One of the key elements that we talk about in family business is sustainability and most of the time by sustainability, we mean the economic performance of the business venture. “Does it mean sustainability limited only to economic performance?”
What sustainability means is the ability to maintain growth at a certain rate and conserving an ecological balance by avoiding depletion of natural resources. Sustainability is made up of three pillars profit, people and planet.
When we talk about sustainability in family business, we should think of all the three pillars and not just concentrate only on economical performance. No doubt, economic performance is a very important parameter as the business’s ability to invest for future depends on it. But for family business it is equally important to also know – What the owning family wants from the business? Or to put it more appropriately, Does the family know what they want? As the economic success of the business is equally dependent on what the family owners expect from the business. To illustrate the point, let me present three possibilities from which the owning family needs to choose:
To continue operating the family business as Owner and Manager
If this option is chosen, then the family will have to think about ownership and business succession, the rights and rewards of the ownership, eligibility and induction of family members to work in the business, compensation for family members working in the business, career options for next generation family members, long term vision for the family business, business governance, board composition, etc.
To sell the operating business, and continues to invest together as family
Here the family needs to decide on the wealth management function, the risk profile of investments, investment ticket size, expected minimum returns on investments, structure of investments, family members role in investment decisions, distribution of rewards, management of assets, family office structure, family entrepreneurship, etc.
To sell the operating business, divide the assets among family members and let them individually decide how they want to move ahead
If this option is selected, the family owners needs to decide for the distribution of proceeds, distribution of other family wealth. Each fraction will have to think what and how they plan to invest their wealth. The family fractions should mentally prepare themselves for starting ventures from scratch and investing their time, money and efforts in building the same.
All these scenarios are possibilities and there is nothing good and bad about it. It’s a choice available to the business owning families, but once you decide – you need to dive deep into asking and answering the relevant questions which emerge from that option. You will notice that all the questions are different for each of the options.
What family business owner want is an important part of family business sustainability and this choice will have ramification on other stakeholders too.
The last pillar of sustainability is the planet – which deals with the conservation of ecology and reduce the depletion of natural resources, so the family business can continue to draw on these resources continually. It is a separate subject which every business will have to individually decide.
To sum up, for your family business to be sustainable, have you considered all the three pillars of sustainability? Does your family know as owners what they want from business? If not, it’s time to start thinking about it.