Challenges Faced by Family Businesses
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Entrepreneurial businesses and family-owned businesses are the backbone of the Indian economy, employing more than 75% of the workforce. After working with family-owned businesses of various sizes across many industries for the past 10 years, I have observed that almost all of them constantly battle with multiple issues.
Addressing these challenges will determine whether the businesses can remain competitive, relevant and are well placed on their growth trajectories.
It’s true that some of these people issues are not exclusive to entrepreneurial businesses. But, they are more pronounced here because of their unique combination of emotion, power play, decision-making, and operating dynamics.
Challenge in Attracting High-performing Talent
One of the key issues faced by family businesses is attracting high-performing ‘non-family’ talent. Few would argue that the ability of a business to attract ‘top talent’ will, to a large extent, dictate how successful the business will be in the long run, as it moves beyond the need of just the entrepreneur’s expertise.
In my experience, it’s not that the talent isn’t there — the issue is in attracting the right people. A significant percentage of candidates I interview decline offers due to specific perceptions. My focus, therefore, is to dispel concerns like:
•The perception of limited career advancement. That the opportunity for profit-sharing rarely exists
•That they will never be viewed as a true leader in the business – the owner will always be regarded, internally and externally, as the one calling the shots!
•That they will never fully have the owner’s ear – they’ll always be competing with family members for it
•Long-term certainty or future potential is unclear, because of the inherent ambiguity in succession issues in family businesses and the fact that a relatively small percentage of family businesses successfully transit across generations
Today there is a level playing field and entrepreneurial businesses compete for talent across geographies and industries. They need to attract the right people at the right time in the right place and have structured processes for managing them.
Lack of Accountability
That brings us to the next issue — most family businesses are not built on a performance culture. Their people, rather than position-based structures result in posits being filled on the basis of relationships, trust, and family dynamics. Recruitment, rewards, performance management, and development structures are half-heartedly implemented or non-existent. Also, depending upon the relationship, disciplinary and performance improvement measures may not be applied consistently for non-performing employees. As a result complacency and lack of accountability plague family-owned businesses.
How to Ensure High Productivity
From the perspective of employees, inequality in terms of compensation, promotions and training opportunities signals a lack of fairness. This, in turn, affects engagement, productivity, and retention, making it difficult to attract and retain talent and develop the knowledge, skills, and abilities required to grow the business profitably.
Thus setting clearly defined roles and expectations, KRA/KPIs and monitoring those regularly through engagement dialogues ensure high productivity. Once these processes are developed entrepreneurs must demonstrate their belief in the process and adhere to them and insist that others follow too.
Another area of challenge is that most entrepreneurs rely heavily on a few key people who have the knowledge — tacit or otherwise. Therefore decision making tends to be centralized. This leads to decision-making bottlenecks.
What’s the Solution?
The solution remains in empowering employees at different levels. But a word of caution here about employee empowerment — it should not be considered as something a manager confers on employees, but rather as an ideology and strategy to help people develop skills and decision-making competency. This will ensure that knowledge is shared and retained within the organization, instead of residing amongst a few individuals, reduce over-dependence and create a pipeline of leaders at different levels.
Priority in Leadership Development
Lastly, I wanted to talk about leadership development and its low priority in family run businesses if it is addressed at all. Needless to say, it is critical to the continuity of the business. Developing the next-generation leaders, who can successfully negotiate and maneuver through the complexities of leading a family-owned business is a must.
The need is to learn how to establish your credibility and authority in the business fraternity, among shareholders and the board. Here leadership development curriculum must be designed with insights from a 360-degree assessment, psychometric tools, and personalized coaching, to provide a holistic intervention from an individual, familial and organizational point of view.