How many family-run businesses in our country have made it to the third generation? There aren’t that many family-run businesses whose lifespan lasted three or four generations, even in the world. Family-run businesses generally either go out of business or change owners after 1-2 generations. There are many reasons for this:
Dependence on people (dependence on one person or a few persons)
• The inability to lead or train people
• Appointing new generations as managers right away only because they are the children or
grandchildren of the boss
• The inability to establish a system, starting at the company – in fact, seemingly avoiding setting
up a system
• The lack of control ensuing from the increasing difficulty of keeping track of the input, output
and financial status of a growing business as compared to the ease of doing so in a relatively
• Being carried away by the magic of revenue and increasing the need for outside capital other
than internal financing or owner’s equity
DEPENDENCE ON PEOPLE
In many family-run businesses, the top boss wants to hold all authority and be informed of all processes, from purchasing and sales to production and storage. In some businesses, an undefined organizational structuring takes place where the boss and several of his closest right-hand men are appointed to jobs for which they are most qualified. This is the relatively better scenario. However, these responsibilities tend to get heavier as the company grows and revenues increase, and it becomes necessary to hire other employees. Yet these new employees are often not given enough duties or authority. The responsibilities that aren’t delegated – out of a lack of trust, out of arrogance or due to the inability to like people – start to cause problems both big and small. Yet if the person or persons who have the most responsibility were to delegate their tasks gradually when the business was relatively small, these problems wouldn’t arise.
THE INABILITY TO LEAD OR TRAIN PEOPLE
Dependence on people and not wanting to delegate work before it gets to be impossible to handle bring to mind a problem in leadership. Leadership is not cheerleading. And it definitely isn’t making people do work by force without listening to or understanding them. It also isn’t liking your own ideas over everyone else’s. Leadership is cultivating people, getting them to work sincerely and intelligently by motivating them. Executives who try to manage solely by warning or even ‘roasting’ people without training or educating them are unfortunately on the wrong path. The only people who can sustain their businesses are those who encounter them by chance, and only for a little while.
APPOINTING NEW GENERATIONS AS MANAGERS RIGHT AWAY
Being a manager, much less a boss, is not a trait that is passed down from father to son or daughter. In today’s rapidly changing world, which requires that one know the complex science of management well, it is a serious error to put someone in charge of operations only because he or she is a son, daughter or close relative. If the child or relative does not have entrepreneurship, management knowledge and especially leadership knowledge and skill, of course things will go wrong and the business will first stall, then shrink and possibly disappear. If there are multiple children, in the very least those who are extroverted, entrepreneurial with great communication, business savvy and ‘Type A’ personalities can be chosen, and it can be a solution to have them take over the work after learning the science of management. However, it’s a prerequisite to have these bosses of tomorrow undergo a long and serious orientation process.
THE INABILITY TO ESTABLISH A SYSTEM
One of the most important reasons why family-run businesses are unable to make it to tomorrow is not having a system that can lay the groundwork for the business, or not adhering to the system even if there is one. If possible, equipping businesses with a system when they’re small enough to have only 10-15 employees is an important practice that will get them to the future. Concepts like training, leadership and orientation are also familiar to businesses that have a system.
The most important system is an organizational system established in light of scientific organizational rules and designed with the company’s growth over the next 5 years at the least. This system must constantly be updated.
• Another important system is a performance evaluation system that aims to monitor and evaluate the performance of employees. A business must have these two systems at the least. Becoming a corporation involves correctly establishing and sustaining these systems.
• Lastly, an integrated information system (ERP) will also help keep businesses alive. ERP systems enable executives to make better decisions and indicate where profits and profitability are headed.
LOSING CONTROL IN GROWING COMPANIES
This system is directly related to the topic of ‘Integrated Information Systems’ or ERP. In order to be successful, bosses and executives in particular must know where their business is coming from and going and where it is at any given moment. The more accurate information there is to shape ‘strategic decisions’, the better the results. As Peterson says, ‘The merit and effectiveness of an executive is proportional to the accuracy of the decisions he makes’. Planning is to make written preparations regarding who will do what, where, how and by using which resources to get to the goal. Accurate planning utilizes correct information and does not waste business resources. Known as Enterprise Resource Planning, ERP systems show how efficiently each unit uses resources in a business and provide quick information about the general success of the business. In this sense, the faster and more accurately a boss or executive can monitor the status of production, waste and other potential losses, inventory, revenue and collections, the easier it will be to plan and to attain success by reaching the desired goal. The best and most important investment businesses can make is to establish a strong, integrated, flexible yet trusted ERP system. If we don’t measure what we can, weigh what we can, count what we can but try to do this after it’s too late and with a dubious level of accuracy, it becomes more difficult to make the right decisions. Businesses can then reach a state where they are unable to plan or control – in other words, they can become UNMANAGEABLE. Businesses that aren’t managed accurately shrink and can unfortunately disappear…
INCREASING THE NEED FOR OUTSIDE CAPITAL
‘We grew very fast’ is a sentence that bosses use frequently and one in which they naturally feel their share of pride. Yet the moment that rapid growth starts to threaten profits and profitability, it creates serious problems. Terms that can’t be curtailed and inventories that swell due to an abundance of variety and/or a lack of monitoring can jeopardize a business and quickly reduce profitability. The solution then becomes to do less but more profitable sales or to sell private property like houses and estate and invest it into the business as owner’s equity. In other words, revenues that grow without the contribution of internal financing or owner’s equity lead to increased debts, which lead to an increase in interest payments and other risky uncertainties, which in turn threaten the continuity of the business. Businesses that pay close attention and importance to the items I note can survive for many generations.
AHMET LEVENT ÖNER SED Stratejik Eğitim ve Danışmanlık Uzman Eğitmen & Kıdemli Danışman Expert Instructor & Senior Consultant