Challenges of family-owned businessesThe new generation has little interest in continuing the business built by their elders.
Family-owned businesses act as essential pillars for a developing economy like ours. Most micro, medium and small enterprises—barring some big business houses—are operating as family-owned businesses in Nepal, a scenario that we tend to witness both in India and Bangladesh. For instance, around 80 percent of the overall businesses in India are family-owned and operated. Though no precise official statistics are available for Nepal, it is estimated that around 85-90 percent of businesses are family-owned.
The challenges to family-based businesses in Nepal are not very much different from those faced by their counterparts in other countries of the South Asian region. The hurdles of running a family-based business mainly pertain to unstructured governance, succession planning, family conflicts and feuds. Over the years, running a family-based business is increasingly becoming unattractive to successive generations of entrepreneurs.
Most of the family businesses currently running in Nepal were started by first-generation entrepreneurs. Of late, many such businesses are on the verge of collapse or are being bought by outside investors. This is happening primarily because the children or the successors to the founding members of the ventures are not keen to take up and continue the business. Most second-generation entrepreneurs are undecided whether they should scale up a business or continue to make further investments in it. This ambivalence is primarily because their progeny is not emotionally attached to the business, and would prefer to go abroad or take up their own pursuits, trade or otherwise. Continuing with the family business or scaling up their parental enterprises hinges mainly upon one aspect: succession planning. However, such an exercise to hand over the legacy and mantle of leadership to the next generation is conspicuously absent among the members of the older generation businesses.
One can see growing disenchantment among second and third-generation entrepreneurs. This issue of governance is visible and continues to persist in family-owned businesses. Generally, most family businesses keep the senior members of the clan as the leading authority or the karta who act as the family figure. Even though this is an excellent old practice handed down for generations, clear reporting mechanisms are never established and kept in place. This violation of "unity of command" gives rise to a situation where a family member is made to report simultaneously to multiple authority figures of the family. Also, successive generations of entrepreneurs are getting exposed to education in professional business schools both within and outside the country, and they would not find it comfortable if they were made to work in such family settings in an unprofessional manner.
Family disintegration is one of the biggest problems leading to businesses being reduced to fragments as a consequence. Moreover, laws related to property transfer have always been a perennial problem. The concept of limited liability partnership is not yet recognised. Management becomes daunting when no specific department with adequately laid out job descriptions for the functionaries is created. Sometimes, such businesses are riddled with unhealthy competition from among the family members. This lack of farsightedness results in avoidable losses to family businesses.
Family businesses do not have a sense of security and woefully lack sustenance policies. Among many issues, first-generation entrepreneurs lack an educational background. They are stuck in their old ways while the descendants of such entrepreneurs are being educated in business schools aflush with creative ideas, thus leading to a conflict-driven environment. In contrast, while the first-generation entrepreneurs wish that their family members continue their business, creating interest in the family business for posterity has become a more significant challenge for them.
Sometimes, a few among the young generation entrepreneurs have entered the family business due to the demise of a family member managing the business or because of some other compulsions and contingencies in the family, not out of their free will. The need to run the family business on modern lines always remains a bone of contention and source of family conflict among successive generations. In this context, the custodians of the business have a crucial role to play in teaching their children the ropes and making them the firm’s shareholders by offering them a share in the ownership capital.
It is observed that second- or third-generation entrepreneurs who are expected to step into their parental businesses neither possess a felt obligation nor demonstrate a sense of ownership. Those who get quality education at good schools look for much safer and greener pastures abroad or even a corporate job offering better pay. Young professionals having traditional family businesses tend to believe that family-run and operated firms do not give them the much-needed leeway to enjoy a life that is available by working for others.
The present generation of millennials and Gen Z must have seen their elders and seniors struggling day and night and sacrificing their personal and family lives to run and sustain the business. Hence, their outlook toward life and individual values does not seem to be in sync with the conventional philosophies of the family business. These youngsters are exposed to the success stories of family-owned companies by others, nor are they taught in business curricula. Ideally speaking, they could be a source of inspiration for these young minds. Business schools are expected to discuss cases of accomplished entrepreneurs and their travails and tribulations.
Exposing the students to the structure and functioning of family business as part of the curriculum in the teaching-learning process can have a meaningful impact on many business students at the undergraduate and graduate levels. This is expected to positively contribute to making the traditional family businesses not only viable but sustainable in the long run. Family-based business thrives on specific core values and family ties that the founding fathers must have held out and lived for generations to inculcate among the members of the new generation. To what extent these young family members imbibe them holds the key to successful family-led ventures. Higher education institutions also have a crucial role in sensitising and educating the youth to view getting into business, especially the family business, as an attractive profession and a viable career option.