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2012-04-23 00:00:00ArticlesEnglishThe Indian business landscape is dotted with family owned conglomerates. Between Tata, Reliance, Birla, Bharti, Wipro and many others, it... it in the family

Keeping it in the family

2 min read

Lessons for small businesses from Indian family corporations The Indian business landscape is dotted with family owned conglomerates. Between Tata, Reliance, Birla, Bharti, Wipro and many others, it is easy to see why a recent Economist article described these companies as comprising ‘the backbone of India’s private sector’ (The Bollygarch’s Magic Mix, The Economist, October 2011).

The stories of how many of these companies made it into the big league is the stuff of business legend. The best family-owned organizations, I believe, are adept at leveraging the personal involvement and purpose that run through their genetically linked boardrooms.

However, there also areas in which keeping it in the family can be a bit of a liability. For small business owners, there are plenty of lessons to be learnt from this group, both in terms of practices to emulate and those to avoid.

Here’s a list of the most prominent ones, in my view:

Practices to emulate… Separating personal from professional Successful business owners recognize that they can’t let personal ties get in the way of sound business decisions. The best managed family businesses have extremely well defined systems and processes in place, including guidelines for hiring, settling conflicts, communication cycles and more.

Knowing when to seek external intervention

While they may prefer to keep the vast majority of decision making in the family, many of these businesses still understand the value of bringing in an outside expert for strategic business changes and improvements. They don’t hesitate to hire professional consultants for specialised tasks, including time consuming administrative work and documentation. This can free the leaders to concentrate on other mission-critical tasks.

Assessing the financial merit of every business move

When it comes to financial savvy, few businesses are as strongly equipped as family-run ventures. From broad impact business decisions to petty expenses, family businesses are driven by the philosophy to invest only where it makes financial sense. There is a relentless focus on long term profitability in these organizations, a trait that every small business owner should hone.

Leadership succession

It is true that family-run organizations usually don’t have to look too far or long for new leaders, often finding them in the next generation that has grown up with the business. However, this could prevent the fresh infusion of ideas that an outsider can bring. In addition, family politics may interfere with the succession process, keeping it from being as smooth and seamless as it ideally should be.

Governance and accountability

When there are few investors outside the family gunning for results, growth may be compromised. Family-owned corporations that don’t have to answer to stockholders or external boards are often less motivated to make uncomfortable business changes in the interest of driving growth.

No matter what their failings, there is no doubt that India’s successful family-owned corporations are inspiring examples of entrepreneurial drive and ambition. Every small business owner can learn and benefit from the value system that is embedded in the DNA of these companies. *************************************************************************

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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