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 When family businesses spread their wings

 

 Family businesses have an excellent reputation in the world of entrepreneurs, and for good reason. They are robust and can achieve near miracles of rising from kitchens and back yards into high streets and central business districts, but they also face particular challenges on their growth path.

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The firm grip of a family that is so vital to the survival of a business in its early years can easily turn into a stranglehold later on. Or, as the business grows, the family’s ability to control the expanding operation slips, and things spin out of control, says Christo Botes, executive director of Business Partners Limited.

Typically, the collection of skills and attitudes contained in a family mostly do not change in tandem with the skills needed by a growing business unless deliberate development plans are put in place to improve family staff skills. At some stage, the family has to bring in expertise from outside to supplement or even replace their own skills.

It is a difficult and risky process that can lead to unbearable tensions in the family and the business. “It is surprising how many of our client businesses that have perfectly good prospects get into trouble because of family fights,” says Botes.

But it can be done, he says, and when a family business gets it right, the enterprise can soar to heights surpassing even those envisioned by the founders.

An instructive example is Megatron, a family business started in 1999 in the East Rand. A striking aspect of the rise of the company from a small family-owned sheet-metal firm to a corporate electrical engineering giant is its embrace of change.

Dedreich Otto and his son Ryan started out by making sheet-metal boxes for electrical units, but were soon making the units that went into the boxes. What followed was a mind-boggling growth trajectory which nearly doubled every year as they expanded into new products.

In 2007, the listed electronics company Ellies bought Megatron, allowing Dedreich to retire and Ryan to move up into the corporate structure of Ellies as executive director.

The Megatron founders’ willingness to change their business radically in order to achieve growth seems to have extended to their openness to bring in talent from outside, and to manage the process in such a way that the values and interests of the non-family managers did not clash with those of the founding family members.

In many cases, unbearable tensions can arise through this process, says Botes. Professional managers coming into a family-run firm can find their ideas stifled by a stubborn attitude of “I’ve always done it this way”, on the part of the founder.

The arrival of non-family professionals in a business can also be perceived as a threat to the expectations and career path of family members working in the business, especially the offspring of the founders who often expect to take over from their parents. Similarly, a non-family professional may view a family member in the business as a threat to their own advancement in the business.

Botes says firm leadership is required from both the founders and the non-family managers. “It is important for the business founders to employ the right managers; anyone brought in from outside should share the same values as the founders and they should actually be more skilled in their area of speciality than the founders. Once the decision is made, the founders should respect this, otherwise they won’t be able to retain the outside talent with which they hope to grow the business.”

“It requires giving and taking, not only from the founders who have to learn to let go, but also from the incoming management who have to respect the founders, but stand their ground when it comes to their area of speciality,” says Botes.

It is crucial for the founders of family businesses to clarify the expectations, ambitions, skills and potential of their children in the business. Expecting the children to take over the business when they don’t want to is an often fatal mistake which few businesses survive when the founding generation steps aside.

The other side of that coin is just as problematic, says Botes. The children of the founders cannot expect to walk into a management job just because of their family status. If the family plans to hand over the reins to the next generation, they should use the early years in the business to prepare the future leaders which should include external training and on-the-job training that includes working their way up through the ranks.

Botes acknowledges that it is difficult for family members to judge impartially the merits of their relations. Blood, after all, will always be thicker than water. He strongly recommends hiring an impartial outsider to evaluate the business needs. Such a process can help to diffuse the anger from family members if promotions go against them.

There are many ways in which a family-owned business can continue thriving without necessarily being run by a family member, says Botes. Some families step back entirely and appoint a professional board of directors to ensure the business is managed well.

Botes points to Boplaas, a farm in the Western Cape which, as the oldest family business in South Africa, is bringing in the ninth generation of Van der Merwes. The business has evolved into a highly modern agricultural corporation in which almost every family member can find career fulfillment should they want to.

At the same time, the business continues to benefit from committed individuals who are steeped the ethos that makes family business so successful.


 

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