Family Business Succession and

Growth

Presented by:
Rikita Agrawal (26)
Pallav Pandya (19)

Entrepreneurship Development Institute of India

(EDII)
 Family Business
• A family business is a business in which
– one or more members of a family have a
significant ownership interest
– significant commitments toward the business
overall well-being.
– where the voting majority is in the hands of the
controlling family including the founder(s)
– intend to pass the business
 Some important facts about FB

• 90% ventures owned and managed by family

• 1/3rd (around 33%) of which survive till 2nd
generation
• 10% till to the 3rd generation.
 Building Blocks
• Major building blocks which responsible for
the health of any FB are;
– The family
– The business
– The individual
 Frequency of Conflicts
• 42% family businesses dealt with conflict
three to four times per year
• 60% dealing with particular issues before a
larger conflict
• 40% no communication about conflicts until a
crisis takes place
 Advantages
• Commitment
• Knowledge Continuity
• Reliability and Pride

Disadvantages
• Hesitates in appointing outsides talents
• Believe better to be 100% owner of stagnant business than to be 80%
owner of a growing business
• Lack of trust on next generation
Common reason for the failure of any
form of business
• This high rate of failure among family
businesses is attributed to a multitude of
reasons. Some of these reasons are the same
ones that could make any other business fail
such as
– poor management,
– insufficient cash to fund growth,
– inadequate control of costs,
– industry and other macro conditions.
Reasons for the failure of FB

• Complexity

• Informality.

• Lack of Discipline.
 Conflict occurs?
• Lack of communication
• Lack of proper definition of boundaries

• No shared vision and mission

• The goals of a given family member does not
harmonize with that of the family business
• Lack of information
• Disbelief of leaders in next generation
 Conflict GOOD or BAD??
• BAD
– Takes away attention from critical business issues
– Undermines self worth
– Leads to division / faction information
• GOOD
– Results in clarification of important issues
– Leads to solutions to problems
– Encourage people to think differently
– Generate new ideas
– Help release emotions
Addressing these
• Annual Family Business Retreat
• Monthly meetings
• Governance structures such as a Family
Council
• A written and shared Family Mission
Statement
• Defining the operational systems
• Creating entry criteria for new entrant
These measure always solve conflicts ts
• Not always
• Many times these issues measure dose not solve
conflicts & leads to litigation & hence breakup of
Family business
• Which in turns results into decreasing economies
of scales
• Also the business which was successful due to
varied skills of different family members which is
spread due to breakup such business flops when
divided
Types of growth

Organic growth
Inorganic growth
 Organic growth

• A business grow organically means that the

company is using internal funds to expand the
business, rather than purchasing another
business or thru other partner-sharing
business. An example of organic growth will
be increasing capital using own money.
 Inorganic growth
• A growth in the operations of a business that
arises from mergers or takeovers, rather than
an increase in the companies own business
activity.
• Firms that choose to grow inorganically can
gain access to new markets and fresh ideas
that become available through successful
mergers and acquisitions.
 Succession plan
• Confidence level of family in next generation
• Entrance criteria had to be build
• Delegation of authority
• Choice & timing of successor
• Grooming of future leader
• Emergency transition Arrangement(EMT)
• Prepare FMS (Family Mission statement)
 Ensure growth by ensuring proper
governance
• A proper governance by making
– Family council
– Family assembly
– Business Board
 Role of leader
• To develop mechanism for;
– Control
– Careers
– Capital
– Conflict
– Culture