Challenges of Family Businesses and How to Face Them

Challenges of Family Businesses: It all starts with a dream, with a heroic character imagining how to carry out an idea in mind to provide a solution to the world, satisfy a market, be a prosperous company, provide well-being to customers, employees, suppliers and, of course, families. However, as time goes by, the business goes through a series of challenges that often end in the dissolution of the company. Only in Latin America only 45 percent of the companies managed to exceed two years of existence, while in Europe 80 percent did. 

Before continuing, it is opportune to point out the segmentation of companies, which is that, taking into account the INEGI figures, there are more than 4.9 million business units in the country, of which only 0.2 percent are large companies and 99.8 percent are. Of this universe, 95.4 percent are micro-businesses, 3.6 percent are small businesses, and 0.8 percent are medium-sized businesses. Finally, it should be noted that 83 percent of all companies in the country are family-owned and this has great repercussions for their administration and leadership where it is necessary to adopt specialized treatment.

1.- Quality in the design of a continuity and growth strategy

One of the situations that can affect companies the most is the lack of a strategy that ensures the continuity of the business and its long-term growth, a strategy that considers the needs of the current market and the most appropriate methodologies, for this, it is It is vitally important to have specialized and trained personnel to carry out this task in each of the business areas. Only 4 percent of family businesses are made up of the third generation and this reflects the challenge that growth means for them. It is not surprising when INEGI reveals that only 30 percent of them have a personal training plan for their personal life.

Being family businesses, it is easy to position relatives or friends in strategic positions for the organization without them being specialists in the field or having previous experience to carry out the position, also considering that the low resources to hire trained personnel are part of the situation, although this is not entirely bad, since it is a fact that these people have a high level of loyalty and solidarity in times of crisis, it is extremely important to provide all staff and especially those who play a strategic role for the company of the specialized training necessary to achieve the objectives and become high-performance collaborators. Said specialization must be part of the organizational culture of the company to ensure its competitiveness in the current market, better alliances and its continuous growth.

Generally, at first, your client base is made up of a close group of family and friends. Once the first circle of influence is attended to, that is where the challenge lies. Go out and conquer a market share. A business strategy is essential to keep the business running.

2.- Investment in long-term activities

More than 80 percent of small business give little importance to long-term investments, this point may be closely related to the previous point, since they do not have specialized leaders and executors in strategic positions, there is very little or no initiative to propose initiatives that in the long term mean profitable benefits and great impact for the company and therefore, do not invest in technology or digital transformation, on the contrary, efforts are focused on activities that are considered urgent for the day to day day. If this is your situation, we recommend that you approach specialized advisors in the different areas of the organization who can give you an overview of where the company is located and what are the best strategies to develop to facilitate not only survival but also its growth.

Seeking that the members of the company have the opportunity to specialize in their respective areas (whether they are family members or not) or going out to hire experts in the field are activities that will enrich and channel the company’s efforts towards sustainable growth.

3.- Communication and corporate governance

In any company, the strategy is defined and approved by the Board of Directors and implemented by the General Management, which makes it extremely important that said strategy be communicated clearly and effectively among the management group. However, at least 47 percent of the boards of directors consider that the business strategy is partial, that is, it is not clear and it is not formal. A good part of the family businesses have a single Administrator designated with centralized decisions and responsibility of a single man. This topic is worrying because companies become vulnerable in an environment that is complex, dynamic and competitive.

If there is no fluid and clear communication between the board of directors and the general management, how will it be possible to achieve the objectives, because perhaps these are not even the same for some as for others, if you believe that this is your case, we recommend you build a diversified social capital and efficient decision on making; moving from egocentric, central or single control, to centric, i.e. distributed control where skills are no longer focused on power and become diplomatic, moving from self to team will provide clear and proactive communication where opinions They are listened to and valued, although not all ideas may always be carried out.

Seeking a corporate governance with independent directors becomes crucial in the design of strategies and lines of action that the company must follow. The opinion of a third party outside the control group will always result in benefits for the company.

4.- Succession plan

The succession plan is a key piece for the continuity of the business. For a family business, it is an essential measure to deal with unforeseen events, such as the death of the founder or his separation. In this regard, according to a survey carried out by KPMG, 7 out of 10 family businesses consider transferring the management of the business to the next generation in the next 12 months; however, only 37 percent have a succession plan and of that percentage, 72 percent mention that said plan is partial. This means that, although family businesses know that this is a critical and priority issue, they do not act accordingly. As we saw in the previous point, it is a pattern of behavior that is related to not investing time, money and effort in those benefits that would mean long-term returns for the organization.

Seeking the “Institutionalization” of the company is always a strategy for advancement in family businesses and that guarantees its continuity and permanence. Institutionalizing means hiring experts in each area and leaving behind the central essence of being a family business to become a company with strategies, plans and programs that allow it to become stronger and more responsible. Whether or not it is made up of family and friends.

5.- Monitoring of performance indicators KPIs

According to INEGI figures for 2023, more than 60 percent of SMEs do not monitor key performance indicators, do not have quality management policies and systems, do not offer performance incentives, and only 34 percent fixed the problems in your operational process and took action to prevent them from happening again. Business risk management should be on the agenda of all companies, not just those that are family-owned. It is important that the Board of Directors and Senior Management get involved to understand what are the risks that are occurring around, be they operational, human capital, supply chain or of any kind.

Companies must implement actions aimed at continuous improvement to ensure their position in the market, otherwise, they will be left out in a short time. It recommended the standardization and optimization of processes through tools such as a CRM, as well as the establishment of meetings on a monthly, quarterly, semi-annual and annual basis to analyze the performance of the strategies in order to invest in those that are giving results. and adjust or eliminate, without forgetting to learn from those that do not give them.

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