The world’s oldest family business was set up in Japan in the year 718. The 100-room Buddhist hotel is currently run by the 46th generation. In the history of family businesses, we mainly find Italian families, but there are also French, German and British family businesses, which are already over the tenth-generation change. Among these businesses there is a wide range of professions, including wine dealers, bell founders, gun-makers, shipbuilders, goldsmiths, glass makers and handmade paper makers. However, they have one thing in common: besides traditions, everyone has been striving from the very beginning to transfer their knowledge to their offspring and focus on the development of the company. They have long been beyond the learning and experiential routines that the Hungarian family businesses – created in the ’90s – are to confront for the first time. “The founders of these companies have now reached the age when they cannot avoid company transformation and the organization transformation issues”, says Virágh Rajmund, managing director of the Interim Management Academy, to the Manager Magazine. He also believes that the question of a company transfer is not a simple decision as the value of the business was determined by the charismatic founding leader.
According to the results of the most recent representative questionnaire survey of Budapest LAB Family Business Research Program, only 7% of domestic family businesses had the first-generation change. It is also interesting that 51 % per cent of the respondents do not have any succession strategy. This is surprising, as the offspring grow up in the hold of the family business. It is also natural, if the head of the family sees the link between the company’s future and the offspring, but it is worth looking at what is good for the company and what suits the child, before the company transfer is done, warns Virágh Rajmund.
The “child” has a personality, a professional profile and has a desire to consider, if he wants to work within the company. “I think it’s a good idea to send the heirs first to gain experience, to let them work in different types of corporate cultures, or even in many industries”, adds the company specialist. Obtaining world vision and experience is a prerequisite for preventing burn out, not putting the child into a hamster wheel or narrowing down the mindset. “If the children have other personalities, other competences, goals, they will not lead the company the same way as the founder. They may be frustrated if they are not as good as their charismatic father”, says Rajmund Virágh. A family only needs one Dad, he’s the founder, the strategist and the captain.
However, it is not only a problem of generational change, but also the overcoming of internal, personal limitations associated with growth, says Rajmund Virágh. During the past 20 years, the economic environment has changed. Nowadays, competitiveness is quite different from what it used to be. Customer requirements and expectations have changed and accelerated. A well-functioning organization must be operated with a different approach in today’s digital world. In addition, the charismatic founder has become older and due to biology and hormones, he has become an emotional businessman instead of a rational business decision maker. Additionally, one of the most important questions is whether he will be able to separate the ownership and the operational, executive responsibilities?
“In every business’ life comes the moment when a founder with the great ideas becomes more of a disadvantage for the company in the day-to-day operative tasks. Generally, he rather ‘shakes’ the organization than helps it”, says Rajmund Virágh. It is, therefore, worthwhile to be aware at the time of the foundation whether it is an easy or difficult transfer story. “Am I building the company to sell it later or to transfer the ownership in the family? Do I expect my kids to become a manager or do I want to create jobs for the family members?”, asks the expert. Obviously, these questions are typically not raised when a company is founded, but these are the most important questions in developing a family succession strategy plan. It is important to identify the goal, to achieve the best results!
All three directions are completely different, but if they are not developed in advance, then money and energy will unnecessarily be tossed out of the window, takes over Attila Steer, economic expert, interim manager. He adds that every family business is struggling with challenges in different geographic, economic, political and social situations. While in Hungary there is not enough experience for generational change, in the UK, for example, the next generation is lacking engagement. In Germany, the complexity of the company transfer legislation is the cause of the chaos. He believes that the operation of a family business is fairly centralized, and if the members of the family are non-economic professionals, and typically they are engineers in our country, then the management of organizational and economic issues is a problem. If there is no economic expertise, then the proper pricing model can also be problematic. If there is no organizational structure, strategy, business model, no money in the business, then it will not work effectively.
“To replace the missing economic expertise and create multi-pole management, the founders often employ corporate business executives who are happy to chat with the owner in an interview, but as a result of the existing cultural gap between them, they are not really able to work together in the day-to-day routine”, says Attila Steer. Another problem is that an external expert often does not get the full authorization to perform the job, so most of them will move on fast.
Start-up businesses, often formed by friends, are struggling with growth or organizational development similarly to family-based companies, but the former can more easily carry out the transformation. Perhaps they are emotionally not so much related to the business, there is not so much conceit, inner pride in them, and they share different backgrounds. “They work better in a team, while in a family business, the hierarchy of family relationships prevails”, says Attila Steer.
Manager Magazin / october issue