Can Your Family Business Outlive You?

Written by NaijaEcash

Topics: Entrepreneur, Nigerian

Pass The Baton

Pass The Baton

A business research expert told me that the average lifespan of a family-owned business is 24 years, and 60 percent of family-owned businesses do not have a clear succession plan. That got me thinking. As a Nigerian, I am well aware that several indigenous businesses in Nigeria are family business. Most of the successful Nigerian Entrepreneurs that are making waves in the economy built up their businesses as family-owned businesses. Just a minute, what really is a family business?

What is a family business?
For the purpose of this discussion, I will define a family business as a corporation that is majorly owned by the members of a single family. In other words, a family business is a business in which members of a family have significant ownership interest and significant commitments toward the business’ overall well-being. They hold the controlling shares and dictate what happens. Naija brothers and sisters will quickly understand this. NaijaEcash & Sons Company sure sounds familiar (even though it has not been documented with Corporate Affairs Commission).

You may be wondering what percentage of businesses in Nigeria are family business? Well,  it is  well over over 80% of indigenous businesses. There are no centralized database kept and too many of the family businesses are operating in the informal sector where records are not properly kept. Well that is not the issue under discussion. The issue here is How long will your family business survive?

Why do many Nigerian Family Business die with the founder?
I do not claim to be an expert. So I will only share what I know. Since I will be sharing from what I have learned and observed, I will restrict my examples to Nigerian Family Businesses. Hopefully, others will throw in more light through their contribution to the discussion. Here are my observations:

Often the founder alone owns the vision or business idea. Others family members were just drafted in because they are family members. So, it is not surprising then that such family members may not be qualified for the position they occupy. Neither are they passionate about the mission of the business. Too many are actually only interested in the treasury!

A family member personal interest may be in direct conflict with the well-being of the business. In such situation, non-family members in the organization may not feel free to express their views if it is in direct conflict with the opinion of a family member. There is this story of someone who won an argument in a management meeting but lost his job few days after. He won the argument because his proposal was the best and it was implemented. But he never reaped the benefit of that proposal he initiated. He was actually eased out of his job. I learned that the family member who had the proposal that was turned down felt insulted. The plot to fire the officer was concluded over a barbecue. The Chief Executive Officer did not get to know about this mischief until it was too late.

Diverge interest among family members may create confusion. For example, a family member who is also an employee could be a clog in the wheel of progress. A personnel manager may not have the gut to fire the family member and replace such with a more qualified staff who is not a member of the family. I’ll give you an idea with this real story. In my previous place of employment, there was a staff who has no job description. Yes, you heard me right. The personnel manager was simply instructed to employ her and then find a job for her to do. I know it sounds ridiculous, but that is it. The instruction was from the CEO. The personnel manager was in a dilemma because the new staff just didn’t fit into any place. So she was given an empty office furnished with a table and chair. (I’ve forgotten the job title that was given to her.) Well she got herself busy doing her manicure and pedicure in the office. Whenever she gets bored, she visits other offices and engaged in gossip. She had a fat salary package which made many of us envious. But nobody had the gut to complain. (Don’t ask me why I left that employment. I ran for my dear life because I saw that the organization has no future).

The demise of the founder can lead to the death of the business. In many cases there are no succession plan laid down by the founder (death comes unexpectedly). So, ascension to the highest office in the organization becomes Survival of the Fittest. There have been several stories of businesses that went bankrupt because the Directors were encumbered with several lawsuit instituted by members of the family. In case you are not a Nigerian, I need to educate you that in Nigeria, the position of Chief Executive Officer is a status symbol in the society. That will help you understand why every family member in the business will scramble to occupy the chair (even though they may know next to nothing what it entails to run an organization).

Well those are my observations. However, it will be unfair if I fail to mention that Nigerian Professionals such as Lawyers, Accountant and Doctors whose Firms can as well be described as family  business have succeeded where the Entrepreneurs failed. There are several family owned firms that have already recorded smooth succession from one generation to another. Worthy of note are firms such as Akintola Williams & Co, Chartered Accountants and Chief Ladi Rotimi Williams Chambers.

