PUNE: Pune-based MITCON Ltd, a consultant to many government projects, is now gearing up to provide growth support to family run businesses. It aims to help family businesses to not only sustain their existing growth, but also go global. Family businesses comprise 85% of the companies in India, but are facing challenges that lead to disintegration, division and eventually an early death by way of closure.
As slowdown looms over rest of the world, India is the market of choice for multinational corporations, adding challenges for most small and medium family businesses. MITCON-Academy for Global Entrepreneurship (MITCON-AGE), the entrepreneurship development arm of MITCON Ltd, will help such family businesses sustain, grow and take themselves national and global, by way of training cum support programs and mentor ship for micro aspects of managing the business.
MITCON Ltd has hired Vinod Paratkar, a seasoned entrepreneurship development and management professional with experience in Europe, Asia and Africa, to lead entrepreneurship initiatives. He was associated with UNIDO, ILO, and European Commission in entrepreneurship development.
"Starting a business is a family decision, with the entire family is involved. As the business grows, family members start leading responsibilities. Managing the business takes lot of attention and the members tend to ignore critical points that have potential for future conflicts and break ups." Mr Paratkar said. "MPFB will help identify these points and plan for the future, so that the businesses not only grow, but also go global," he added. Indian family businesses contribute 27% of the country's exports sales and 20% of country's GDP.
Internationally, family businesses plan for such things well in advance. In India, because of our social structure and value system, we tend to play down these things. There are many examples where family businesses broke apart because succession wasn't planned, or closed down because the next generation wanted to pursue something else, just two of the many problems faced by family businesses.
Family Businesses in India are heavily prone to die an early death, the CII-Family Business Network report published last year stated. "Just 13 percent of the Family businesses survive till 3rd generation & only 4 percent go beyond third generation. As new generations join the family business, it is an enormous challenge to keep the family & business together. Some sacrifice the business to keep the families together, while others sacrifice the family to keep the business," the report stated, adding that one-third of business families disintegrate because of generational conflict.
In its efforts to support family businesses, MITCON-AGE is starting Management Program for Family Business (MPFB) an orientation program, customized for members of existing family business, non-family managers of family business, professionals looking to take up a career in family business as a manager or mentor and those looking to start family businesses. MITCON-AGE will not only train, but also mentor family businesses manage themselves for the future.
The India-Family Business Study conducted by Redseer Consulting in 2012 started that family businesses form a backbone of the Indian economy with gross output of 60% of GDPor about 90% of India's industrial output. Family businesses contribute 79% of organized private sector employment and 27% of overall employment, just second after government and PSUs.
Of the 34 IPOs that came in 2011 in India, two-thirds were by family businesses. The number of mid-size Family Businesses (those between INR 50 Cr and INR 1000 Cr revenues) in India stands at about 6100, gross output of which approximately equals INR 1434k Cr (around 20% of India's GDP).
Major Problems of Family Businesses in a NutShell
Ownership issues in the next generation: Till the time the founder or the head of the family is alive, everything is good. However, if he passes away and has not made arrangements for succession, the next generation has ownership issues and the business disintegrates.
Next Generation Willingness: More often the next generation does not want to continue in its family business either because they have seen their parents' struggle or were never inducted into the business at a young age. This is a grave problem in families businesses whose latest generation is born in the 21st century. With modern thoughts and radical independence this generation is less inclined to continue of the parents' path.
Poor expression of feelings and indirect communication: Family members, when it comes to money matters, lack effective expression of feelings and wants. When emotions entangle with tangible needs, they create obstacles to communication. They want, but don't ask and expect to be given. When they don't get, it leads to cold wars.
Control: Another major issue in the next generation after the founder generation. Who is supposed to get the control, the MD position? Eldest sibling or most eligible sibling?
Family members or professional management?: Sometimes it is in the best interest of the company to get professional management to handle operations and execution. But it's a challenge to drive this thought without causing heartburn in the family.
Favouritism: A major problem that leads to loss of motivation in capable non-family members. Hiring and promoting based on relations rather than merits, kills the desire to work for you in non-family employees. Family employees become complacent and not perform.
Loss of Capable Non-Family Employees: Non-family employees will leave for two reasons: limited growth opportunities and family conflict. Family employees mostly occupy all leadership positions within the company. When a family feud breaks out, non-family members are often subject to multiple controls and get grinded between the fighting family members.