Family Owned Businesses - Contrast
Family owned businesses represent two third’s of the world GDP. With a CAGR of 17% between 2002-2012, the Family Owned businesses have created more value world over than other businesses. 80-85% of the companies that will go on to have a turnover above USD 1billion by 2025 will be FoBs.
Its fascinating the difference these businesses make to the world economy and to the construct of the modern day world. The progress of the world hinges upon the growth and perpetuity of the FoBs.
The perpetuity though presents another story in itself. Only 13% of the family owned businesses survive the third generation of entrepreneurs and alarmingly so only 4% survive the fourth.
These statistics are an average of the world. They cross over the cultural aspects and barriers and seem to therefore suggest that their must be something wrong universally in our fundamentals.
Lets discover what happens.
A founder creates a story, a business. Usually founders have modest backgrounds, slog their way to success and build the initial organisation. Any business that you may study will have a truly remarkable founder’s story. Period.
The business grows. The next generation begins to get involved. They have big shoes to fill. Invariably the business becomes a bottoms up game. That is it sets into a pattern where success is now defined by how much incremental value is added on to the business compared to the previous year. The new generation faces a lot of pressure of the legacy and tries to add a nice numerical narrative to the incrementalism.
The business world hails the visionaries with the highest projected numbers. ‘Think big' becomes a glamorous mantra and theres no looking back. A lot of the businesses fail here itself with the risk they create for themselves in the number madness. The lucky ones pass on the baton even further.
The next generation who has had minimal interaction with the methods and madness of the founder, approaches a fairly large business mechanically. They are usually problem solvers and trained to be so. This is usually combined with the power struggle of multiple potential successors.
The result of all the push and pulls, of all the application of management theories and of all the specialists that may be available to the business at its disposal is a mere 13% survival rate.
Where are we going wrong?
Surely by this stage the business is good enough to hire any expert with a solution. The statistic is despite that actuality.
We view choosing a successor as a leadership replacement problem. A leader who can manage and lead the current business, manage the conflicts and largely keep the ball rolling. Every FOB does this. Yet 96% of them fail.
Do they not know how to choose a leader? Of course they know. They choose well. And that’s the problem. They choose a good enough leader to run the business.
The problem is how long can incrementalism survive? We choose a leader to build up from the base. How long can that be done? Clearly as the math shows, if you’re lucky enough, it maxes out in the fourth generation.
Lets put this in perspective.
A founder created something. The force of a creation was good enough to thrust along by added value on to it for a few years. In fact such was the power of the creation that it lasted for so many years in the first place.
Clearly to sustain further and to not fall prey to the perils of rapid technological advancements, innovations and disruptions, the business must create again.
After a while, leadership is a given. There are experts available for every challenge. The business can and does hire them. What is unavailable is a creator. Can the FoBs find another creator, another founder who creates again and not merely manages or leads the existing?
Even the most awesome of creations of the first part such as Kodak, Woolsworth, Nokia, Cadbury, Krupp - fail to find another creator. The list is a long one. They fail not because they couldn’t have another. They failed because they didn’t even bother to look.
Creation as a skill or as an attitude or as a mindset isn’t a product of the mechanical education system. It isn’t taught. It isn’t even encouraged. It’s no surprise that we don’t produce too many and thus it’s no wonder that we are unable to recreate the original magic.
Can the FoBs find a way to find creators? Leaders, managers and experts shall always be available to them.
Where will the creator come from? If he doesn’t, the end is quite certain for there is no one to initiate a new beginning.