What are the family businesses in developed countries doing right?

Distinguish between family and professional relationships. This is a tough one. You must put down your feet and insist that everyone in the family acknowledge that the business is a separate entity, not an extension of your living room. Conduct in the business place must therefore be professional, not emotional. It might be necessary to make some draconian laws such as; business discussions must be done in the office and family discussions must be done at home. These regulations are not easy to enforce, but they are very much needed.

Job assignment must be based on qualification, not emotional ties. Each family members must have their job description well documented and they must be held accountable just like any other staff. Non-family members must not be made to feel like second-class staff in the organization.

Family members must not be allowed to circumvent organizational structures. Being a family member must not be used as license for insubordination to a superior. The flow of command must not be disrupted. A detailed diagram of the organizational structure should be drawn an placed in a conspicuous place within the organization. Each staff should be well informed of where they belong in the organizational structure and who they are reporting to. Relationship among staff must be based on the structure and not blood or emotional ties. For example, if the personnel manager cannot call a junior staff to order because he is mummy’s pet, then that organization is heading for trouble.

Insist on Job reviews and appraisal. Job appraisal, must be carried out and the result must be based on achievements. Every staff must be accountable. Insist on holding reviews of job assignment to determine if each staff member, family or non-family is working for the progress of the company.

Institute Discipline and Rewards. Rewards and discipline must be based on performances. Promotion must be based on merit, not emotional sentiments. Erring family members must be treated just like other staff. If necessary, stringent disciplinary actions such as suspension, and outright dismissal must be employed when needed. Like it or not, some family members have no business working in their family business. They are better off working for someone else. At the end of the year, they can always have their dividend. Why allow them kill the goose that lay the golden egg?

Why I wrote this article.

An article I read about Paul F. Peddinghaus was part of what motivated me to write this article. In 1903 he acquired a small drop-forge company in Gevelsberg, Germany, and so began the Peddinghaus Corp. That business is still being headed by a Peddinghaus 105years after! That is a challenge to the Nigerian Entrepreneurs. I strongly desire to see Nigerian Family Businesses that will outlive a generation.

The views expressed above are quite personal. I sure will love to hear your view. You can contribute to the discussion by dropping a comment. Cheers.

7 Comments Comments For This Post I'd Love to Hear Yours!

  1. R. MAK. says:

    As a freelance business consultant, I had an opportunity to look very closely at the organization structures of many family business, in Asia and around the globe.

    I found one thing in common among them. Lack of business continuity planning and decision making systems.

    Founder / CEO usually decides everything from hiring to raw material selection.

    Lack of business continuity planning and Independent and empowered managers is main reason of collapse after the founder / CEO leaves the business or dies….

    Over all I can relate to the above article and found it very useful.. I hope CEO’s and business owners will read it and take corrective measures in their respective areas…

    R. MAK.s last blog post..A Quick Guide to Credit Card Basics

  2. admin says:

    @R.Mak
    Thanks for sharing your experience with us. Cheers.

  3. SEO Girl says:

    Hey Naija, Great to find out about this. very interesting points you make on family businesses. This is just a big up from SEO Girl Looking forward to seeing more of your blogs and being enlightened. Thanks again

  4. lillian rotibi says:

    this information is very useful. my mother died without a will and left a school buisness for myself and my siblings. i have run the buisness for over 12years singlehandedly and have always given returns to my siblings overseas but recently i have found that there is no trust amongst us, so i decided to sell my shares to one of them. i have since started and built my own school…the problem now is that the one i sold my shares to, has no knowledge of the buisness and is based abroad. i am still running things in the buisness becos i have not being completely paid off yet…any advise on how to handle things from here?

  5. Williams says:

    Lovely comment. I could not help but to jot down

  6. Tayo says:

    Nice one. Noted.

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