Family Business – To Sell or Not To Sell
By Sonu Bhasin
Satish Chandra Chona was a ground engineer in BOAC in Undivided India when the entrepreneurial bug bit him. In 1944, the 24 year-old Satish founded Havmor ice creams in Karachi. Havmor and Satish found instant success, but little did he know that within 3 years the fate of the country, and of him, would change drastically. After partition, Satish ultimately landed up in Ahmedabad after being unsuccessful in setting up his ice cream business first in Dehradun and then Indore. Third time proved lucky for him and his business, which started by selling ice creams from a handcart, took off and today it is a Rs. 550 crore business. It is the second and third generation that are in-charge now as Satish’s son Pradeep and grandson Ankit run the ice cream business. They have recently sold off the entire business to a South Korean conglomerate, Lotte, at a reported price of Rs. 1,020 crores.
When a Family Business decides to sell off its business there is much speculation among friends, associates and industry people. People wonder if the business was sold to handle an internal dispute, or is it that the family was unable to manage the business or even if there was mismanagement within the business! But sometimes selling the family business is the smartest thing that the owners can do. It may also be the best option both for the family and the business.
However, selling a business in which the family has invested many years, even decades, of hard work is not easy. Further, for many families their own identities are enmeshed with that of the Family Business. For many others it is a feeling of guilt and ‘letting down their ancestors’ or even of ‘failure in the eyes of the society’.
Therefore, the logical question is how can the family decide if it is indeed the right decision to sell the Family Business. Studies have shown that there are typically three broad reasons for a family selling off the business and these are as follows:
Adverse family dynamics: As the family transitions from one generation to the other the number of internal owners of the business increase. With uncles and cousins, and maybe even in-laws, part of the business the dynamics of personal relationships become more complex. Dissension starts to raise its head within the family around business decisions to be taken. Interpersonal relationships begin to sour due to Family Business matters. In extreme cases the family members start filing legal cases against each other. All this leads to a severe negative impact on the business. If family members can agree to a process of mediation to get their relationships and the business back on track it is good for everyone. However, it is seen that once broken, relationships are not the same again. In such cases the sale of the business is the best option. This takes care of not only the family but also of the employees who, otherwise, become collateral damage in the family fights.
Incompetence: The business environment is one that is constantly changing. Each change throws up a new challenge for the business. The family may not have the skill sets to manage the business in the changing environment. Bringing in professional CEO and other senior employees is certainly a solution. However, they will still need guidance and overall direction from the family. Further, competence also includes the ability of the family to provide capital as and when required by the business. Thus, smart Family Business Owners decide to sell their business when either of the two competences start to erode within the family.
Running out of passion: One of the key characteristics of a family business is the pride and passion within the family members about their business. As the business transitions from one generation to the next it is possible that some of the passion gets lost in transit. The gen-next may not find the business engaging and may want to explore alternate business opportunities. One quick dip-stick test to check if the owners still have passion is to ask them to list out the benefits they see accruing from the business. If money is the only benefit that they see, then it can be taken for granted that the passion is on its death-bed. In this case it is much better for the family and the business to bring in new owners.
Business and life is all about change and neither stays static and it is true in the case of Havmor as well. Over the past decade many companies had been making overtures to Havmor and the Chonas for a buy out but the family had been turning them all down. In 2012 Pradeep Chona was reported to have said “We haven’t got an offer we couldn’t refuse” when asked about his decision not to sell. His son, Ankit, had said at the same time “No offer is a good offer for us”. Clearly something changed in the last five years!
Sonu Bhasin is the author of The Inheritors – Stories of Entrepreneurship and Success, and can be reached on firstname.lastname@example.org