Why professionalizing family businesses will guarantee business continuity

May 31, 2017 (5 weeks ago)
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Professionalization really means that the business does not become people-dependent.

Once the business reaches a certain size, and because time is a limited resource, the founders need to consider how to put more capacity and capabilities in place. Certain areas of the business will require certain skills and these roles could be filled by family members, although not necessarily. Like any start-up, family businesses start by filling essential operational roles but in time the owner should shift their focus to strategy.

In any business, there are four levels of operations: first, the operations themselves, which generate revenue for the business; second, people who manage those operations and make sure that they happen properly; third, people who are responsible for the business’s direction and finally a governance framework or board that oversees the business’s direction and represents the interests of shareholders.

Professionalization is an acknowledgment that any one person should not make or break the business. If the CEO was suddenly indisposed, would the business run in the same way? For family businesses, this is a double-edged sword because owners often want to maintain control but they also know that they need someone who knows what they are doing.

In a dynamic business environment like Kenya’s, there are many disruptive changes that require businesses to demonstrate speed and agility. They need the resources to steer the business in the right direction and professionalizing the management process allows the owner or founder to invest the time to explore new things.

Professional managers can take on responsibility for running the business but family businesses also need people who can aid the exploration process. Particularly when they start to think about expanding across borders, these businesses may not have the expertise to execute a regional strategy. They can outsource or hire the skills required, but family business owners need to trust people to take on new responsibilities and this can take time.

Family businesses sometimes struggle to attract and retain the right talent. Professionals who have trained and worked for large multinational organizations will naturally gravitate to that kind of employer. Conversely, many next generation family members earn their professional qualifications and gain experience working for multinationals before they join the family business.

Many family businesses are big enough to attract talented people but professional managers may worry that their ideas will get shot down at the top by family business leaders. They may also wonder if a succession plan will cause a sudden shift in reporting lines or responsibilities.

Family businesses can address these concerns by tackling the hard issues up front. Succession planning is an important part of the professionalization process and it can be broken down into discreet tasks. Honesty is the best policy: the family needs to assess the skills that the business requires and address any gaps before those gaps can cause harm to the business or the family.

A third-party mediator or trusted advisor can assist with this process by coming up with a plan and asking the tough questions. It takes time to build this relationship of trust but eventually the right advisor can help the family business to anticipate difficult issues before they arise.

Professionalization is about controlling the destiny of the family business before someone else does. It is about choosing the direction that you want to go. If you are determined to do everything, you will only be able to do what you can do. To do more, you need people to grow. In a way, it is a bit like a farmer planting one tree and constantly harvesting branches. If he plants more trees and more varieties, his business will grow in new and different ways.

Rajesh Shah is a Partner Tax Services & Saiba Nyindo a Manager Assurance Services both at PwC Kenya

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