Surviving in an Indian Family Business —What’s in store for the NextGen?

Family businesses are common in countries all over the world. India is no exception. In fact, according to a Credit Suisse report, India has the third-largest number of family-run businesses after the US and China, with 111 family-owned businesses and a combined market capitalization of $839 billion. These businesses contribute greatly to the economy and are a significant source of employment and innovation. They make up an astonishing 79% of India’s GDP—employing 60% of the Indian workforce. 

Starting or running a family business may include having a long-term commitment, family bonding and loyalty to your employees and customers. It’s not only about growing your company, but also about the long-lasting relationships you share with the people around you that make it possible to be successful. Family businesses have positive features such as increased financial success, longer life of the business, and massive consumer trust. In addition to these benefits, there are some challenges too when it comes down to managing a family business, which is why I decided to create this list with some great solutions! Let’s explore the challenges and solutions to several common family business issues. 

Lack of Succession Planning 

Succession is important for family businesses. Transitioning leadership to new generations is not just about handing over power and ownership but about setting a foundation for growth and preparing for opportunities that will help the business survive beyond an individual’s lifetime. Statistics show that 70% of family businesses fail before they can make it to the second generation and almost 90% don’t make it to the third generation.3 These are critical issues that must be addressed if succession is to truly work. 

Succession is a long-term process—not a one-time event. The process requires identifying, selecting, and developing successors over many years. A recent Family Business Survey4 conducted by PwC reveals that 33% of families are struggling with making sure all levels of their companies are aligned within the family on overall direction. Only 40% have clarified company values and mission in written form, while only 20% have a detailed succession plan. 

 Managing Conflicts 

The culture of a family-run business can often be unique and conflicts may arise from an array of different areas. Some of this conflict can manifest due to the internal strife that may arise when the business grows and more people come on board but not enough time is put into addressing everyone’s needs and expectations. Between generations, there can be communication gaps along with credibility issues. The merging of both expectations and a lack of communication can cause tension among family members which can certainly affect a business negatively. So it’s essential to establish a well-rehearsed crisis management plan which will give you as the company’s leader plenty of room to make decisions on your feet about how best to deal with issues surrounding people, processes, and performance.  

Resistance to Change 

Family businesses often struggle to adapt to change. According to the recent PwC survey, 26% of respondents are reluctant to change. In most cases, this is because the founders believe in practices that the company has been doing for years and they want to carry on the tradition. While the next generation feels like it’s time for a new approach and would like to experiment with new ideas. Conflicts are bound to arise, but the key is to deal with them openly and flexibly. All organizations should adopt a method that is the most suitable to their business interests at that point in time. If a balance can be struck between respecting traditions and keeping an eye out for modern trends, it will go a long way towards making sure all family members feel like they’ve got everything covered under one big happy roof. 

Sluggish Digital & Technological Adoption 

Family businesses have not been able to adapt fast enough to changing market conditions. Only 38% of them believe that they are digitally capable of transforming their business models, however digital transformation has been slow according to the PwC survey. Some 87% say initiatives related to digitalisation, innovation and technology are a top priority, but progress has slowed in these areas. Only 15% say that their digital journey is complete, while 74% believe they have a long way to go before they can close the gaps in their capabilities faster than those who already have. In fact, 27% still report that they don’t have strong digital capabilities and that developing these is not high on their priority agenda. This is worrisome, given the rise of the recent pandemic and industry 4.0 which has necessitated a rapid shift toward hybrid working, virtual operations and automated processes. To ensure long-term resilience, family businesses must work towards growth by combining the traditional way of business management that they have with the new ways of business. 

These are some of the areas where Indian family business progress is falling short. To overcome these challenges business owners are planning to pass on the management to NextGen. In the 2021 survey conducted by PwC, 50% of first-generation Indian family businesses expect to pass on management to the NextGen in five years. Let’s see how some of the first-generation businesses are building their faith in NextGen and are planning to survive.  

Indian Family Businesses are restoring their faith in NextGen 

Faith is an important aspect of being in a family business. These businesses must have faith in younger generations, who are equipped with the skills to tough it out in a world made up of fast-paced technological advances and new business practices. Involving NextGen can help gain credibility and improve meritocracy within the business because young people today bring about an entirely new way of conducting business. According to the recent PwC survey, 32% of family businesses are increasing NextGen’s involvement in decision-making and management. 45% of these businesses are rethinking their business model, 57% are improving their digital capabilities and 50% are increasing their use of new technologies.  

As NextGen members begin to take over the reins of family businesses, they should understand that their treatment of their predecessors is vital to maintaining goodwill between generations. They can learn a lot from the previous generation but should not be held back by them or allow themselves to become carbon copies of who their own parents were. A new generation has come along with new problems and new ways of approaching them so now is the time for NextGen’s unique perspective and flair to shine.