The transition from one generation to the next is a delicate time for family businesses. Studies from across the world have highlighted the fact that more than 70 per cent of all family businesses fail to transit into the second generation. Of the ones that do, more than 90 per cent do not make it to the third generation. It is only an elite 3 per cent that make it to the fourth generation or beyond.
One of the key reasons for this high mortality of family businesses centers around succession or the lack of it. Traditionally, we have heard of family businesses splitting because the many inheritors could not arrive at a consensus on choosing a leader of their business in the next generation. Large and diversified groups like the DCM, Birlas, Dalmias, Modis could not survive beyond one or two generations due to this very reason.
However, there is a new problem around succession that is being experienced these days by the patriarchs of the family-owned businesses - the problem of unwilling inheritors!
Joining the family business is not the default option for the new generation of inheritors. These inheritors are educated at the best institutions around the world, are well-travelled, have a wide world view and have high ambitions. Unfortunately, for many of them, the ambitions center around making a name for themselves away from the family business.
Mr. Bansal (name changed on request) owns a large and successful machine tools manufacturing business and he has a problem of the unwilling inheritor. A first-generation family business owner, Mr. Bansal ensured that his son, an only child, had the advantage of the best education that money could buy. When the son, Rohan (name changed on request), wanted to go to the US for his MBA, Mr. Bansal readily agreed.
It was when Rohan returned to India after graduation that Mr. Bansal ran into an unwilling inheritor. Rohan found the idea of running a machine-tools manufacturing business not suited to his aspirations. He balked at the thought of spending time on the shop floor and, instead, wanted to dabble in e-commerce. All his advice and admonitions fell on deaf ears, as Rohan, as we speak, is trying to find a business model that works.
Mr. Bansal is not a lone example of such a patriarch. There are many like him who find that there are no takers for the business set up by them. Here are some points that they need to keep in mind:
Start Early: Most patriarchs want their children, the potential inheritors, to focus on their studies and hobbies during their growing up years. As a result, the inheritors have little or no connect with the family business. It is only when the inheritors are in the late teenage years that the patriarchs switch gears and want them to start learning about the business. Smart patriarchs understand the value of an early connect and ensure that even as young children, the inheritors spend time with them in the business. Pooja Jain of Luxor and Amit Burman of Dabur both recollect their late school years when they would be encouraged to spend time at the factory/ office. As a result, when it came to joining the family business, they were ready for it.
Ease the inheritors into the business: An Inheritor who is willing to join the family business can be easily overwhelmed by the sheer responsibility of the task. He (the inheritor is usually the son) is likely to be in the mid-twenties when he begins his initiation into the family business. In his enthusiasm the patriarch runs the danger of heaping too much onto the young inheritor's plate, thus scaring away the inheritor completely. Like any other new employee, the inheritor needs to be taken through a structured induction programme. Giving a young inheritor the corner office will be counter-productive not only for the young man himself, but also for the business.