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 When family businesses spread their wings

 

 Family businesses have an excellent reputation amongst entrepreneurs, and for good reason – they are robust and agile, and can achieve near miracles – rising from kitchens and garages into larger businesses operating in central business districts.

However, according to Christo Botes, executive director of Business Partners (BUSINESS/PARTNERS), family owned businesses also face very specific challenges which founders need to be aware of. “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.”

Botes mentions that it is surprising how many clients with bright business prospects have experienced difficulty due to family feuds arising from the demands of a growing company.

“Typically, the collection of skills and attitudes within a family do not change in tandem with the skills necessary for a growing business. At some stage, the family has to bring in expertise from outside to supplement or even replace their own skills, and this can be a risky process which may lead to tension.”

It is however possible to manage correctly, and Botes says when a family business gets it right, the enterprise can soar to new heights, surpassing even those envisioned by the founders. He points to Megatron, a family business started in 1999 in the East Rand in Johannesburg that grew from a small family-owned sheet-metal firm to a corporate electrical engineering giant due to its ability and willingness to embrace 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 an overwhelming growth trajectory which nearly doubled every year as they expanded the business and developed 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 an executive director.

Botes says that the arrival of non-family professionals in a family run business can 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 member 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 expertise than the founders. Once the decision is made, the founders should respect this, otherwise they will not be able to retain the outside talent with which they hope to grow the business.”

In terms of children taking over the family business, Botes says that it is crucial for the founders of family businesses to clarify the expectations, ambitions, skills and potential of their children in the business. “Expecting your children to take over the business when you step aside when they don’t want to is often a fatal mistake few businesses survive.

“Similar, the children of the founders cannot expect to walk into a management job just because of their family status. They should use the early years in the business to prepare the future leaders with external and on-the-job training, and working their way up through the ranks.”

Botes acknowledges that it is difficult for family members to impartially judge the merits of their relations, and recommends hiring an impartial outsider to evaluate the business needs as there are many ways a family-owned business can continue thriving without necessarily being run by a family member. “Some families step back entirely and appoint a professional board of directors to ensure the business is managed well.

“For example, 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 in the ethos that makes the family business so successful,” concludes Botes.


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