his first child and me and my elder brother as second and third children. Treat all stakeholders in your business, especially your suppliers, customers, and employees, like your family.
Care about their well-being and always try to keep an emotional bonding with everyone as much as possible. When the going is not good or in case of any unforeseen adverse situation, the relations developed with the stakeholders will go a long way.
While being aware and solving pain points of your employees is not a statutory thing, it should be a moral duty if you are heading a family business. Every business owner should have a big heart while showing empathy towards his or her employees.
3. Follow compliance
Compliance is one thing that is often ignored by family businesses, especially in initial or growth phase of the company. For a family managed business to stay afloat in the long run, being 100 percent compliant is necessary.
As the business grows bigger, it may happen that since you have not followed certain rules and compliance, you will face difficulties in growing the business beyond a certain stage.
Following all possible compliances which are there, and not taking shortcuts is something all the older and new generation should think and work together. While being complaint comes at a cost, it will help you compete with professionally managed businesses and MNC’s in the times to come.
4. Family constitution
While the structure of some family business is simple with just two to three members, over two generations in it, it can be as complex as 10-15 family members. Irrespective of the structure being simple or complex, every family business owner should think about forming a family constitution.
If the family structure is small, the constitution can even be written down on a plain paper after mutual understanding. In case of bigger and complex family structures, it is better to form the family constitution by involving a professional agency and then legalising the constitution.
Constitution should define policy around entry in business, exit from business, share-holding, expenses, etc.
For example, if there is a daughter, foresee the thought 10 years down the line whether the daughter will join the business or her husband will join. The family has to decide how extensive the family constitution should be, how far they have to go in defining roles for future generation, which profile a new member starts with, and so on. This would differ from family to family.
There are two aspects to this – first is making professional systems to run the business, and second is bringing in professionals to run the business.
While keeping the values or family at its core, every business should think about professionalising the business by implementing right systems and policies in the business. No business can grow beyond a point if there are no defined policies, systems, and SPOs.
Also, at the right stage, every family should make a roadmap to pull themselves out of the day-today operations and also bring in professionals to do the same. A lot of business owners find it difficult due to three reasons:
1. Emotional attachment to the business
2. Fear of losing control
3. Lack of trust on outsiders
I believe an entrepreneur is a person who can build something which can run without his presence. In case the owner finds it difficult, then he or she should focus on professionalising those departments first where family members lack the expertise.
6. Attract right talent
Form your business in such a way that it attracts the right talent. An apt and right talent at the top level is very important to take any business to the next level, be it a talent from a professional or your own family.
Many people today who are highly educated don’t want to come back and join their business. When I joined by family managed business after doing IIT, a lot of people discouraged me saying why you want to join your agarbatti business. But today, when I see we have employed more than 4,000 people in our factories, I feel good that I have made right use of education in my business.
The current generation involved in the business should think about making the business attractive enough for the next generation to join. Today, we have created an agarbatti business, which has an annual turnover of over Rs 450 crore.
When we started, no one would have imagined an agarbatti business to attain these heights, but the right platform and opportunity created by my father motivated my brother and me to join the business and take it to the next stage of growth.
In the 90s, there was a trend that IITians would go to foreign land for a bright career opportunity. But today, we see a lot of IIT and IIM graduates either joining their own family businesses or starting a business on their own.
7. Hope for best and be prepared for worst
When the going is good, everything is good, but when something bad happens, everything starts falling apart. Specially in testing times like the COVID-19 Pandemic, things can really go south for an FMB if it is not prepared. Generally, FMBs are either self-funded or dependent on debt. So they should always keep a check on their cash-flow and run business in a frugal manner rather than overspending.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)