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How to turn a start-up into a lasting family business

As much as 98 per cent of the world’s economic activity is accounted for by Family businesses but for many companies, making that transition from entrepreneurship to a smoothly-run family business is difficult, says Allan Cohen, a professor in global leadership at Babson College, a US business school that specialises in entrepreneurship research.

“When a business has been built from scratch, many entrepreneurs have difficulty letting go of running it, whether to experienced executives or their own children,” he says.

That transition is made particularly difficult when the family member to whom the founder wants to pass the business is young. Founding a company is often seen as more exciting than inheriting a parent’s creation, according to Shaheena Janjuha Jivraj, a senior lecturer at Henley Business School, who has been researching family businesses for the last two decades.

The transfer of power is easier when there is a clear successor. When there are multiple children, the risk is that someone feels left out, notes Bernard Rennell, global head of family governance and enterprise succession at HSBC.

David Glassman, a visiting fellow at Cranfield School of Management, who coaches chief executives and advises on family business issues, says the key is to avoid favouritism or any perception of it.

“Apply clear performance measures to all roles and monitor them for the sake of all,” Mr Glassman says. “This process, used judiciously, will spread a clear message of meritocracy to current and future employees.”

However, Prof Cohen points out that it can be difficult for a founder entrepreneur to acknowledge the merits of a former dependent.

Money is the root of many transfer problems, says Prof Cohen. “If the company is seen as the source of the family’s financial future, the concerns can be magnified about whether the family member is competent to protect that,” he says.

Source: Moules, Jonathan., June 7, 2017, https://www.ft.com/content/2973b060-1aef-11e7-a266-12672483791a



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