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Thought Leadership Paper on

Family Run Businesses Opportunities and Challenges


Name: Date: Vijay Kumar Karai 28th October 2012

Student ID: Email: vijaykumarkarai@gmail.com

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COACHING FAMILY RUN BUSINESSES CHALLENGES AND OPPORTUNITIES


Executive Summary: The intent of this paper is to discuss the opportunities and the role of coaching in family businesses. The role of coaching in family business is unique as the issues that hold back family business from succeeding are mostly emotional in nature. Unlike, consulting or mentoring, Coaching is best designed to succeed as it doesnt run away from emotional issues nor does it take sides or talk down to any one client. Having said that, the paper also explores how the coach can make meaningful contribution in helping the client reach his/her potential. The role is also challenging as these clients are owners and managing such challenging clients comes with the territory. Building awareness and advantages of coaching, especially to the Asian family businesses is one of the biggest challenges. But once these clients become awareness of coaching and start appreciating the value that it offers, the opportunities are huge. The satisfaction of coaching such clients (who are keen on change) is immense as the results are very visible. Introduction : Family businesses world over form the back bone of market economy contributing more than 70% of the world GDP per year, according to the Family firm Institute. Inspite of such a huge impact that these businesses have on the economy, the success rate of family run businesses is alarmingly low. While, most of the studies and data have been taken from Indian family run businesses, the findings are universal and maybe used all over the world, while keeping the countrys legal and cultural issues in mind. Family business can be defined as owner-managed enterprise where family members exercise considerable financial and/or managerial control. (Ward & Aronoff,1990). Family businesses are usually started by a very dynamic promoter who builds the company from scratch. Typically the promoter succeeds and comes up the hard way. They have a hands-on approach to the business. In some instances, it is the 2nd generation who really builds the company that they inherit from the father. Famous examples of successful 2nd generation entrepreneurs are Mr.Azim Premji , Mukesh Ambani, Mr.Lakshmi Mittal, Jack Ma, etc.

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Inspite of the omnipresence and several successful family businesses, the unfortunate reality is that failure rate of family businesses are extremely high. Some key statistics for family businesses paint a grim picture: Only a little more than 30% of family businesses survive into the second generation, even though close to 70% would like to keep their business in the family. By the third generation, only 12% of family businesses in the US are typically still viable. Globally, this number is 15% according to a U.S. Trust, Bank of America Private Wealth Management study. By the fourth generation and beyond, only 3% of family businesses continue to exist. Survival rate of Family businesses after each generation
70% 60% 50% 40% 30% 20% 10% 0% 1st Generation 2nd Generation 3rd Generation
Source: www.peakfamilybusiness.com

USA

India

Fourth & Beyound

The reasons for this alarming failure rate are mainly due to the following reasons: Poor Succession planning Break ups Risk myopia Aversion to letting go of control and allowing professionals to run the business. Operational mediocrity caused by nepotism.

When one looks at the core reason for most failures, one characteristic that stands out is emotional inability to listen to reason and/or take action. These entrepreneurs (promoter
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or the 2nd generation or subsequent generations) have too many mental blocks that prevent them from succeeding and taking corrective actions. Entrepreneurs, who often lead family businesses, are noted for being rather volatile nature and can prove difficult to work with. Changes in a family firm often shakeup previously established patterns of behavior, causing emotions to rise to the surface such as power, prestige, role definitions, and self-esteem, etc. If management of emotions is the most fundamental issue that needs resolution, then a consultant, lawyer/attorney, or even a mentor or a counselor, will not be best suited to serve this purpose. It is my firm belief that a Business Coach is best suited to handle these complex business issues that involves so much emotion in the family business. This is the purpose of this article.

Case Study*: Mr. Ajay Kumar is a 2nd generation entrepreneur of a $200 Million dollar business. The business is mainly into consumer products, chemicals, venture capital and real estate. He is helping his father Mr.Raj Kumar in running his business since 20 years. His role had been initially in administration and keeping an eye on expenses. Later, he starts running a smaller business unit. While his role is slowly expanding in other major businesses; he is yet to take charge of the entire business, especially those which involve other partners/business associates. Ajays father, Mr. Raj Kumar built this company from scratch over 40 years. He is not highly educated but extremely intelligent and very strong personality. Raj has very strong communication skills and has handled very tough situations. The business grew rapidly in 1980s and 1990s and upto mid 2000s. This was largely because of the excellent brands (both Indian and International) that his company acquired or had licensed to. While brand marketing was done by the International companies (brand owners), Mr.Raj Kumar focused on operational efficiencies. He also invested his surpluses in real estates which yielded good dividends. He runs his companies with an iron hand and has a very hands-on approach. The organization built is run by people who are loyal to him and have a very practical approach towards work. They have been largely good employees without major qualifications and have a good track record. Mr.Raj Kumar leadership style is an authoritarian style but is open to listen to suggestions and scope for improving the business. He works very hard and travels extensively even though he is now in his midseventies.

