A study released by Bharartiya Vidya Bhavan’s SP Jain Institute of Management and Research (SPJIMR) has found that small and medium family enterprises have less to worry about from the business side. Instead, family issues may prove to be the proverbial Achilles’ heel for such businesses.
The study, titled ‘India: State of the Family Business Report’, undertaken by SPJIMR’s Centre for Family Business & Entrepreneurship (CFBE), involved a survey of 350 family businesses across India over May-October 2022, conducted by Hansa Research.
It found that most small and medium family enterprises have reported either stable or increasing trends across various parameters such as sales, market share, profitability, number of people employed, and profit margin on sales in FY 2021-22.
This would be in line with the provisional estimates released by the National Statistical Office (NSO), which reported that the Indian economy had fully recovered to its pre-pandemic levels of 2019-20, with the real GDP growth rate estimated at 8.7% in 2021-2022.
The sentiments regarding their competitiveness in the past three years and their future expectations regarding growth and adoption of technology remain optimistic for these small and medium family enterprises, even though expectations regarding cost increases run high.
Microenterprises reported better business performance than other small and medium enterprise peers.
Most microenterprises reported stable or increasing sales, market shares, profitability, Return on Assets, Return on Equity, and profit margins compared to medium enterprises. These enterprises also reported employing a greater or the same number of people as before.
More service sector enterprises reported improvement in business parameters such as sales, market share, profitability, number of people employed, and profit margin on sales compared to manufacturing enterprises and thus outperformed them.
It is on the family side that family businesses face the most significant challenge. While the FBs are governed by clear values and a code of conduct, there is less attention paid to critical aspects such as family governance and planning for succession.
This manifests in unclear succession timing, despite an intent to hand over the business to the next-gen family member and a reluctance to let go due to the perceived inability or lack of interest in the next-gen family members.
“Our survey reveals that despite a seemingly difficult and uncertain business environment, small and medium family businesses seem less pressurized by business developments.
In fact, family businesses will face greater headwinds from the family side than from the business side, with issues of succession and governance looming large and threatening their business performance.
Our survey also sounds a warning bell to family businesses in India- the most common form of business organization.
Family Businesses will need to put their family in order, so that they can reap the benefits of an improving business environment,” said Dr Tulsi Jayakumar, Executive Director, CFBE and author of the report.
Pointing to the difficulties of succession planning - a key section of the survey, Dr Jayakumar added: “Management schools and consultants will need to train the senior generation family members of the importance of ‘letting go’ in order to preserve the family business they have invested so much in.
Many of the respondents among the senior gen in our survey expressed their intent to continue running the business as long as they could.
This would of course demotivate the talented and independent among the next-gen.
Transgenerational entrepreneurship can be fostered only through paying sufficient attention to family dynamics.”