eA family business like any other business set up is initiated with the desire to sustain and prosper. This kind of business is intended to be the carrier of the family legacy.
Family businesses work as the backbone of the economy and play a significant role in national development. These businesses often have a short life due to many challenges encountered by them e.g. limited capital, non-acceptance to the change, incompetent leadership, family disputes, etc.
Why family businesses have a short life? Why most of them end up within the first few years? And many are not transferred to the next generation. This study will help the reader to set the priorities of several factors that determine success as well as the survival of the family business.
The World Commission on Environment and Development define business sustainability as meeting current needs without compromising the next generation’s ability to meet its needs.
The factors influencing the survival of the family business are many. Here, we are discussing the most significant ones.
1. Succession Plan
The succession process is found the most challenging among the family business. The absence of a comprehensive plan about the transfer of business from one generation to another is a significant factor for the failure of the family business.
The continuity of the family business through generation depends on this plan, initiated by the founders of the family business and continuously updated even after the business transition.
The success of the succession plan is the product of family intentions to pursue and its commitment to the business. The abilities of the successor-in-control play a vital role too.
2. Strategic Planning
Various studies have highlighted that the success and long-term survival depends a lot on strategic planning. Strategic planning is a process by which a business develops its strategies about internal and external operations to establish profitable growth.
Strategic planning for a family business is different from non-family businesses. In the family business, the planning also includes family issues and goals and helps in expanding the business’s lifespan. That is why strategic planning is considered as a key factor for the growth and survival of the family business.
3. Leadership and Governance
Leadership too is a key factor for the success and survival of the family business. Leaders are considered as the guiding support for the individuals to help them equip with the knowledge to achieve a unified objective.
The competent family leadership depends upon the willing successor having leadership skills as it is more challenging to lead a family business. The existing leader is also responsible to guide and train his successor about the knowledge and skills.
Solid governance has parallel importance to great leadership. For the long-term survival of the family business, it must have excellent management and governance. The issues of family business are, at some points, differ from other businesses hence well-structured governance must be present to address these issues, considering the thoughts of both, the family and the business to embrace decision making.
4. Family Values for Business
Family businesses are known for their values, and the continuity of the family values adds to the lifespan of the family business. These values of the family should be well known and serve as the common base for the family and the business for achieving goals.
For family business values are the connective tissues, and are considered to be the main factor for sustainability and success.
5. Capital of Family
“Family capital represents the total resources of the owning family members and is divided into three components: human, social and financial capital” – Danes.S
Hoffman, Hoelscher, and Sorenson state that
“Family capital can improve the family business’s performance and lead to a sustainable competitive advantage compared to non-family businesses in the market economy.”
Thus, family capital has a great contribution to the achievements and the survival of the family business.
6. Advisors for the Family Business
A business advisor is more crucially needed in a family business than a non-family business. Moreover, he ought to have expertise in working with family, content and complex emotions and using multidisciplinary strategies to solve personal and business conflicts.
According to Craig and Moores:
“A family firm requires advisors to solve issues such as developing the family’s personal, financial, succession and strategic plans; aligning family goals with business objectives; and conflict resolution.”
Here’s a quick recap of the 6 Pro Tips to Survive as a Family Business:
- Succession Plan
- Strategic Planning
- Leadership and Governance
- Family Values for Business
- Capital of Family
- Advisors for the Family Business