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How Running a Family Business Has Changed Over Time

By Ravi Machani

Over 90 per cent of businesses in India are run by families. This is significantly higher than the global average, which rests at 80 per cent. At this scale, you can imagine that family businesses impact nearly every walk of life. In fact, India has the third highest number of family businesses in the world, with the backbone of the nation’s economy being strongly dependent on family-run enterprises.

Traditionally, family business owners held strong emotional ties to their family legacy. If we go back 500 years, one’s destiny was to take up their father’s trade. A weaver’s son was destined to be a weaver, a winemaker’s son a winemaker. Children were bestowed the responsibility of carrying the legacy forward. It was the father’s highest moral obligation to pass on his knowledge gathered over decades of experience. Legacy is what mattered in the past. However focus has completely shifted today. Now, children can choose to be doctors, engineers, or whatever catches their fancy and increasingly they are choosing not to be directly involved in the family businesses.

Why is the younger generation not attracted to pursuing what their fathers did, anymore? It’s because the value proposition that appealed to their father no longer appeals to them. While many family businesses still exude the same appeal, the onus of attracting the heirs to the business lies with the older generations. While the passing generation is focused on securing the family legacy, the next generation is busy pursuing their dreams, ambitions and desires to establish themselves in a new way of working/thinking. So, when it’s finally time for the younger generation to be involved in business, there’s a vast disconnect between the generations vis-à-vis modus operandi, thought process, and even basic interests.

I come from a generation that consumed knowledge from books as the internet was still years away. If I had to learn more about automotive engineering, I had to go buy a book. Now if my son were tasked with the same, his information gathering process will be quite different. Even Google search seems outdated for him as his first instinct is to reach out for YouTube. This highlights the need for older generations to change the approach by which they attract the younger generations.

A number of family businesses I know are struggling to attract the next generation. Certain industries lack core innovations where you’re just executing someone else’s orders. In such cases there’s no creative element and it’s hard to attract the millennials who use both sides of their brains

. There’s a world of difference in a family and a regular business. In family businesses, you would generally sacrifice short term profits for consistent long term gains. Therefore, family businesses go for more stable, long-lasting business choices. Interestingly, despite the fact that 90 per cent of our businesses are family businesses, which have significantly different dynamics than regular businesses, only 2-3 per cent of business literature and education address this. 97-98 per cent of all business books and research do not address the unique challenges of family businesses. It’s critically important for today’s family businesses to maintain an equilibrium between stability and growth. Unfortunately, most family businesses do not adhere to this formula and are content with the unchanged status quo. The lack of business research and training on this subject certainly does not help prepare both generations for the challenges ahead. For example, hypothetically, a fourth generation family business has numerous cousins vying for control and are only interested in short term gains, with little concern for the family legacy.

The entrepreneurial engine of the family business must remain well oiled. One cannot grow without risks. One also cannot expect the next generation of family business leaders to want to join the business without creating new avenues of growth and ways of working. Family businesses of today must constantly bet small amounts of money (if not every year, at least every other year) on learning, the next economy, or the next new so that they stay on top of trends.

The good thing about family business is the stability and income. It is several steps ahead of finding a job. India is a relatively young nation with a diverse range of family businesses in different stages of growth. One of the best definitions of family business, according to me, is if on the day of founding you have the intent to pass along the business legacy to the next generation. Once that is established, you begin running a family business which is akin to preparing for a marathon.

At Machani Group, we are committed to increasing the knowledge base on family businesses, so that we may all benefit from this increased understanding of the unique, under recognised challenges faced by 90 per cent of the businesses in our country. That is why we have recently hosted talks by several world renowned family business scholars, and will continue to do so.

The author is Managing Director, Machani Group, and Joint Managing Director at Stumpp, Schuele & Somappa

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