How family businesses can outlive their founders

39 years ago, Mr Titus K Muya had the vision to start a bank to serve the unbanked of Gatundu and Githunguri, in Kenya. Securing a loan of Kshs500,000 to make his dream a reality, the only provision was a building society. 

With consistency, in 2007 it became a fully-fledged bank, hence rebranding to Family Bank and now boasts of 100 branches, the largest branch network in Kenya. 

In 1982, Mr Muya also started Kenya Orient Insurance. In all his conquests, Mr Muya has ensured his family is a part of the journey. Though it did not seem feasible in the start as most of the children were abroad, consistent and persistent conversations around business legacy bore fruit as they started returning home to delve into the business. Currently, most are business employees while some sit on the board.

According to research by PwC, family businesses contribute close to 70 percent of Gross Domestic Product.

Mr Muya says they, therefore, contribute so much to the employment and economic activities of millions of people in the region. 

“A family business is one owned, managed and operated by two to four family members of a single family who are related by blood, adoption or marriage,” he explains.

While every family business proprietor desires to have longevity and legacy, the research shows that only 63 percent of family businesses consider themselves fully trusted by their customers, employees, and family members. 

Mr Cedric Mpobusingye, a partner at PricewaterhouseCoopers, asserts that trust is tangible and matters. It is a product of one’s integrity, the honesty of one’s intentions, and the actual results of one’s actions. 

Could this be one of the reasons why start-up businesses, not only in the region but also globally, fail to translate to the next generation? There are several reasons why these enterprises fail.

Founder’s syndrome
Every business has a founder who is very committed, energised and passionate about the business and thus possessive. Oftentimes starting with little or no cash, they sacrifice a lot to build their business and ensure success. 

“The business is akin to a baby and like a parent, the founder is so attached and protective of the business. With no structures, business records, or financial control mechanisms, the founder wears many hats to ensure the business’ survival. With such attachment, entrusting their hard-earned fruits is extremely difficult, which hamper transition and thus generational longevity,” Mr Muya says. 

Corporate governance
In Mr Muya’s case, starting Family Bank as a building society, he appointed himself chief executive officer and the first employee of the company. Thereafter, he promoted himself to executive chairman. 

However, in all this, there was no appointment letter or vetting if he qualified to sit in those positions. 

“Start-ups and family businesses should embrace corporate governance from the informal roots of the business. Otherwise, it becomes difficult to appoint board members and senior management when the business can afford them yet it is they that come up with the company’s systems, and policies including business succession in the company, procedures, structures and strategies. They should also make sure they run a profitable company, which is key to translating to the next generation,” he says.

This entails identifying problems, analysing, and finding solutions, which is lacking in many family businesses as many do not have the capacity to carry out research. Even when you cannot do the analysis yourself, Ms Maraka advises, “Family businesses should consult other people before starting something, say a new product or a branch so that you can make an informed decision. That is crucial for transition and continuity. However, some are not eager to get external help which cripples business flow as a wrong decision may cause failure.”

Succession  planning
Every founder desires business continuity and it is their responsibility to ensure a confident and capable successor is nominated early. The selection of a successor must be done fairly and transparently through dialogue and consultation with the children. 

“The successor must have the support of all the family members, and be a team player, allowing for cooperation within the family. However, sometimes, successors are picked based on favouritism hence a flare-up when the founder exits,” he says. 

Bridging the gap
Ms Maraka says everyone must pass on the baton at some point. While it is inevitable, the person receiving the baton must be ready. 

“They must know how to hold the baton (business). Therefore, encourage the next generation to jog (prepare) while they wait – practice the trade, see how you interact with clients and how you close deals. That way, when the time comes, it will be an easier transition,” she says. 

Rivalry
To manage transition while fostering continuity, Mr Muya says the founder must manage sibling rivalry, family conflicts, jealousy, nepotism, and unequal treatment of inheritance while they are still serving.
 
“Rivalry is a killer of dreams and subsequently family businesses. 
Therefore, the founder must initiate family council meetings where family issues are discussed openly. This will create cohesion and avoid irreversible fading out of the business,” he says.

Communication
There is time for everything and for proper transitioning, Ms Maraka says the older generation must listen to their children. However, that is not always the case as the older people feel they know it all.

“The newer generation has brilliant ideas,” she says, “They are abreast with the new technologies, which are crucial for business growth as well as continuity in the digital world. Therefore, listening to them will introduce novel ideas that could better business processes hence improving profitability. Listening to younger generation also makes them know there is a platform to share their views which makes them know they matter hence motivated to embrace the business.”