Rent don't buy - Why NOT

Wednesday, 10 June 2015 11:11   |   Written by
Rent don't buy - Why NOT

A family business can be defined as a company owned by one or more family members. In some cases, it is owned by more than one family. Simply put your boss may be your mother–in-law, grandfather or wife and some of your employees may live in the room next door.

There are far too many family businesses that change hands upon the assumption of control by third generation. It is acknowledged that family businesses are huge contributors to economic growth in free economies all over the world. Family businesses constitute 80 to 90 per cent of all businesses in the world’s free economies and employ more than 75 per cent of the working population around the world, according to Ernesto Poza, a global leader in family business education, research and consulting.

The biggest concern is the high failure rate of family businesses and the low transition of the businesses to the third generation. However, despite the latter, there are still focused and agile family businesses that deliver quality customer services and goods that are thriving. The question is what are the successful family businesses doing differently?

If you own a family business, you probably worry even more than the average entrepreneur about ensuring that your company survives, and survives to nurture the next generation. Resolute family businesses entrepreneurs’ researchers, David Sirmon and Michael Hitt found that success of family business is also tied to how well a company manages the resources that it possesses which may include:

Human Capital
The family or “inner circle” human capital is very important. The skill sets of different family members have to be coordinated as a complementary cache of knowledge, with a clear division of labor. This would always improve the likelihood of success

Social Capital
The family members ideally bring valuable social capital to the business in the form of networking and other external relationships that complement the insider’s skill sets. Does your family business system take this into account?

Survivability capital
The family company must manage and entrench its survivability capital. That is how much is the members’ willingness to provide for example free labour, emergency loans etc. so that the venture doesn’t fail?

Lower costs of governance
The family business must manage its ability to hold down the costs of governance. This includes, special accounting systems, security systems, policy manuals, legal documents etc. Ideally the family firm should minimise or eliminate these costs because employees and managers are related and trust each other. Does this sound familiar?

There is need to reflect and delineate the unique family resources to leverage them into a well-coordinated management strategy to improve your business chances of success. This appears to be much easier than non-family owned companies.
The problems and challenges that confront family businesses and even close shop in some cases include; conflict, nepotism, the succession, leadership and ineffective communication.

There are various factors, which contribute to conflict in family businesses including; sibling rivalry, working versus non-working family members, inept family members as managers, inequitable reward system and others. Resistance to change is one major challenge. The idea that “this is how we inherited our parents company and come rain or sunshine we will keep it that way” is very redundant and regressive. Leadership or lack of it is a very serious problem. It is imperative that someone must take charge.
Like in any other relationship, communication is critical in a family–run business to avoid wrong assumptions, among other things.

Many companies have folded because there was no communication or abuse thereof. Finally, the key to the solutions of the daunting challenges faced by family businesses lie in well-coordinated management strategies. The major question that every business is, at the end of the day, “How can I operate a profitable, fulfilling and healthy business?”