About Family Businesses – Part 1 – Asrar Qureshi’s Blog Post #707

About Family Businesses – Part 1 – Asrar Qureshi’s Blog Post #707

Dear Colleagues!  This is Asrar Qureshi’s Blog Post #707 for Pharma Veterans. Pharma Veterans welcome sharing of knowledge and wisdom by Veterans for the benefit of Community at large. Pharma Veterans Blog is published by Asrar Qureshi on  WordPress, the top blog site. Please email to asrar@asrarqureshi.com for publishing your contributions here.

Photo Credit: Andrea Piacquadio

Photo Credit: Fox

Photo Credit: Karolina Grabowska

This series of articles partakes from some material published in INSEAD Knowledge. INSEAD is in France and is highly ranked among the most prestigious business schools of the world.

Almost all businesses start as family business, even if they are started by one individual. However, the future trajectory varies greatly. It is reported that around 70% fail even before the second generation takes over. There are many reasons for such huge failure, but it is mostly due to failure to change as per need.

Our focus here is on pharma industry, and specifically on Local Pharma enterprises. Barring a couple, all are still privately held. And all of them are controlled by the family. Few have risen to great heights while majority is still struggling. The second generation in some cases have strengthened the organizations but have ruined many. Outside Pharma, it is the same situation. Big brands like Leather Connection, Jafferjees, H. Karim Bakhsh have suffered due to family splits. 

There must be some common reasons why this happens so frequently, apart from the reason that the owners or their second generation loses the way morally, ethically, or financially, and take decisions which are self-destructive.

INSEAD Professor of Economics and Academic Director of the Wendel International Center for Family Enterprise Morten Bennedsen has offered some suggestions for family businesses which we shall talk about in these posts at appropriate places.

Quote [This process of shifting from family to professional leadership, sometimes back again, is probably one of the biggest challenges that family firms have today] Unquote.

Professionalization is not just about handing over the organization to outsiders; first and foremost, it is having the right people with right skills at the right positions. As the organization starts from one entrepreneur, it must evolve into a team which will handle all operations independently. So, it is about the human resource, finding, hiring, training, and retaining. The rigorous process that goes into hiring an employee does not go into inducting a family member. Based on observations, we see some common reasons in Pakistan, and other countries like us. 

The children of the original entrepreneur do not study well and end up with some useless degree from some institution in the US and Europe. While there, they remain busy in spending family money on lavish living and all that goes with it.

Second/ Third generation children start from the top position and miss the opportunity to learn in depth. They may even be educated in good places, but they lack the understanding of the enterprise which their earlier generation had. If they come to learn and drive, the situation is okay. However, if they come to drive only, there may be turbulence.

In the order of priority, after own generations, the next could be extended family. In some family businesses, extended family is welcome while in others it is completely forbidden. Relatives, if present, are mostly a pain for organization. They usually work less but pose great importance and remain a source of demotivation for employees.

The second part is about building policies, systems, and processes. The sole entrepreneur takes responsibility for everything that happens in the enterprise, and he uses his sole discretion in deciding matters. It is good up to a certain stage, but when business expands, various functions must be evolved and developed. Similarly, the discretion should give way to policies and procedures, even if the decision making remains centralized. This is another area which requires deep understanding and wisdom to transform the organization from one person army to a battalion of managers.

Among the local pharmaceutical corporates, those who made the above changes have grown to various heights, all factors considered. They might have taken different routes, but their results match. Those who expanded organically but did not delegate are still struggling in the lower cadres. After this brief preamble, we elaborate some major reasons for strongly growing family businesses, and later for weakly growing ones.

Factors Which Help Growth

Desire to Change – Not every entrepreneur aims for the moon. Long time back, a pharmaceutical enterprise owner told me about another owner that he had fixed a certain volume to achieve in a month, and when they reached that level, they stopped selling further. This attitude may be seen in two ways: one, the businessman is very contented and does not want to spoil himself and his family with undue riches; two, the owner is extremely self-centered and shortsighted, and has neither vision nor consideration for the organization or the staff working in the organization. The employees shall only grow in status, income, and benefits if the corporate grows profitably. If the corporate caps its income, the staff income and benefits shall also be capped for no fault of theirs. 

The change always starts from the desire to change. It cannot be forced from the outside. Desire is not entirely innate; it evolves with more knowledge and information. The world is currently going crazy about desires. The desire to have more money, bigger car, higher status, greater luxuries are almost universal. Having said that, the routes to satisfying desires may be many; some legitimate, others illegitimate. The entire network of bribery and all forms of corruption are everyday examples of following desires. There are also people who work harder, learn more, dedicate more time and energy to achieve desires legitimately. It is this category that will go for positive and progressive changes. Without naming anyone, we know the companies who have gone for progress in a consistent, sustained way with great effort. Their achievements are the envy of everyone, and others wish to follow their footsteps. Wishes, however, must be changed to desires, to courage to change, to make it happen.

To be Continued……

Disclaimer: Many pictures in these blogs are taken from Google Images which does not show copyright ownership. If a claim is lodged at any stage, we shall either mention the ownership clearly, or remove the picture with suitable regrets.