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The accounting system of the business is very poor and there is no Chief Financial officer to talk about. The outside audit firm which handles tax audit is left to handle finances and guide regarding the health of the company. By mid 2000s, the business grew but the leadership style and organization matrix remained the same. Mr.Raj Kumar continued to remain at the helm and took all decisions and mostly without even consulting his son. Eventually, the law of averages caught up and many investment decisions backfired. Some of the investments were complex arrangements with various partners and most of them got stuck or proved bad. In light of the above, it was obvious to all that the son, Mr.Ajay Kumar takes over the business and sorts the issues out. However, as a result of 20 years of constantly working in the side-lines and under the fathers shadow, Mr.Ajay Kumar is hesitant to take over the entire business but was only keen on focusing on businesses that he understands and leaving all the troubled investments to his father. The father calls a consultant, who is old business contact, to help him solve his problems. After studying the problems, the consultant realizes that the problems are indeed very complex and would take years to completely resolve the problems and also realizes that the father is unable to take the right decisions. In light of this, the consultant recommends that the son should step in and take over the reins. The father agrees but the son refuses on the grounds that the problems are too complex and that the father is really not ready to completely let go. The consultant soon realizes that while there are business issues to be resolved, there is indeed a serious succession planning problem. The dynamics between the father and son is complex and layered. It was also becoming clear that consulting is not the solution. There are a lot of emotions that seem to be playing under the surface. The risk appetite between the two is enormously different. He is wondering if the father-son duo needs to be coached by a true professional Executive coach.

Potential Solutions In most cases, the promoter or the entrepreneur delays taking action especially when he is the perpetrator of the problem. Hence he initially hopes that the problem will go away and later try to solve it himself. He finally goes to a domain expert who is likely to give a set of solutions, which may or may not deliver the proposed results. The reason for this is that the fundamental problem lies with the promoter. In the case of Mr. Raj Kumar and his son Ajay Kumar, the core issue is the complex father-son relationship that being spilt into the business. Unless this issue is resolved, the problem is not going away nor a permanent solution can be obtained even if the current problem is somewhat managed. The best person suited for handling emotions in business is certainly not a consultant. Sometimes they happen to be a confidant or even some kind of mentor. Rarely is the
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confidant really neutral and he is most certainly not professionally qualified to really bring about a change. The mentor is not best suited as he is seen to pass down his views which may not be agreeable to both parties. In contrast, a Coach may be able to help in a really powerful way. He is equipped to handle the emotions of the clients as well as help shift perspective that is sometimes so required to arrive at a solution. The coach is also seen as neutral and can challenge the clients without any perceived judgments. Coaching Intervention The role of the coach would be to first understand what the father-son duo really wants for themselves and from each other. This may be easier said than done. These are complex people with complex needs and it is possible that they themselves dont know what they want. The coach will have to use techniques like NLP,etc to get the clients to open up and/or discover what they really want from their lives, their family and from their family businesses. Unless there is real passion in the business they inherit, the 2 nd or 3rd generations are not going be successful. There are several reasons why the client is unable to articulate their real passion: They have been brought by their parents from early childhood that they would eventually take over the business and to say now that their interests lie elsewhere would be causing disappointment to the parents. Taking over the business brings in familiarity and comfort. They believe that they are in safe zone. They may have to share the business with their sibling with whom they have a very uncomfortable relationship Risk appetite and risk management. In the case of Mr.Raj Kumar and Mr.Ajay Kumar, the expectations of both of them from each other and for themselves need to be delved in. This could lead to a better understanding of the core issue. The Coach can intervene in a very powerful way to help both the clients, viz the father and son. An outdoor retreat could help them examine themselves more deeply and help a paradigm shift in their perspectives. NLP exercises like perceptual positioning could help them see and understand from the other persons point of view. Once, the client(s) become aware of what they really want in their lives and/or what from the each other, it completely changes their perspective. The realization could either help in moving forward or could throw up new challenges. The client may have some limiting beliefs that could hold them back from moving forward. In such cases, the coach needs to firstly help the client become aware of this underlying belief. Once this is done, the client now is in better position to understand how they can handle these dis-empowering or empowering beliefs.
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A critical aspect in the entire exercise is the management of emotions and the complex relationship between the family members and their impact on business. The coach could help the clients to seek and appreciate the strengths of the other family members involved in the business. Techniques such as Appreciative enquiry, etc could be used to help them in this shift in perspective. The coach then helps the client(s) to explore options given the new perspective and realizations. The clients then debate the options and arrive at an action plan that is best suited for them and one that would help realize their true potential. In the case of Mr.Ajay Kumar and Mr. Raj Kumar, there could many steps that they need to be explored before arriving at an action plan. The biggest step would be for Mr. Raj Kumar to let go and accept what best for Mr. Ajay Kumar. On the other hand, Mr. Ajay Kumar needs to learn to believe in himself and where his true potential lies. Both need to realize their respective limiting beliefs. This realization would help them lead to action plan that is more likely to succeed. The solutions reached would have the acceptable to all parties as they are made with better understanding and with buy in from all parties. The role of a Coach doesnt end with the conflict resolution or helping clients take a more empowered action to achieve their goals. In fact, a good company may retain the Coach on an ongoing basis even if want to use Coaches as a sounding board to help clarify issues.

