How to grow Family Business
One starts a business with oneself doing all the tasks, right from getting orders to execution and recovering money.
There are three distinct stages in the evolution of any business. It is moving from ‘Doing’ to ‘Managing’ to ‘Growth’. One starts a business with oneself doing all the tasks, right from getting orders to execution and recovering money. This is also ‘survival’ stage. As the business grows one tends to employ help to do some of the tasks. At that stage the owner’s role is to ensure that people know what they are supposed to do and then they do what they are supposed to do. That is the stage of management. It is also ‘profit’ stage. Many of the family businesses get stuck at this stage.
However, the next stage is the stage of growth. It is important that every family business learn how to get into this stage and navigate through, as at this stage the rules of the game change substantially.
The first step is the realisation that growth is going to come by working on opportunities and not by solving problems. Problems must be attended to, but perhaps by someone else. Even if it must be attended by the owner, he must find time and energy to work on opportunities.
Opportunities are going to be found outside. Meeting customers for understanding their unmet needs and meeting suppliers for understanding new possibilities. Moving out in the ‘market’ and being alert to subtle signals will help one to identify new potentials.
At the same time, it is important to identify key strengths of own business. Each business has some unique strengths, capability and knowledge. Businesses are often aware of their weaknesses but do not have enough appreciation of their strengths. They tend to think that they are not good at anything special and whatever they are good at, others also must be doing it. That is the reason it requires some effort to unearth the strengths.
Once the strengths are identified - and all businesses have it - the next step is to explore possibilities of building on it and taking advantage of it. It is also called leveraging on one’s own strength.
Next step is to match the market intelligence gathered with external interactions on one hand and knowledge about own strengths on the other, to explore the potential and different options. It is crucial to identify areas about what one will do differently. If one does what one had been doing all along, the results will be no different. Similarly, if one does what all others are doing, one will get what all others are getting. Ansoff’s matrix gives a guide to think through four areas to explore what one can do differently for growth.
One area to explore is existing products and exiting markets to gain higher market share. It is known as market penetration. Another area is to explore new markets for the same product known as market development. Alternatively, one can explore new product for existing market known as product development. Finally, one can explore possibilities of new product and new market known as diversification.
Thomas Friedman in in his 2004 book, ‘The world is flat’ writes about sweeping changes taking place in the world and suggests how new models have emerged for the businesses. In this context the family businesses need to be sensitive to the fact that what worked so far in the past may not work any more in the future. In place of the old ways, new far more effective approaches might have come up. Traditionally many family businesses profited in information arbitrage. Supplier and buyer did not know each-other and the business was to connect the two. Another area they gained in the past was the long supply chain giving decent margins to each player. With the information explosion and the margin pressures tightening the supply chain, both the traditional models are under serious threat. On the other hand, with the advent of globalisation and technology new models such as outsourcing, insourcing, offshoring, franchising, chaining, on-line etc. are increasingly providing far more promising opportunities.
On the way to growth one important realisation required for the family business is that it can not continue to be one-man army. One need to transform into an organisation where people more capable than the owner work and contribute effectively for the business. It would require establishing systems for all the business processes and creating proper structure of responsibility, corresponding authority and eventual accountability.
The growth will also require collaboration with other businesses. That would mean building culture of dependability and professionalism.
When the business is in first gear, there is a limit to its results. Even if one puts tremendous pressure, one can’t go beyond a certain speed. It is only when one changes the gear - the way of doing business - that the new possibilities open. So much so that once gear is changed even with less effort more speed, more result is achieved, and a new momentum is built.
That is what is the key to the growth. Changing of the gears.
(Author Parimal Merchant is Director - Global Family Managed Business Program, S P Jain School of Global Management. Views expressed here are personal.)