Kenyan family businesses open doors to outsider professionals

About six out of 10 family-owned and run businesses in Kenya are now willing to bring in professionals from outside to help in running the venture, a new survey says.

The global survey on family businesses by audit and advisory firm PricewaterhouseCoopers (PwC), which incorporated views of 46 Kenyan family businesses, showed that the shift is driven by the desire by majority (83 per cent) of them to grow in the next two years.

“(Some) 22 percent of Kenyan family businesses expect to change their business model over the next two years (versus 20 percent globally) and 61 per cent say they will bring in professional expertise from outside the family,” says Peter Ngahu, Country Senior Partner PwC Kenya. Allowing in outsider professionals will be another milestone in opening up the once jealously guarded empires that have also started giving room to private equities.

Family business leaders have traditionally viewed private equity investors as incompatible with their long-term strategies and values, but PwC says now more than a third of them say they would consider private equity.

“This tells us that family businesses and private equity are reaching a moment of convergence of interests — at a time when there is an increasing focus on long-term value-generation, succession and professionalisation at family businesses,” notes PwC.

This change of mind is driven by desire to escape failure or stagnation. A third of such businesses are seeking a quick and aggressive growth in their businesses and think having the right people and structures will prepare them to make more revenues.

The survey ranks Kenya 5th globally on the percentage of respondents looking to grow quickly and aggressively. Only India, Nigeria, Indonesia and China beat Kenya in optimism and ambition out of the surveyed 53 countries and 2,953 companies.

The turnover of participating companies ranged from $5 million (Sh510 million) to more than $1 billion (Sh102 billion).

PwC says that international sales currently account for 26 percent of Kenyan family business turnover and is predicted to account for 30 percent in five years, showing the increased significance of what will be at stake in the absence of strong structures.

The study says that digital technology is disrupting industries, sustainability is becoming central to the conduct of business, and winning trust is becoming more important than before.

“We believe that family businesses, often built around strong values and with an aspirational purpose in mind, have a competitive advantage at a time like this,” says PwC.

With this in mind, 93 per cent of Kenya’s family owned businesses say that recruiting and maintaining best talent is among their crucial personal and business goals. Also on their radar is to innovate and grow profits. “...there is a nagging sense among many family businesses that the trajectory of growth over the next two years and beyond can’t easily be charted, given a set of key challenges,” says PwC.

Among the top five challenges cited are innovation (66 per cent), accessing the right skills and capabilities (60 per cent), and digitalisation (44 per cent). Family business leaders are also waking up to the disruptive reality of artificial intelligence (AI), the Internet of Things, digital fabrication (3D printing) and robotics, according to PwC.

The study says not many family businesses are prepared for this disruption. Respondents who said they felt vulnerable to digital disruption were mainly from the retail sector (53 per cent), financial services (52 percent), and media and entertainment (65 percent).

PwC says such family businesses will more than before require a strong combination of directors with right skills to tackle digitalisation. This offers a strong case for young professionals to be hired.

“Another focus can be on millennials, who are the best-educated generation in history and are extremely tech-savvy. Part of family business legacy will be determined by the way in which the next generation is encouraged to be involved,” says PwC.

The survey says there is a strong correlation between better returns and having a set of values, with those having strong values registering a double digit growth. PwC says although many family businesses are strongly aligned around a shared sense of values, they don’t always use them to their full advantage until there is a crisis.

Michael Mugasa, PwC Kenya partner, says getting new talent and managing with a clear purpose and an eye for legacy will build resilience during downturns.

“Our research globally and in Kenya highlights benefits of a values-led approach that can focus a family business on the continuity planning they need to do,” he says. It’s time to take stock of hurdles, success in your firm this year.