Family Business Dimension of Entrepreneurship

  

Date Posted: 5/27/2013 4:38:21 AM

Posted By: Chadeshady  Membership Level: Gold  Total Points: 1697

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This area has been a source of debate in entrepreneurship where the main contentions have been the nature of family involvement and the conflicts that arise in promoting entrepreneurship in such a business. While the family emphasizes unity and stability, entrepreneurship emphasizes independence and change. These two issues indicate the potential and sometimes the real conflicts that exist in family businesses. This is despite the fact that a start up will be initiated by a individual who is also a member of a family.

A family business is one which majority of ownership and control lies in within a family where two or more members are involved. It is a dual system of the family and the business. Over 60% of the world businesses are family businesses. A family business is special by nature because of the interlocking roles and responsibilities. Major policy-making decisions and significant proportions of the jobs are held by the members of the extended family. Effective decision making is centered in the family and the business goals are oriented towards the interest of the family. They are complex and vary over a range of characteristics; however, for a public or private business to be considered a family business, members of the family must have a controlling ownership interest and be actively involved in the business at the strategic level and thereby influence its strategic directions and decisions.

There are three different types of family businesses depending on involvement of family members:
1. Active family business – these are characterized by direct supervision of operations by family members. Ownership of the firm is controlled by family members and family members are employed by the business although the business may have non-family members.

2. Absentee-owner family firms – these are controlled jointly by family members who do not work in the business or

supervise its operation. Non-family members run the firm for the family.

3. Latent family firm – this is where only one family member is involved usually as the Chief Executive officer. However other family members may become involved in the business at sometime in the future.

Examples of local family businesses in Kenya include the Chandaria Industries, Nakumatt Supermarket, East Africa Spectre, Brookside Diaries, and Keroche Breweries among others.

The complex nature of family businesses is the recognition of the family as a dual system; which, apparently, is not enough to understand the issues involved. Actually, there are three systems, instead of two, namely the family, ownership and business management. These three systems interact and influence in many ways, mostly overlap each other and eventually go through transition over time.

Issues Facing Family Businesses
Compensation and ownership – how are people to be evaluated and paid? Who owns the business? How are returns and dividends determined?
Non-family relationship – how will family treat outsiders, reward and promotion of non-family members? How will professional culture be intertwined with family culture?
Participation – who can join the family management? What are the entry requirements? How are assignments determined? What are the titles and ranks in the business? What is the role of non-family members in the business? How will you maintain fairness?
Family relationship – how do we deal with intergeneration conflicts, sibling rivalry and relationship by marriages?
Business responsibilities – how should family business represent the business? How much information can be shared outside the family?

The family business is so much more than just a business. Ideally, it is a stew of family relationships based on love and resentment. The primary challenge faced by family businesses is to match family values to business goals. As incremental generations join the business, relationships become entangled and often lead to conflicts in all areas of operations. 60-70% of all business enterprises are family owned but less than 10% of all of them survive to the 3rd Generation.

Challenges Faced by Family Businesses
? Conflicts such as sibling rivalry
? Accountability
? Management of Human Resources
? Power and Control Struggles
? Children Incremental Generations

Difficulties in Intergenerational Transition of Ownership and Control in Family Firms
Lack of Transition Planning – many of them do not plan for the transition a factor that possibly emanates from little desire on the part of the owner to transfer the firm. In addition, it could be the reluctance of the off-springs to join the firm and difficulties in choosing a successor.

Challenges in Choosing a Successor
? Fear of death
? Reluctance to let go
? Personal loss of identity
? Fear of losing work activity
? Identifying the right qualities and the person
? Sense of rivalry towards the successor

Structures to Facilitate Smooth Transition
Periodic Assemblies of the Family – all families in business can benefit from this activity
Independent Board – this will infuse best practices and will guide the decisions in the business even if the family is not capable of providing a strong sense of leadership.
Business Strategic Plan – this will set out the vision and the goals of the business which should guide whoever takes over the running of the business.
Family Council Meetings – for those families that benefit from a representative group of their members doing planning, creating policies and strengthening business-family communication bond.
A Family Constitution – the family’s policies and guiding vision and values that regulate members’ relationship with the business. This written document can be detailed or simple but every family in business benefits from this kind of statement.

Advantages of a Family Business
1. It facilitates quick unified decision making since key decision makers are all members of the same family
2. There is a high sense of responsibility and members of the family are all motivated and easily accepted as principals of the business to both suppliers and customers as a result of sharing the same name.
3. It allows for the mobilization of large amounts of resources and it promotes a sense of ethnic solidarity.
4. Family members translate their family culture to be the culture of the business.
5. It guarantees access to trusted personnel as family partners know each other and as to who should hold what rank in the firm. This type of trust favors their ability to work as a team.

Disadvantages of a Family Business
1. It may not be able to obtain the most talented persons for positions within the company; it is hard to find experts in all the fields of business within the family.
2. It has a paternalistic cultural patterns that produces an over reliance of the founder who may be risk averse and inward looking such that the firm is often slow to adapt to the changing environment.
3. With growth in size, the success for the family business tend to be undermined as the business becomes more complex and hence the need to hire more outsiders. In the long run, the business grows to have more outsiders and changes to become a professional public company.
4. During the initial stages, the goals of the family and the goals of the business venture are the same; survival and growth. When the venture grows it leads to the needs of acquiring managerial and technical expertise, which must be recruited from outside hence introducing non-family members into the venture.

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