Entrepreneurship module 5 family bizz

FAMILY BUSINESS

Family owned business…

Sam Walton family245 Billion USD

Lee family98.7 billion USD

Agnelli family54.7 billion USD

Bettencourt family12.2 billion USD

Tata family7.9 billion USD

Ambani family29 billion USD

Kamprad family10.4 billion USD

Indian family business A long journey..

•Godrej family•Kirloskar family•Tata family

•Birla family•Ambani family•T.V.Sundaram family

Major contribution• The freedom movement• Spirit of entrepreneurship• Philanthropy

BaniasParseesChettiars

Muslim khojasMemonsMarwaris

Family Businesses . . .

•Constitute 80–98% of businesses in U.S. and other free economies•Generate 49% of GDP in U.S. and more than 75% in most other countries•Employ 59% of private sector U.S. workforce and more than 85% of working population overseas•Created about 80% of all new jobs in the 1980s and 1990s

Other Statistics

•Between 17 and 22 million family-owned businesses in U.S.•Annual revenues exceed $25 million for 35,000 family businesses•Family-controlled companies comprise

37% of all Fortune 500 companies60% of all publicly held companies

The Bad News

•In their first 5 years of operation, 90% of family-owned companies disappear •Of remaining 10%, 67% die or change ownership after first generation

•Only 12% survive under current ownership past the third generation

Family Business: Working Definition

A family business is a synthesis of:

•Ownership control by members of a family or consortium of families

•Strategic influence of a family in the management of the firm

•Concern for family relationships

•The dream (possibility) of continuity across generations

Competitive Advantages of Family Business

•Speed to market•Strategic focus on market niches•Concentrated ownership structure•Lower overall costs•Quality of product/service•Agility and flexibility•Owner-manager and long-term view

What Makes the Difference

•Presence of the family

•Owner’s dream to keep the business in the family

•Overlap of family, ownership, and management

•Competitive advantage derived from interaction of family, management, and ownership

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3 Circle Model of Family Business

Developed by•Tagiuri •Davis

3 systems•The business system•The family system•The ownership system

3 Circle Model of Family Business

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Governance leads to• Direction• Values to live by• Policies

Fundamental ingredients•Clarity of roles, rights, responsibilities•Discipline to family members/employees•Regulation for owner inclusion in discussion

Governance of the family business

Three components • Periodic assemblies• Family council meeting• A family constitution

Family council duties• Plan assembly meetings• Current business/ownership/family issues• Key business policies/decisions• Guard against family interference• Develop loyal/informed/contributing shareholders• Scout the family for business talent• Education/training to family members• Social gathering for harmonious relationship

FAMILY BUSINESS- History

Company Vision

Changes & Challenges

Contributions to community

Company Heritage

FAMILY BUSINESS- History

Many reasons to create history

•Historical accuracy

•Honouring longtime employees

•Background for uninformed

•Founder’s vision and mission

•Thanking customers & vendors

FAMILY BUSINESS- HistoryPrimary benefits ..

•Written histories ‘set the record straight’

•Acknowledge & honour founders/owners/longtime employees

•Resource for succeeding family members

•Better understanding of company legacy

•Stronger bonding between company and community

•History books/videos – Marketing tool/PR press kit

Family Shareholders – Rights and Responsibilities

Shareholders loyalty depends• Respect• Pride• Adequate reward

Shareholder’s rights

•Vital information-Strategy/organizational change/finance

•Openness- Board members/management team- Constructive veiws

•Participate in board member’s election

•Fair policies to protect shareholders interests

•Acceptable economic performance

Family Shareholders – Rights and Responsibilities

Shareholder’s responsibilities

•Knowledge about company operations

•Knowledge about company finances

•Attend meetings

•Involving and suggesting management

•A positive emissary for the company

•Maintain confidentiality

•Provide additional capital

Succession Plan

•Key goals for succession process•A schedule of the transition stage•Contingency plan

•Growth of successors

•First family succession plan , then business succession plan

•Family-first business or Business-first family

•Succession management – Advisory board

•Business valuation

•Buy/Sell agreement

Succession Plan

Three ways to ease transition

•Hire the most competent advisors you can find and afford

•Business valuation is a critical element of succession planning

•Funding is often a hidden or non-recognized cost of succession planning

Lets watch a movie

Managing a family business

Pitfalls of Family Business

Family feuds – A major factor for poor survival rate

Main causes of pitfalls are;

•Lack of focus and strategy

•Nepotism in family

•Lack of professionalism

•Conflict of family and business interests

•Sibling rivalry

Sibling rivalry – Key issues

•Arbitrary approach

•Managed approach

•Defusing tensions

Important tips• Open communication• Clarity of roles• A sense of humor• Time away from the business

The changing environment of family business

Seller’s marketFamily wealthGrowthDiversificationFamily succession planning

Buyers’ marketShareholder valueEconomic value addedCore competencyAttracting managers

Strategies to improve the capabilities of a Family business

•Professionalize family business

•Replenishing entrepreneurship

•Good management

•Ability to change

•Have a strategic plan

•Have an active board of directors

‘It is easy to get rid of an outside manager, buthow do you get rid of a family member?

You must either do what is right for the businessor the family. Either way, you will end up with an unhappy family or a weak company.’

Rahul BajajFounder of Bajaj Auto

How to save family business?

•Formulate policy framework and rules

•Families must serve the business

•There should be future outlook

•Family members should be accountable

•Issues should be addressed

•Create shared vision

Lets watch a movie

Lets watch a movie