Sustaining a successful family business in developing economies

A family business is a commercial venture in which management and control of the business is influenced by multiple-generations of a family. They are ‘family-run businesses’ that have gone through multiple generations of family. The key-word in family business is “multi-generation” of family managers – the fact that the business is managed by successive generations of family members. Family members mean people who are blood related, marital-related, or adopted children. The interest of the managers of family businesses is more than making profit but “sustaining the legacy of the family”. Germany, Australia, New Zealand and the United States rely so much on family businesses for their thriving economy. There is a Family Businesses Association which operates in Australia and New Zealand. The United States of America has the highest number of family businesses which contributed $26.855 billion to the Gross Domestic Product (GDP) of the US or 54 percent of the GDP in 2023. China came second with $19.374 billion as contribution to the GDP and representing 51 percent of the GDP of China.

Germany came third contributing $4.03 billion to the GDP and 49 percent of the GDP. While developed nations keep a tab on family businesses, developing nations such as Nigeria are not very keen on family businesses with few families still retaining the legacy of old generations of their families especially in drumming, calabash carving, pot making, cloth weaving and wood carving. Hilton Hotel, Marriott Hotel and Volkswagen are enduring family businesses that can serve as case studies for nations that are serious about developing their family businesses as a pedestal for economic development. The 2023 Ernst and Young (EY) and University of St. Gallen, Switzerland, Family Business Index stated that, if the 500 largest global family businesses come together to form a separate country on their own, they would comfortably sit in third position in the $19 trillion-dollar club (behind the U.S.A. and China). It is an understatement to say that family businesses have the potential to develop the economies of developing nations into trillion dollar economies!

Family-owned businesses in the U.S.A. have a great impact in creating 78 percent of new jobs in America. To successfully manage family businesses in developing nations, the following are required:

Family Constitution: Either written or unwritten, the family must have a constitution as a set of guides that will set the boundaries of activities of the managers and how the business must be run.

Fighting the Odds: Family businesses have members with great fighting spirit in them who have successfully fought the odds. The fact that it is a family business motivates the leaders who are family members to do more than employees. Doyin Group, Fatgbems Petroleum and First City Monument Bank are examples of family businesses that are still thriving. Ashamu Farms Limited belonging to Emmanuel Oyedele Ashamu, Abiola Bookshops belonging to the late MKO Abiola and Adebayo Alata Amao Group of Companies in Fiditi Oyo State could not survive. The main power for fighting the odds is the long years of training gone through by family members in family businesses.

How do family businesses survive among generations of family members?

Family businesses are legacies bequeathed to a generation by an older generation. The present set of managers is just one part of the bigger picture. Family businesses play the long time game – it is not so much about the next quarter as it is about the next generation. It is like a 4 x 4 relay. Thus, they create an enterprise of deep value capable of growth over several years. To do that, building strong roots is what matters. To cultivate and groom the next generation of managers, they evolve with changing times, stay relevant, and contribute to society. These are important objectives of family businesses. 

All for the family – Given the enormous role of family businesses in elevating economies and generating employment, it is in everyone’s interest that they flourish. Some governments have a department for the advancement of family businesses. They do everything from providing advice on succession-related issues and governance to the best-suited structure for the company to thrive. The endeavour of all these departments lies in acknowledging the unique challenges that family businesses face and customising solutions that help family business owners address them. The idea is to help family businesses navigate everything from growth and governance to wealth management. Therefore, the aim is to ensure a seamless transition of ownership from one generation to the next, and nip potential challenges in the bud.

Family businesses have their own difficulties

The narrative above is not to say that family businesses never fail. They do. Moreover, the challenges they face have an emotional dimension; that makes things more fraught. Feuds, resentments, and jealousies can certainly crop up and often run deeper in a family business. In essence, that could be a reason why only 12 percent of family-owned enterprises survive from the second to the third and only five percent from third to fourth. A large reason for this could be that almost 50 percent of business owners who expect to retire in five years do not have a successor in place or those they wish to survive them are not interested in the business. German family businesses are desperately looking for buyers because of the ageing population of managers and stagnating economy in Germany. Example is Scharringhausen deli which has been available for over 160 years in Bremen, Germany.

How to run a family business successfully

To run a family business successfully, the following are some of the key factors that family business managers should adopt:

1. Communicate openly: Family members who are managing family businesses must talk to each other regularly as a ritual, air doubts and problems, and find solutions. Open channels of communication are probably underrated, but their value is undisputed. It can help clear misunderstandings and build a healthier working environment among family members.
2. Quality first before price: Improve the quality of the product or services or improve the process of manufacturing quality products regularly.
3. Establish good governance: Family business needs good governance to make it succeed. This requires that the managers must appoint assessors from outside the family pool to get an objective perspective on the running of things and ensure impartial oversight. This generally means putting in place a board of directors, an advisory, or a supervisory board; with non-family representation outstripping family representatives, but their roles must be well defined and must not include buying over the family business.
4. Have a succession plan: The transition of power from one generation of family members to another must be well defined. Each successor is better off when they are part of the business or when they are from the same sector as the family business.
5. Innovate and take risks: Successive family members who are managers must innovate and be ready to compete with the world. They must be ready to take risks.
6. Be employee-oriented: Pay attention to the needs of the employees, look after them, and invest in their growth and development to engender loyalty.
7. Bring in outside talent: There is a lot of fresh talent in the job market. Employ them and let them teach your prospective successor how to do the job. Teach your children or wards or heir-apparent how to manage talents.
8. Customer focus: Customers are the pulley that keeps businesses moving. Managers of successful family businesses must be customer-focus.

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