Behind the success of every small business is a family. This is largely true. “Behind the failure of most large businesses is a family”. This is true as well, at least for Pakistan. As the business grows old, so do owners. As the owners grow old, so does their modus operandi.
This is a reality that has bitten businesses in a way where the best of brands have become a victim of their own market blindness. Pakistan’s economy has never really blossomed to its potential as the businesses in Pakistan are curtailed by a disabling external environment and an unprofessional internal environment.
There were 22 families in the 60s controlling most business empires in Pakistan and now there are 40 plus family conglomerates that have a finger in most business pies. The pattern is familiar. The founder fathers have done a wonderful job in starting business lines that were tough and risky. Competition in them initially was limited. The business grew that allowed them to invest vertically or horizontally. The 60s were the golden era where countries like South Korea sent their think tanks to learn from Pakistan’s 5-year planning model.
Thereafter, Pakistan’s economy and business have never really sustained any growth cycle. Exports are dominated for decades by the textile industry that is constantly dependent on subsidies to become competitive. Small and medium entrepreneurs remain SMEs due to resource, vision and training constraints.
The fact that not a single Pakistani company has become a multinational in the true definition and criteria of being a multinational is a telling fact. On the other hand, most multinationals entering Pakistan have done well. That is the Big Question.
Why do many local companies in Pakistan, owned by old established families, knowing the local market, with resources and influential networks, have not earned as much as foreign companies have in the same products and markets? The normal response is MNCs have immense resources.
Not really. The inconvenient truth is that it has more do with the mindset of families running the business than just a bigger cash balance. Let us look at some factors that need to be accepted and owned by the owners to change the business dynamics.
1- Families Vs merit clash— Members of a family start a business and put in the effort, capital, etc., to make it grow. That definitely entitles them to run it. The first generation of family owned businesses is eligible to take control of the major business areas.
Many a business is run by brothers who are shareholders and are assigned different functions of the company. While all this may be necessary for a small to medium enterprise it is not conducive to proper business growth. In many Pakistani companies the function of Finance is given to a family member.
The structure of the finance department is based on the family member and a trusted old loyal employee who is more of a clerk than a chartered accountant. As the competence level is basic, no new blood is deliberately injected to protect their own incompetence. Even if some bright people are hired, they become a victim of the suffocating style of the functional head. Thus merit becomes a causality of family lineage. This restricts growth and talent retention.
2- Start-ups with Upstart leaders— Then you have the whiz kid start-ups. The online business has created a real opportunity for start-ups to exercise their talent without the on ground responsibility of the costly infrastructure. But for every one start up that succeeds nine fail.
Sometimes it is two brothers, other times husband and wife. This lean and quick business entry with some innovative idea is alluring but deceiving as well. Out of 300 start-ups only 10% sustain in the country. While youth is great for innovative ideas, the wisdom of experience is missing.
When a start-up takes off early, young heads become too full of their own success. Many young, bright whiz kids have done wonders for a couple of years only to wander aimlessly thereafter. The upstart mindset of the startups needs to be groomed to go beyond the partner model and establish proper decentralized structures to sustain beyond the honeymoon period.
3- Dad and sons are not aligned— The concept of a business started with naming it after the father and sons was very common. In Pakistan we had quite a few of such examples. On many offices and retail outlets you can see the name of the owner with sons written on it, especially in the retail business.
This was taken literally. Many families would groom the sons to sit with them at a young age. The heir to the throne would then take over. In the recent past the millennials and Gen Zee sons are no longer towing their parents’ line. If they join the family business they want to run it differently. There start the conflicts and clashes. Finally, the father either sets up an independent business for him or the son goes off to pursue his own passions.
4- The Brand needs a “Break”— The family-owned businesses were a sign of stability. They represented continuity. The bespoke of a diversified portfolio. They manifested the conglomerate symptoms. Examples of the family-owned Chaebols of South Korea were given where LG, Samsung and others became global giants.
All this is fine. What is not fine is the “all in the family” mindset. The need to be owners but not runners of business is a break the family businesses need to make to become global. A professional setup where the company is run by those who best can is the only sustainable model of business growth.
The Japanese businesses are also many times family run. The family has to go through the learning process and compete to reach a market level. In Pakistan the son of the hardworking founder goes to expensive schools in the US and Europe.
On his return he is thrust into the boring business. He either just wastes it or the father parries him by letting him introduce expensive bands that have little sustainability. The carefully stashed billions start disappearing causing businesses to fade away by the time the next generation is around.
The lesson to learn from foreign businesses that flourish in Pakistan despite the disabling environment is firstly the more you control the less you grow. Secondly, the next generations have their own passions and talents. Let them do what they want and find professionals who have a passion for your business.
Thirdly, you can buy the best building and technology, but you cannot buy human productivity. That only comes when they get respect and recognition. Finally, try treating your workers like you do your family; it may be the best investment you ever made.
Copyright Business Recorder, 2024
Family-owned enterprises: a perspective
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13.02.2024
Behind the success of every small business is a family. This is largely true. “Behind the failure of most large businesses is a family”. This is true as well, at least for Pakistan. As the business grows old, so do owners. As the owners grow old, so does their modus operandi.
This is a reality that has bitten businesses in a way where the best of brands have become a victim of their own market blindness. Pakistan’s economy has never really blossomed to its potential as the businesses in Pakistan are curtailed by a disabling external environment and an unprofessional internal environment.
There were 22 families in the 60s controlling most business empires in Pakistan and now there are 40 plus family conglomerates that have a finger in most business pies. The pattern is familiar. The founder fathers have done a wonderful job in starting business lines that were tough and risky. Competition in them initially was limited. The business grew that allowed them to invest vertically or horizontally. The 60s were the golden era where countries like South Korea sent their think tanks to learn from Pakistan’s 5-year planning model.
Thereafter, Pakistan’s economy and business have never really sustained any growth cycle. Exports are dominated for decades by the textile industry that is constantly dependent on subsidies to become competitive. Small and medium entrepreneurs remain SMEs due to resource, vision and training constraints.
The fact that not a single Pakistani company has become a multinational in the true definition and criteria of being a multinational is a telling fact. On the other hand, most multinationals entering Pakistan have done well. That........
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