For businesses to grow and continue to succeed beyond the input of their founders, they need to pass through four evolutionary stages and look to the future.
Understanding the four stages of business growth
Successful family businesses tend to pass through four stages of growth, each bringing with it a unique set of challenges…
- Entrepreneurship: Family businesses more often than not grow out of an individual’s idea or passion, for the good of their family. Successful entrepreneurship is most often supported by family members’ involvement. In this stage, being part of a family-run operation can provide a great advantage over non-family entities.
When families work together, they tend to be more devoted to business’ success and to working hard to achieving business goals for the good of the family. This includes financing and managing the business’ spend and growth with an eye to the future.
- Growth: During this stage, a family business will focus on increasing market share, bringing new products to market, expanding outlets, and increasing capacity. This is all with a view to growing financially, attracting additional (often outside) financing, and ensuring stability.
- Governance: As a family business grows so will the need for formalisation of governance structure and controls. This can pose a challenge to a family business that is used to running along the lines of existing family dynamics instead of established business practices. Problems such as nepotism and a failure to deal with discipline can become issues at this point. However, proper governance is essential for continued business success and most successful owner-managers realise this.
- Succession / Maturity: Planning for the future through a proper succession plan is the final stage of evolution for a family business and can be one of the most challenging. It also doesn’t necessarily take place at the end of the growth process as it should be something that business owners are always considering. Family relationships can be a major challenge at this stage, especially when it comes to the transition of a business from first generation founders to second generation partners / employees that will most likely be the founders’ children or grandchildren.
The lack of a proper succession plan can lead to poor business performance and even a family crisis. Any such plan should be discussed among stakeholders openly and often, and might include taking steps like bringing in outside management to help bring together family members and fill essential gaps within the business.
Transitioning to next generation ownership
It’s estimated that less than 33% of family businesses survive the transition from first generation ownership to second generation ownership. One of the reasons is a lack of awareness on the part of small business owners of the growth stages of their business and the establishment of a plan for the future.
Sometimes this is due to the family not having interest in running the business, but in most cases, it’s due to the lack of creating a plan. Understanding and planning for the growth of a business is essential to ensure its long-term viability so that it lives on from generation to generation.