Challenges in Coaching Family Businesses: The biggest challenge faced by Coaches targeting this segment is lack of awareness and understanding about coaching as a tool in helping resolve business and more importantly family issues. This is particularly tough in Asian countries where family businesses are normally very closed knit and secretive. The concept of opening up to an outsider is a hurdle that one has to overcome. Secondly, coaching family businesses require tremendous inter-personal skills as family members and in particular the head of the family/business can be extremely challenging clients. The coach would need to quickly build the trust among key members of the family. But once having done that, the coach has several advantages such as neutrality, confidentially, ability to maintain a distance, etc. These advantages are huge and work strongly in favor of Coaches compared to a mentor or a confidant.

Conclusion: The family businesses are the engine of growth in any economy. They are innovative and a great source for employment. With world markets getting increasing competitive, it is imperative that the failure rate of family business be reduced. While there are many
Copyright 2012 Vijay Kumar Karai. Use is governed by the Terms and Conditions at http://www.icoachacademy.com Last updated Feb 2012

external challenges facing the family businesses, failure due to emotional issues such break ups, poor succession planning, inability to let go of control, etc are internal issues that can be managed if the clients are committed to it. But unfortunately, it is these emotional reasons that are one of the biggest reasons for the failures among family businesses. Families who have managed these issues have shown that they can become some of the most successful companies in the world and stand test of time. Outstanding examples are Tatas & Birlas in India, Samsung of Korea, Ford, Panda group & Walmart of USA, etc. Hence, failure rate of family businesses can be dramatically reduced if the key members of the business take corrective steps in time. A good Coach can prove invaluable to family business in helping them achieve the true potential that they deserve. The coach can help the key family members to look inward, outward, and towards other family members in a manner that is best suited for the business. He is also their sounding board. The confidential nature of the relationship and with no-vested interests, the coach is also a great resource that the owner(s) can talk to.

References: Family Business Statistics in the US- Isabella McPeak. (http://peakfamilybusiness.com/2011/10/25/family-business-statistics-in-the-us/) Approach to Family Business Coaching Center for Applied Research . (http://peakfamilybusiness.com/2011/10/25/family-business-statistics-in-the-us/) Why do 70% of Family Business Fail by the Second Generation? By: Richard B. Schneider, Estate Planning Attorney / Category: Small Business Planning http://lindsayleaver.blogspot.in/2009/12/family-research-report.html Family Firm Institute. Interview of Mr. Puneet Dalmia in Forbes india. http://forbesindia.com/article/my-learnings/entrepreneurs-should-notmanage-business-handson/10952/1#ixzz2AyIVJ6v1 Indian Family Business Their survival beyond 3rd generation - By K. Ramachandran, Indian School of Business. *Case Study is based on real situation. The names have been changed. Permission has been sought to discuss their situation without revealing names and other identities.

Copyright 2012 Vijay Kumar Karai. Use is governed by the Terms and Conditions at http://www.icoachacademy.com Last updated Feb 2012

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