Maintaining the momentum of an established family business is a task that is difficult to master. According to a Harvard Business Review article, "Avoid the Traps That Can Destroy Family Businesses," by George Stalk and Henry Foley, 70 percent of family businesses fail or are sold even before the second generation takes over. Just 10 percent of them remain active for a third generation handover. Unlike publicly-owned firms, where the average CEO tenure is for around six years, many family-owned businesses are led by the same person for at least 20 to 25 years. These long tenures increase the difficulty to adapt to the changing trends in technology, business models, and consumer behaviour. Today, family firms in developing markets, are facing new threats thanks to globalisation. Leading a family-owned business had never been more challenging.
In this age of innovation and disruptive technology, the business ecology is changing at a rapid pace. Therefore, what worked for the founder of the company decades ago, has little relevance to what's happening in the industry today.
People involved with a family business for years can be resistant to change. The attitude towards it is – “If a business model has worked for years, why change it?” While this might work for some firms in the short term, failing to recognise and act upon changing needs is sure to hurt a business in the long run. When a young leader from a new generation takes over, he or she should ideally bring a fresh vision, taking into account updated ideas and technology trends in the market.
According to a 2014 PricewaterhouseCoopers Family Business survey, 86 percent of the next generation planning to get involved in the family business say that they want to do something significant, and 80 percent of them have big ideas for change and growth, such as introducing new products, investing in new technologies, exploring social media or changing the way the business operates. While the first generation of the family business might have a stronger level of experience, the newer generation has a stronger education background and brings new and innovative skill sets to the table which helps modernise the business and takes it to a new level.
As difficult as it may sound, it isn’t an impossible task for a family business to break through and survive the innovation and technology explosion. Here are some pointers that can help family-owned businesses make a successful transition:
Recognise that change is good
As a member of the next generation taking helm of the business, re-evaluate the company’s products and services, determine how the organisation needs to evolve to remain relevant and consider tweaking the business model to keep up with the changing financial landscape.
It is also important to understand current industry trends. You should definitely anticipate the future of the business beyond the immediate present. Will customer demand for the product or service eventually decrease? Have changes in the business world affected the problem that the company has been solving for many years?
Look beyond fads. Look for long-term beneficial trends. Don’t change the entire business focus to jump on developments that won’t last. Be sure to follow the evolving needs of customers and don’t make impulsive decisions that could turn out to be detrimental to the business.
Stick to core strengths
While change might be imminent in the business, make sure you don’t forget that customers are still expecting its core message and offerings to be same, yet evolved and improved over time.
There is a reason why family business succeed over the years. Remember to not dilute your business’ differentiation point. That is what makes the firm better than competitors. The trick is to find a way to retain that core competitive advantage but strengthen it, given the current industry landscape and consumers' evolved demands.
Make sure the business can withstand the change financially. Don’t dive into initiating this change, without a solid plan. If you’re adapting or tweaking your products or services, consider how this might change revenue and cash flow. While more revenue may be projected for the long run, some initial revenue and cash flow might be sacrificed. You need to make sure the business’ accounts can accommodate for any short term hits.
A solid transition plan should include an analysis of current finances and a goal for the company, a year, five years or even ten years down the road. It is important to create a forecast and a budget, to set monthly and yearly objectives. This will help you track the actual progress of the transition against the set goals. You’ll get a clearer perspective about the new business model and its effect on the company’s fiscal health.
It might seem challenging, to bring about a change in a system that hasn’t been touched in decades. However, a transition will benefit your business in the long run, making it more competitive in this ever-changing business environment, while addressing the evolving demands of the customer.