Family Business :Entrepreneurship development

Learning Outcomes.
1. Definition of Family Business.
2. Characteristics of Family Business.
3. Structure of Family Business.
4. Types of Family Business.
5. Advantages of Family Business.
6. Disadvantages of Family Business.
7. Major Challenges faced by Family Business in
Bangladesh.
8. Business succession planning.
9. Making Family Business more effective.
10. The five assets of Family Business.
11. Dimension of Family Business.

Definition of Family Business.
A business actively owned, operated, and
managed by more than one member of the
same family. A family business is a
commercial organization in which decision-
making is influenced by multiple generations
of a family, related by blood or marriage or
adoption, who has both the ability to
influence the vision of the business and the
willingness to use this ability to pursue
distinctive goals.

Definition of Family Business.
Single-family own majority percentage of ownership
Possess voting control,
Has power over strategic decisions,
Has the involvement of multiple generations of the same family and
Senior management of the firm is drawn from the same family.
Example of family business: Dell Technologies-USA-Hardware-Dell; Tata
Group-India-Conglomerate-Tata, Toyota Group-Japan-Automotive- Toyota

Characteristics of Family Business.
Family Business Characteristics. Some of the main elements and
characteristics of family business are-
• Members: A group of people who are also a part of a single family operate
and own a family business. They include the owner and the business's
employees.
• Position of members: The relationships among family members determine
the role and position of the family members in the company enterprise.
• Mutual Interest: In accordance with the firm's and the family's shared
interests, family members holding significant positions in the company are
expected to have an influence on business decisions.

Characteristics of Family Business.
• Involving Multiple Generations: The family handles the business's
management and operations, and as a result, the reins are handed
down from one generation to the next.
• Mutual Trust: Since all family members have a same ancestry, the
same beliefs, and the same business orientation and ethics, they must
all have mutual trust in one another.
• Integrity and Transparency: These traits are based on upstanding
moral convictions, tenacity in pursuing professional objectives, and
honesty and openness in dealings.
• Control: Since the family is the company's largest stakeholder, they
exercise control over the business.

Structure of Family Business.
The family business system's three-circle
model is illustrated as follows: The first circle
in this diagram represents "ownership," the
second circle represents "family," and the
third circle indicates "business ." We will now
talk specifically about entity:

Types of Family Business.
Types of Family Business.
1. Family-Owned Business: As the name implies, a
family-owned firm is one in which a family member
or the family owns the majority of the ownership
share .
2. Family-Owned and Managed Business: A single-
family or a single-family member typically controls
the ownership of these types of businesses. With
controlling ownership, the family can set its own
goals and choose its strategies.
3. Family Owned and Led Business: In such a
business, at least one family member sits on the
board of directors and owns most of the company's
stock. In this approach, the family member might
impact the company's direction, tactics, and plans.

Advantages of Family Business.
Advantages are as follows:
 Long-term planning for generations: Long-term planning gives an internal
competitive advantage to family-owned business because decisions are taken
based on future returns.
 Positioning in the local market through trust in the family: It is then much easier
to reach a larger number of customers motivated by the trust that family can give.
 Family values: One of the advantages of family businesses has to do with the
values that will have the team that has been raised under the same image and
beliefs.
 Strong Commitment: Family businesses typically have a higher feeling of
dedication and accountability than non-family firms since both the needs of the
family and the Business are at stake.

Advantages of Family Business.
 Stability: Each family member's role in the family business typically
determines its leadership. This ensures overall stability within a family-
run organization because leadership tends to be stable throughout
time.
 Easier decision making: In a family-run business, there are less likely
to be political minefields and office politics to maneuver around.
 A certain comfort in working together: Starting a new job is often
uncomfortable and even depressing as you learn to maneuver around
others’ work styles and figure out the best ways to work together.
With family, there’s a kind of existing shorthand where each family
member knows the other’s ticks, traits, strengths, and styles.

Disadvantages of Family Business.
Disadvantages are as follows:
• Lack of Family Interest Even: if they have no genuine interest in doing so,
future generations in a family business may feel tremendous pressure to
continue running It . This could result in worse yet, management made
up of unenthusiastic relatives.
• The Conflict Between Family Members: Conflict can arise in any family-
run business because of the interactions of different family members, the
history of the family.
• Nepotism: Some family firms elevate family members to high executive
positions despite the fact that they are underqualified for those roles in
terms of education, and potential. This is a flaw that hinders the success
of the business.

Disadvantages of Family Business.
• They may break the rules: One of the risks of hiring or partnering with
a family member is that they may break the rules—where a traditional
employee or a formal partner will not.
• Mixing the company's cash flow with cash for personal expenses:
This is one of the disadvantages of family businesses that we see in
even the smallest ones, such as when there is a store and someone
grabs cash from the till because they need to buy something.

Major Challenges faced by Family Business in
Bangladesh.
Reluctance to hire executives from outside the family: It's natural to give
preference to family members when filling executive positions for a family
business but in crisis, it needs to bring in someone from outside.
Failure to embrace innovation: Family businesses tend to be slower than
other companies to introduce new technologies or apply new
methodologies.
Absence of founder's vision and determination: The simple truth is that
the brothers, sisters, children, and grandchildren of the founder don't
necessarily have the same skills or determination. Consequently, many
family businesses begin to decline once the founder is no longer active.

