Today, family businesses play a crucial role in the economy, but will they in future?
Given the important role they play in our lives, family businesses can teach us a lot about the overall health of the economy and sentiment in Kenya. When many family businesses make the news, it is often because of disputes among relatives, such as the bitter tussle between the Tusker Mattresses.
In short, family businesses have prevailed and continue to do so in every sector and region, on a global scale. But only a rough third of family businesses survive the transition from first- to second-generation ownership. Those that make it beyond the third generation are much fewer – at this stage only 9-13 per cent of the original firms remain in family hands.
The current generation of family business owners is nervous about their potential younger successors' lack of knowledge and experience, as well as the new ideas and changes the next generation may want to bring to the company. However, the biggest factor driving sticky baton syndrome is the psychological and emotional connections current leaders feel to their business.
It is critical for family businesses to keep up with innovation and digital transformation. More industries are implementing strategies and workflows utilising digital platforms, rendering traditional marketplaces and transactions out-of-date.
If a family business is to retain its relevance in this disruptive business environment, management-level decisions must see beyond new technologies.
Family businesses require commitment from the next generation of digital natives and trailblazers to lead the way into the new age.
Change can be intimidating for a family business, but modernising your company gives you the best chance of survival in an ever-changing business world. This means not only making room for input from the next generation and other outside advisers, but making sure your business is using up-to-date technologies. Over 75 per cent of family businesses are in need of new technology so it pays to start investing in modern tech tools now.
To keep the family business standing strong, proactive steps must be taken to secure proper succession. What must be done to keep the family business a steadfast economic contributor in the years to come? Perhaps the most important consideration for keeping the business in the family is to manage successors as one would external talent. This means developing and nurturing their talent.
Management must also dedicate some time to deciding who will be the eventual successor. Clearly defining roles and expectations is key in instilling in the new generation not just the sense of responsibility, but also a sense of ownership to the role of eventual leader and head of the business.
The longstanding success of any family business is dependent on adapting and innovating to survive the ever changing economic ecosystem. If the new generation is to play an active role in deciphering the disruptions of the digital era, it must grow up with a sense of unity and value, which only the family unit can provide. It must have a sense of purpose and work, and a good understanding of what the family business is all about.
Additionally, a sound reward system will keep family-run firms equally attractive to the next generation. Family members must be rewarded based on their roles, merit, contributions, and performance. Consistency is important if the aim is to nurture internal talent until they blossom into managerial positions and C-level roles.
Consider an appropriate degree of differentiation between family and non-family members, and pursue reward strategies that co-support the family’s overarching business objective. In terms of compensation, it may be appropriate to see how much professionals playing the same roles as family members are paid for their time and service to a company.
Next-generation owners represent the future of any family business. Without their motivation to continue adding value to the family business, no future can be envisioned.
Family-business owners want the next generation to be involved in the business to maintain it as a source of family pride, to safely preserve the legacy of founders and better maintain the family’s values and image.