Discipline, risk management and good governance are some of the reasons identified by Ahmed Seedat – founder of Vector Consulting and renowned author – why family-owned businesses along the lines of Cape Union Mart, Karanicha’s and Verimark continue to do well in uncertain markets.
In the lead-up to the conference ‘The Dynamics of Succession in Family-Owned Businesses’ hosted by Vector Consulting, in partnership with the Congress of Business and Economics (CBE), Seedat shares some insights into this unique business set-up.
Six keys to family-owned business success
Seedat, who has recently launched his third book entitled ‘Think Outside the Box’, has years of experience in the dynamics of such businesses, having provided holistic solutions to tackle challenges associated and adapted to modern times.
He identified six areas of success when it comes to the family business structure:
The first- and second-generation families are risk-averse, cautious in their decision-making, and they manage their decisions with culture, norms and values.
All decisions are made following careful consultation.
2. Debt management
The first- and second-generation families grow their businesses organically and take on as little debt as possible.
This is because debt is viewed as a step towards greed.
The expenses are diligently controlled and there will be no venturing into products they don’t understand.
Their capital based is adequately deployed so as to earn a desired return on investment.
They work on a determined margin that has proven to be effective, investing profits conservatively to mitigate statutory payments in later times.
The first generation instils discipline to the second generation, which then thinks out the box.
However, the second generation needs to be shown the correct methodology, to present ideas to the family in a disciplined manner, ensuring respect is maintained.
Directorships are assumed, but we’re seeing a paradigm shift, with families populating their boards with non-shareholder or ‘gene’ directorships.
Directorships are evolving from the later phase of the second generation to the third generation.
A balanced board brings about better governance with family shareholders and independent director which is better for all stakeholders.
Seedat said that the success of a family-owned business is determined by these six factors, with new entrants needing to really understand the culture of the business, the supply chain relationships and the stakeholder relationships.
“I have seen once the demise of the patriarch in many a business, which sows the seed for destruction,” he explained. “New entrants need to understand their business before taking the reins and making uninformed decisions.”
Find out more related insights about key concerns and challenges facing family-owned businesses in Southern Africa at Vector Consulting’s second international conference, taking place at Joburg’s Palm Continental Hotel on 7 March 2020.