Major Challenges faced by Family Business in
Bangladesh.
Lack of long-term strategic planning: Often the first and second generations
implement a business model that proves successful and that is then viewed as
an invariable blueprint.
Lack of succession planning: Typically the founder spends all of his/her time
and energy working to build the company, and neglects to plan for a successor.
In the absence of his or her the business passes to a son or daughter who is ill-
prepared to running a company.
Conflicts within the family: A conflict between family members that spills over
into the business experienced by family businesses. such as siblings rivalry ,
intergenerational animosity, or even a marital dispute.

Business succession planning.
Succession planning is a strategy for identifying and developing future leaders at
your company — not just at the top but for major roles at all levels. It helps your
business prepare for all contingencies by preparing high-potential workers for
advancement. Here are seven tips for kick-starting the succession planning
process at your company.
1. Be proactive with a plan: Sometimes, you’ll know well in advance if a hard-
to-replace team member is going to leave the company — a planned
retirement is a good example. That’s why you need a plan — now. First,
consider all the key roles on your team and answer these two questions:
• What's the day-to-day impact of X position on our company or department?
• If the person currently in X position left, how would that affect our operations?

2. Pinpoint succession candidates: Once you have a handle on the ripple effect that
the departure of certain employees might cause, Ask yourself: If we were to hire
for X position internally, which employees would be the strongest candidates for
stepping into this role? Would those candidates need training? And, if so, what
type?
3. Let them know: In private meetings, explain to each protege that they’re being
singled out for positions of increasing importance. Establish an understanding that
there are no guarantees, and the situation can change due to circumstances
encountered by either the company or the succession candidates themselves.
4. Step up professional development efforts: Ideally, you have already been
investing in the professional development of those you select as your succession
choices. Now that preparation needs to be ramped up.

5. Do a trial run of your succession plan: Don’t wait until there’s a crisis to test
whether an employee has the right stuff to assume a more advanced role. Have a
potential successor assume some responsibilities of a manager who’s taking a
vacation.
6. Integrate your succession plan into your hiring strategy: Once you’ve identified
employees as successors for critical roles in your organization, take note of any
talent gaps they would leave behind if tapped.
7. Think about your own successor: When making a succession plan for your
organization, keep in mind that your own role will someday require backfilling.
Maybe you’ll decide to take advantage of a new opportunity, or you’ll put in your
time and retire from the workforce.

Making Family Business more effective.
One way to find out effective ways to run family business will be to discover the best
practices of successful family businesses. Following are the most important ones:
(a) Focusing on Business, not Family Needs: Although a family business
entrepreneur may feel obligations to take care of family problems. He/ She
should not use business as employment agency for family members. Neither
he /she should use business funds for family purposes.
(b) Ploughing Back of Profits in the Business: Profits earned by family business
should not be used for meeting family requirement, but should be reinvested in
the business to further strengthen and sustain it in the market place.
(c) Using Caution with Family: Be cautious about the implications of hiring family
members in the business to avoid likely conflicts and confrontations among the
family members.

Making Family Business more
effective.
(d) Delegating Authority or Decision Taking: A family business entrepreneur
should delegate decision taking to those who are competent and capable of
making right decisions.
(e) Viewing Big and Broader Picture: Family business entrepreneur should view
big and broad, that is, he/she should consider others’ interests as well while
running the business.
(f) Planning for Management Succession: Because family business runs for a
long period of time, hence there is always a need to have a good
management succession plan in place to carry on the business effectively.
(g) Prepare the Family Constitution: The family constitution also called ‘family
rules/ in simple sense, refers to do’s and don’ts do’s in the business. It
elaborates about the good governance practices to be practiced in the family
business.

The five assets of Family Business.
A family business's success is generally tied directly to how well the family business manages the five
unique resources every family business possesses. The five assets are:
1. Human Capital: The first resource is the family’s human capital, or “inner circle.” When the skill sets
of different family members are coordinated as a complementary cache of knowledge, with a clear
division of labor, it produces synergy.
2. Social Capital: The family members bring valuable social capital to the business in the form of
networking and other external relationships that complement the insiders’ skill and knowledge sets.
3. Patient Financial Capital: The family firm typically has patient financial capital in the form of both
equity and debt financing from family members. Such a family relationship between the investors
and the managers reduces the threat of liquidation.
4. Survivability Capital: The family business must also manage its survivability capital, that is, the
family members’ willingness to provide free labor or funds in time of urgency so the venture doesn’t
suffer from the two and, in turn, does not fail.
5. Lower Costs of Governance: The family business must manage its ability to hold down the costs of
governance. A family business can minimize or eliminate these costs significantly because
employees and managers of business are well related and have trust and confidence on each other.

Dimension of Family Business.
Ramachandran (2009) has identified
ten dimensions of a family business
which are interrelated between
succession planning and conflict
resolution and ownership structure. It
is the synergy created by the
interaction and reinforcements of
these dimensions that help family
businesses to perpetuate. He terms
them the ‘Ten Commandments of
Family Business.’

Family Business :Entrepreneurship development

More Related Content

Similar to Family Business :Entrepreneurship development

More from MunmunRahaman2

Recently uploaded

Family Business :Entrepreneurship development