How families build structures and process for managing the business and the family matters in the continuation of their family business. In this paper, Browne & Mohan consultants share common traits that associated with families that have survived multiple generations.

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Common traits of successful family
business: why some thrive, while
other fall aside
Dr TR Madan Mohan and R.M. Sanjay
Abstract: How families build structures and
process for managing the business and the family
matters in the continuation of their family
business. In this paper, Browne & Mohan
consultants share common traits that associated
with families that have survived multiple
generations.
Family run businesses are a significant segment of any nation’s industrial structure. 5% of US GDP is
contributed by family businesses and 35% of Fortune 500 is family owned. They generate close to
50% of employment and 59% of all new job creations (Institute of Family owned business, 2011). In
India 95% of business are family run, and 30% of BSE listed companies are family owned (CII, 2010).
Many SME companies are family owned or family managed. According to RBI and SME Chamber of
India estimates, MSME provide employment to 43.3 Million people, contribute to about 45% of
Industrial output, 40% of exports and produce more than 8000 quality products for domestic and
international markets. Multi-generational family run business are commonly involved in trading,
textiles, hospitality, healthcare, accounting, agro-based industries. According to Small Business
Administration Office of Advocacy, only in one in three businesses succeed in making from one
generation to other. There are no official figures for closure/exit rates in India, but informed
estimates are one in five businesses survive beyond second generation. Many family run businesses
life span is highly correlated with their founder. A Harvard school study quotes that 70% of the
business fail or sold before the second generation becomes engaged. Studies across different
geographies indicate 9 out of 10 business close within 5 years after the death of founder and only
about 3 out of 10 survives second generation. However, data from Indian business houses and
family business indicate there are certain families that have bucked this trend. Tata, Birla, TVS, DCM,
Lakshmi Mills, Thapar, Mahindra are fine examples of large pre-independence multi-generational
firm that are thriving. While size does help the large companies to mitigate the growth associated
pangs, Dabur, Kamat, MDH, etc offer finer insights how small and medium companies can sustain
entrepreneurial relevance and growth with successive generation. Based on our analysis of mostly
SME across India, we summarize the common traits of successful inter-generational business.
Our experience indicates successful family run businesses have few things in common.
1. Have clear roles and process for Family and business
Successful family business follow positions: they fall into either family owned and family
managed or family owned but not family managed. With clarity on roles, successful multi-
generational family businesses define the processes that define “family affairs” and “governance
affairs”. They have clearly laid out roles for effective communication, reporting, fora and rules
governing meetings, accountability, dispute resolution and administrative institution.

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2. Preserve roots and diversify
Many successful family businesses their unique competitive advantage stems from their “Culture”.
Culture is built around the personalities and interests of each generation. Sustainable family
businesses enshrine and celebrate their pride, security, and business continuity by preserving and
extending the charisma of culture. The idea is similar to a Bricolage, allowing each generation to add
and extend the enterprises and cash-in the relational assets built across generations. Some of them
devised simple mechanisms for breakouts or cashing out by next generations and designed
appropriate methods to preserve multigenerational legacy and continuity. A third-generation
jewellery family in Chennai, had a peculiar problem. It was located in traditional area of Chennai,
most of its current clients were in the age group of above 50’s. They had three traditional gold
jewellery shops that had crafted pendent, chains, etc. against an order and with newer make-to-
stock Kerala based jewellers entering the market they were unable to attract newer customers. Their
current generation wanted to look beyond traditional business and the family invested in two
businesses, traditional attires and other traditional art. The clients for all the three businesses were
common, 73% of them being multi-generational clients for the parent. Brand recall, upselling and
economies of scope across generation are the benefits gained the family gained.
3. Create an institutional mechanisms to buffer for growth, innovation and
challenging times
Like families saving for the rainy days, most successful family business believed in investing for a
corpus to fund expansion and growth. The funds were administered by a professional investment
group and the inter-generational leaders had mandates to plough in x% YoY as the corpus. They set
explicit rules for dipping into these reserves and what process to follow. Setting up of family offices
that help to manage investments, and diversification is a common approach. Key in setting up family
offices is to ensure the young inheritors are actively engaged in family offices and its activities. In
one family business they have rules to be in business that yield a net profit of 11%, innovation fund
is restricted to 14% of the turnover and cost of family to the company can’t be higher than 7%.
Family office reports on the parameters to de-risk from free ride of next generations and risky
ventures.
4. Diligent accounting and thrust on profitability
Most successful multi-generational family businesses believe in managing with numbers. Often the
family dinner times are quick and dirty review on day-to-day basis and a formal business review
monthly. Major expenses are reviewed and risks are discussed. In a novel method, one of the Sindhi
family made this a ritual to be discussed in their prayer room and all major financial discussions were
done under oath.
5. Succession based on capabilities and passion, NOT on tradition or gender
In cultures where first-born enjoys higher share and is considered a natural leader, many families
build their succession on the tradition. Most successful families created space for the elder siblings
to graciously side-step and allow younger, more focused leadership to emerge. Family elders played
a significant role in establishing the business parameters, discussed and communicated the same

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across multiple interest groups to buy the succession plan well in advance. Case in point is a
Bangalore based trading and real-estate business family, which realised despite being a Charted
Accountant, the elder sibling of the family of six, did not have the zeal or intensity to carry the
business to next level. The third sibling with background in engineering, good admin skills and ability
to network with power be was identified as the next family leader. The elder sibling continues to be
invested with all the ritualistic values in a traditional Marwari family, and the business growth has
multiplied many folds.
6. Plan and go geographically
Going regional and international is very important for family business. One they offer spread of
existing business, but more importantly hold the interest of next generation to continue and expand
the base. The promise of new land and new country helps in continual investment in the family
business, but also can add reverse flows to the parent overtime. A leather company in Agra over two
generations has pursued a simple strategy of moving its eligible next generation family member into
key cities in India first. Over time, it moved couple of newly wed families to Russia, UK and USA. Over
time, each of these nodes not only do substantial imports from Indian parent, but also have
diversified into exports to India and other markets.
7. Empower and mentor early
Once a future leader is identified, successful family businesses start mentoring the person through
on-the job exposure and empower him to learn and implement changes. An IT company into 3rd
generation ownership has an interesting triad of mentoring process. Two CEO’s who had grown the
business doing an informal mentoring and an external professional guiding the designated leader on
formal process and decision making.
8. Create rituals and processes for multi-generational bonding.
The adage family that eats its meals together stays together is apt for success of family business too.
Successful business families used festivals and rituals to bond, create relationships and preserve the
club. Families also used these occasions to mollycoddle elder siblings who have been replaced on
business front, and reinforce their positions and value in family tree. One Gujarati family into timber
business for last 3 generations had an interesting Hundi concept. All branches of the family
contributed 2% of their revenues which was used for three purposes: education, pilgrimage, and
investment. Only 15% of the contributions could be used for education and pilgrimage. The
allocations were chaired by the senior most siblings of multiple generations to ensure all family
members get their turn to tour and rest. However any investment required formal family votes by all
the family members.
9. Plan and infuse professionals
Successful family business realise the value of bringing in professionals. They can bring transparency,
drive and divergence to the business and can propel new directions. Many business families also
bring external professionals to mentor their wards to give them the advantage of 3rd party neutral
insights. Successful family business brought in professionals after a thorough vetting my multiple

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generations and actively encouraged dual reporting (to two different generational leaders) for the
outside professional to ward any leanings and quicker induction.
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