Thriving Family Businesses and their secrets of success.

Did you know that every seven out of ten of the businesses you know are family owned?

According to the audit firm PricewaterhouseCoopers (PwC), a family-owned business is one where the majority of votes are held by the person who established the firm, or their direct descendants, with at least one family member involved in the company’s management. If the company is listed, the persons who set up or bought the firm, or their family, hold at least 25 per cent of the right to vote through their share capital, with at least one family member on the board.

Family businesses account for approximately 80% of the Kenyan economy and work force. Despite this, they are vulnerable and face similar challenges regardless of the industry or location: governance, succession, wealth management, family conflict etc. Less than 15% of family businesses exist after the first generation.

ICEA Lion, Commercial Bank of Africa, Brookside, Kenpoly, Kenafric Industries and cooking oils manufacturer Bido are some of the family-owned businesses that have thrived well in Kenya.

Kenpoly for example a firm, best known for producing plastic products, was incorporated in August 1977 as Kenpoly Manufacturers Ltd. Plastic products from the firm are sold not only in Kenya but also in at least 10 other countries in the region.

It also runs Blowplast Limited that produces packaging items for consumer goods like oils and pharmaceuticals. Under Kenpoly is also Thermopak Kenya Limited that specialises in producing packaging for use in the horticulture, hospitality and dairy industries. Kenpoly is also founder of Fina Bank.

Among the people on the Kenpoly empire driving seat is Hanish Chandaria, one of the three children of the founder — all of whom have taken up roles in the business.

According to Prof. John Davis a Senior Lecturer of Business Administration Havard Business School, family business culture matters but not a big factor at all there is a 15% influence in family owned enterprises from country to country.

When it comes to implementing an action to address a particular issue one must pay attention to culture. Your approach to challenge authority and ability to work with the next generation one must pay attention to culture.

Family business sector in all economies is the dominant sector all over the world it accounts for two thirds in any country.Family owned companies perform better than none family owned based on studies, financial indicators, growth and return on profitability. Large to giant listed companies in any country are family owned.

So how do family businesses change from generation to generation?

As business is growing families grow too, in order to keep up with the growth. As you grow the company, one has  to become more and more sophisticated at a bigger scale in terms of running the business. One individual cannot run everything you’ve got to delegate, you need effective systems.

The family has to be   aware of the supportive role and the increasing level of professionalism over time.There is this common saying that, “the first generation creates a business, second generation builds it, the third generation squanders it”

A good example Bidco which is best known for manufacturing cooking oils, and its ownership as of March 2015 was all about Bhimji Shah and his sons Vimal and Tarun Shah. Each of the three had a 33.3 per cent stake, according to disclosures made by the International Finance Corporation. Vimal Shah who is a second generation is the managing director and the public face of the company. Bidco evolved from a garment factory that Bhimji Shah founded in Nyeri in 1970 then grew to a massive cooking oil firm.

There are three paths to growth of any business, first is the normal growth curve where the business goes from initiation, growth, maturity and then declines over time in three generations. Second is the business grows and crushes faster in one or two generations, third is the crush path where family members who consume assets more than they produce through lifestyles expenses, make bad decisions and lose money in the process.

Business also consume assets, you need to rejuvenate and diversify in a certain way, make deliberate effort to prepare the next generation to run the business.

You need family wealth creators like Bhimji Shah who handed over the business to the second generation who are now replicating the founders experience by working harder to growing the Bidco business empire.

What are the key ingredients to a successful family owned businesses?

Strong leadership, in case of family disputes there is always someone to turn to who creates an atmosphere of working together to resolve issues amicably. The leadership of these family businesses play two key roles as Head of Business and as the Head of the Family. Family CEO’s are somewhat different from the non-family CEO’s who can be removed by a board within 2 to three years.

Family CEO’s are sensitive, loyalty based, and take a lot of concern about family, the community and more importantly the family unity. You are confronted with situations where you are actually talking to the owner of the business as opposed to the traditional CEO’s of non-family owned businesses.

Before bringing in any family member in the running of the business it always advisable to allow these youngsters, work elsewhere for at least three to five years in order to get an outside experience. Get a graduate education an MBA perhaps this will put them in a competitive position in terms of skills and experience.

Let them be known by what they can do to the business as opposed to what the family can do for them in the work environment.

The first generation knew a lot about running a business, the second generation knew less  but after many years of hands on experience they learned from the senior generation. Now the third generation have  global working experience with more technical skills better sense of the market. They went to good schools abroad accessed the best universities and have experienced diversity of cultures. What they do not have is wisdom that comes with age.

The Author is an  Entrepreneurship and Innovation Management Consultant and Chair TPA

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