• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 5/30/2013

Stages of growth in family business 

Stages of growth
To better manage the success of your business, it’s important to understand the different stages of growth that your business will go through. This will give you the opportunity to plan ahead and make sure you are prepared to shift your business to the next level.

Stage 1: Founding Fathers (or Mothers…)

The first stage of growth is known as The Founder Stage. A family firm generally begins by being owned and managed by its founders. While these individuals might seek some advice from specialists in certain fields (e.g. banking or product development), they will make most of the decisions themselves.

This stage is often characterised by high levels of commitment and passion by the owners who are involved at every level of the business, and are driven by a need to succeed. This can be essential to getting a business off the ground in a competitive economy.

This also means a fairly simple governance structure as all decisions will go through one key individual or a very small group who are in constant contact. Perhaps the most important issue to be considered at this stage of a business is succession planning.

While the business might be in its infancy, if it’s to succeed, it’s never too early to start planning for the future. This means putting in place a succession plan and grooming future leaders within the business to one day take charge. This will ease a necessary transition in leadership at a later stage as the business grows and the founders’ needs and aims change.

Stage 2: The next generation

The second stage is known as the Sibling Partnership. This refers to the transfer of the ownership and management of the business to the founder’s children (rather than their own brothers or sisters). This form of succession is quite common in family-owned businesses where there is an expectation that the business will stay in family hands.

This stage allows the business to expand its market share, the introduction of new ideas and products, and expansion into new fields. Fresh leadership can usher in an exciting time of growth, led by individuals with a personal stake in the business’ success.

At the same time, governance issues tend to become more complex than they were at Founder Stage. There are more people in charge now and, if the business is doing well, business activities tend to be more varied. Therefore, it’s natural that there will be greater scope for conflict and disagreement amongst leaders within the business.

Favouritism and familiarity can also lead to discord and businesses run the risk of operating in a ‘causal’ manner, without formal business processes that are necessary for long-term business survival. Implementing these processes, developing an effective communications strategy, and looking to expand succession plans for management positions beyond the family base are all key considerations during this growth stage.

Stage 3: The family legacy

Stage 3 is known as The Cousin Confederation or Cousin Consortium. At this stage, the business is well-established and various family members beyond the immediate family are involved, including cousins and in-laws.

With owner-members coming from different generations, the business will benefit from the introduction of new ideas and the tackling of previous areas of concern. Of course, this also means potential conflict when it comes to agreeing on the business’ strategy moving forward.

At times, historical conflicts can make new growth difficult as family governance issues such as shareholding rights, member roles, and mission resolution, truly come to the fore at this stage.

While these stages suggest that business growth is a clear and linear process, not all businesses will necessarily go through all three stage of development. Some businesses will never grow past being owner-managed while others might be bought up by competitors. It’s important to understand how a business can grow and whether you want your business to do so…

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.

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