MR. METHIN PASPANTHONG | 10 JUNE 2024 | 5-MIN READ
7 Strategies for Successfully Managing a Family Business
Managing a family business involves transitioning the company from one generation to the next or having a significant ownership stake held by family members. While this may appear straightforward, it often presents numerous challenges. This article examines common issues and offers strategies for successfully managing a family business.
Common Challenges in Family Businesses
According to the Harvard Business Review, approximately 10% of family businesses successfully transition pass the third generation. This low rate is attributable to various challenges, such as:
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Rapid family growth outpacing business expansion, resulting in insufficient management positions
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Conflicting ideas among multiple ‘owners’
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A family-oriented environment that can hinder employee development and lag behind competitors
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Lack of clear succession planning and new management ideas as older generations continue to oversee the business
To ensure a family business thrives, continuous adaptation and development are essential. Here are 7 key strategies for success:
1. ESTABLISH AGREED-UPON BUSINESS PRINCIPLES
Creating a set of agreed-upon business principles is crucial for all businesses, especially family-owned ones. These principles enhance competitiveness and align all members towards common goals. In case of disputes, these principles can serve as a guideline for resolution.
Large family-owned enterprises should also consider establishing a ‘family constitution’, a shared agreement on planning and managing various aspects, including business operations, family member rights and duties, employment policies, and other agreed-upon topics.
A family constitution is vital for modern family enterprises as it sets the rules and conditions for working together, reducing potential conflicts for future generations.
2. IDENTIFY AND DEVELOP SUCCESSORS
Planning for succession should begin early, focusing on developing future leaders. Family members often occupy senior management positions, but it is crucial to set clear qualifications and make fair appointments to ensure long-term business success.
Additionally, family businesses could also consider hiring non-family professionals as they typically bring valuable skills and fresh perspectives to the business, enhancing professionalism and innovation.
3. FOSTER OPEN-MINDEDNESS
Conflicts can arise from differing opinions, generational gaps, and varying skills and experiences. Family members should be open-minded, respect diverse viewpoints, and understand that traditional management methods may not always lead to success.
4. INTEGRATE TECHNOLOGY
New generations are typically well-versed in technology, which can significantly benefit the business. Older managers should embrace this and trust younger members to incorporate technology, such as online marketing and leveraging AI technologies, to enhance business operations.
5. DEVELOP EMPLOYEE POTENTIAL
Even in a family business, non-family employees also play essential roles. Investing in their development through training, skill enhancement courses, or scholarships can improve their contributions, ultimately benefiting the business.
6. DIVERSIFY AND MITIGATE RISKS
New family members often bring fresh ideas and are willing to embrace challenges. Expanding into new markets or creating new product lines can diversify the business and drive sustainable growth.
7. PRIORITIZE SOCIAL RESPONSIBILITY
While profit is crucial, contributing to society can also advance the business. This can be in the form of occasional donations or having a dedicated CSR team as part of a core organizational mission.
Another valuable approach is adopting ESG principles. This concept is gaining traction among global investors and companies and can help enhance your business credibility by demonstrating responsibility to all stakeholders.
In conclusion, managing a family business presents unique challenges, particularly regarding generational differences. Family members must adapt, find common ground, and communicate effectively to understand and respect each other’s viewpoints. These elements are crucial for ensuring the family business thrives and continues to grow for generations to come.
Reference: MultiPrime’s Analysis
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