Fate of small businesses on death of founder-managers

By TIMI  OLUBIYI, PhD

Timi Olubiyi, an entrepreneurship & business management expert with a PhD in Business Administration from Babcock University Nigeria, is a Chartered member of the Chartered Institute for Securities & Investment (CISI), and a Securities & Exchange Commission (SEC) registered capital market operator. He can be reached on the Twitter handle @drtimiolubiyi and via email: drtimiolubiyi@gmail.com

Small businesses are important for many reasons. They are important contributors to any economy, and are the lifeblood of many developing and underdeveloped economies. Small businesses can equally provide many essential opportunities that cannot be overlooked because as they scale, they impact innovation, job creation, economic diversification, poverty reduction, wealth creation, and income redistribution within the country. Hence, the core attribute that makes small businesses achieve all these and more is the agility which the founders/owner-managers provide. This makes this form of business nearly inseparable from the founders.

This inseparability makes the decision-making process and flexibility within the businesses much faster than that of large corporations. More so, coupled with the agile management that exists in the small businesses, adaptation to current realities and changing economic circumstances is much easier in small businesses. Research findings have also shown that the agility that exists in small businesses is as a result of the direct involvement of the founders, and or the business owners. They can provide quick decisions and also react to changes in the environment easily.

There is no doubt that the COVID-19 pandemic has added to the challenges of small businesses around the world. A lot has happened with the novel coronavirus (COVID-19) pandemic, it has fueled a lot of economic, livelihood, and business disruptions with more grave consequences on developing countries like Nigeria.Since small businesses and the founders/owner-managers are inseparable, it is easy then to conclude that we may just be losing businesses as part of the huge consequences of the COVID-19 situations.

Agreeably, the rate at which obituaries come up in the newspapers these days has been so alarming and disturbing, and it can be very easily disregarded that many of these late individuals are business owners and key decision-makers in these businesses. Therefore, what happens to the business when a founder dies or is incapacitated? This usually creates a leadership vacuum in the businesses, survival and continuity is highly threatened, which may lead to liquidation of the business.

In fact, research findings corroborate that many businesses could suffer long-lasting and significant negative impacts if the founders/owner-managers die untimely. Though there is no reliable data to substantiate this claim in Nigeria, it is evident that a large portion of the population lives on income from small businesses which account for 96 percent of businesses and 84 percent of jobs in the country. Coupled with the current demography of Nigeria, the prevalence of deaths of founding entrepreneurs or owner-managers may negatively impact many of the businesses and worsen the unemployment situation in the country. Though small businesses have different forms of incorporation, from a partnership, to sole proprietorship, or Private Limited Company (Ltd) and Private Unlimited Company, the reality is that founders/owner-managers rarely put such business structures in place.

So, upon the owner’s death, who had a clear vision and goal for the business, a leadership and decision-making vacuum was created, almost immediately. A clear recent reference was the November 2021 collapse of a high-rise block of luxury flats under construction in Ikoyi, Lagos State. At least 42 people died, including the property developer, who also was the MD/CEO and owner-manager of the building. Since the unfortunate incident and the demise of the founder/MD/CEO of the company, no detailed communiqué or press release has been issued in respect of the building collapse by the company, an incorporated limited company. What we have in the public space is the investigations and evaluation of the state of things by the Lagos State Government. Contrariwise, the project’s website has been shut down by the company. Therefore, it is easy to tell that as capital intensive as the project is, the company behind it lacks adequate business structure.

Most times, this is usually the trend with small businesses in the country. The businesses disappear or experience significant operational decline following the death of the founder or key owner-manager, regardless of the form of business incorporation. The late Chief Moshood Abiola’s and Chief Henry Fajemirokun’s stories, and a host of others, are well known. They had investments in critical sectors of the economy with business interests from aviation, agriculture, sports, bakery, real estate, publishing, and communications. But after their deaths, the businesses fizzled out gradually. It starts with business struggles, the overall performance of workers and staff dwindles and the family of the founder who most times have no knowledge of the business steps in, which further compounds the misfortune of the businesses. Contrary to what the majority thinks is right, a business owner’s spouse is never a co-owner of the business just by virtue of marriage, unless it is expressly stated in the incorporation documents.

With the changing economic circumstances of businesses, a non-economic factor such as the deaths of founders, decision-makers, and key entrepreneurs may further impact negatively on the small businesses that are already burdened with challenges. The existence of many of these businesses as going concerns, may just be threatened because of the negative impact of the pandemic and any loss of owner-managers. Consequently, with the silently ravaging pandemic and untimely deaths, family businesses and small businesses may just need to adopt strategies to stem the tides.

On the part of businesses, attention should be paid to the effective implementation of business structure, good governance, business risk analysis, succession planning, mentorship, and transitions, because these are the most prevalent factors leading to leadership vacuums. Stakeholder management is equally important; customers, employees, vendors, and investors’ contributions, feedback, and initiatives should be honoured and appreciated for different situations at all times.

To reduce the vulnerability of small business closure with the demise of the founders, government, policymakers, and SMEDAN need to intensify their efforts to disseminate information on business continuity, capacity development, technology usage, and other needs for SMEs to continue to make the desired positive impact in the country. So, a lot of support and development of interventions from the government is required for small businesses to go beyond mere survival.

On a final note, government interventions can transform small businesses into vast employers of labour, tax generators, which will contribute to government revenue, and ultimately the growth of the economy; but again, right structures have to be in place. Good luck!

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