Reasons why we don’t have multi-generational businesses

Esiri Agbeyi, Partner, Private Clients & Family Business Leader, PwC Nigeria, says that trust, loyalty, and sacrifice are some of the factors that make family businesses successful. This can be a strength or a weakness for the business’s sustainability

In this interview with Oghenevwoke Ighure, she talks about more factors that affect the future of multigenerational businesses

Can you tell us a bit about yourself, Esiri?

I started off as a scientist; I studied microbiology, then delved into accounting and tax, and then ventured into deeper consulting services, with a niche in family businesses and I also have some flair for art as well.

You just mentioned that you have a flair for family businesses and I think that leads me to my first question. Why are family businesses important to you? Why the focus on family businesses?

Personally, I think it’s a sure route to solving the problems in society and I think it’s just rife that we focus on those engines that run economies, because that’s where the solutions to most of our problems lie. And then family businesses represent pillars of authenticity, and uniqueness that adds a lot more flavor to the world. So we might as well focus on them and grow them to the advantage of our society.

For most founders, there’s always that issue of transitional anxiety, just the whole anxiety about achieving multi-generational success. How do you think family businesses can achieve multi-generational success and even build transformational businesses?

There are a lot of considerations to that, but maybe just taking a step back to say, you know, some of the uniquenesses that we have with family businesses turned out to be the thorns in why family businesses maybe don’t have multi-generational sustenance.

One thing for sure is that with any family business, there’s always that strong foundation of trust, because it’s your family; so there’s openness in making decisions, there’s also the flexibility that comes with that, more importantly, the sacrifice, you know, it’s almost like, built in love.

There’s that sacrifice of giving; I can spend my whole time, cost is reduced to that extent, there’s loyalty, of course, built in there and then because you’re given all of you, and there’s that authenticity, you build a business that is thriving; business that has come out of passion, which, of course, is different for every single individual.

Now that uniqueness by itself is something that can either be destroyed, or it can last for generations depending on what kind of structures you put in place and your openness to welcoming people.

One of the issues then that happens to not having most generational transfers of this type of leadership or businesses is, first of all, the inability to include others into that picture to be open as well to other people and just trust these people.

One of the issues then that happens to not having most generational transfers of this type of leadership or businesses is, first of all, the inability to include others into that picture to be open as well to other people and just trust these people.

So it’s almost the reverse of what has built the family business in the first place and sustaind it. And there is that fight against it because you don’t believe that the next person can probably handle it the way you would have handled it.

There are advantages, however, in doing that, as we have seen other businesses that have lasted for generations and some of the ways that you want to start thinking about it is inclusion, identifying where gaps might be, using an independence lens to look at it because most times we might have blind spots where we fail to see where those gaps are.

And just letting other people in might start to expose those blind spots. In an era where you would find people so attached to the legacies that they have built and technologies are fast changing the environment, it’s always just good to have that extra pair of eyes to kind of expose you to those new ideas.

That ability to let go and let in is perhaps a key one that a lot of business founders now need to train themselves too because it doesn’t come automatically. It doesn’t come in a minute, it’s something that you build over time, it’s a journey.

And it’s the intelligent ones that are then able to say ‘I would let go at this point, I need this expert mind, I need this professional mind and I can find them also, in my next generation, it doesn’t always have to be outside that, it can also be within the family.

So these are perhaps the major reasons why we don’t have multi-generational businesses. But then if we can pay attention to those, I think it will change the narrative.

What I heard is that it goes beyond just building transitional businesses, there has to be that very professional touch to it. So why are transformational family enterprises important?

They’re very important for some of the reasons and facts that we already have.

If we take for instance, globally, SMEs, which are small, medium, and still medium-scale enterprises form the engine of the economies in the sense that they contribute almost about 50% of GDP.

They also generate employment, at least, if we look at Nigeria, as an example, over 70% of our employment comes from SMEs. They fill a very important gap and some of these SMEs obviously turn out to be major family businesses with time.

Why is that so? It’s because SMEs are basically just the individuals and the individuals make up our society. Very close to you, at every point in time, there’s a problem that needs to be solved. These individuals, who are close to those problems that need to be solved, come up with solutions and say, “Oh, I can solve that.” And it’s very likely that those issues that have been identified in one society are probably prevalent in other societies.

So growing on that particular point, and then building that network, across societies and across the globe makes for the running of the world at large.

Read also: Family business succession: 5 guidelines

They’re very important and what we then want is, you’ve identified this issue at such a small scale, but then you want to scale up so that there is worldwide presence, and there is an acknowledged presence of that business and that continues to sustain the economy.

When one candle like that dies off, we lose as a society. And so when we look at the helm of affairs, those who are actually leading and commanding value and wealth in the globe, you find that each one of them is solving a problem but most of them are sitting out of Africa, unfortunately.

And that’s because there is an ingredient or some ingredients that they are taking advantage of that we probably are not necessarily grasping. And so it’s important that we also start to measure up to that, and build all of these small ideas and candles that we have within our country and our continent to then start to also command presence and wealth globally.

Family businesses are important, family businesses, also, like I’d mentioned earlier on, have a foundation of trust, loyalty, sacrifice, and all of that speak to ‘long-termism’, as opposed to ‘short-termism’ where I just want to make quick bucks and go off.

Because there’s passion, there is that deep connection to this problem I saw on ground, . I want to solve it, I’m very passionate about it, and I want to make it last as well. Now, if we can have environments that make for that to thrive, then we are successful.

In an era where you would find people so attached to the legacies that they have built and technologies are fast changing the environment, it’s always just good to have that extra pair of eyes to kind of expose you to those new ideas.

Any small business that comes to light has come in because they are solving a problem. And if we can then have the environment that makes it thrive, then we’re better off as an economy. And if we’re better off as an economy, then we would have sufficiently said we’ll solve the problems of mankind and we can go to sleep in terms of what our spiritual mandates are.

I’m passionate about this definitely, because I see that in it lies the solution that mankind wants, and strives for and without it, you know, we definitely will be leaving a lot of individuals and people behind. So it’s very important that we pay attention to the small businesses.

Thank you for highlighting those very important points. In light of what has happened with COVID, inflation and all that, what are the common obstacles to building a transformational business?

There are a number of them around the macro-economic indices and the challenges that come with maybe even sourcing capital, or the ease of doing business in those environments that you’re operating in, where you then want to start asking questions around policies that governments have put in place, and how they’re supporting or detracting from the vision that been set out in the first instance.

But some of the issues that we see with some family businesses making those transformational changes may also be at the core of the family themselves, or even the businesses themselves.

There are external issues, definitely but ther are also internal issues. And with family businesses, we look at two major subsets, the family and the business. But there’s a third pillar as well, that speaks to continuity, which is the wealth that is then created from the family and business combined.

Now, in the family itself, there are soft issues that go against the spirit of that trust, loyalty or even the sacrificial contributions that we talked about, that all tie up to the long termism and some of these may be around conflicts, sometimes also around envy, especially where you have different branches of family and then everyone isn’t speaking the same language, or some people just feel excluded from the conversation.

Then there’s also leadership as well; the ability to lead is not inborn or innate, it doesn’t mean that you’re born a leader, you can actually train for it but not so many people understand the need to do so.

Those are examples of things that happen within the family themselves and sometimes also, there’s a challenge with succession, who is the right successor.

In some jurisdictions and societies, there is a natural affinity to a male heir, and the firstborn male child being the natural heir, but sometimes you don’t always have it working in that perfect scenario, and the ability to then go outside of that space, is a big telling factor.

Another thing is within the business itself. Most times when businesses like this start off, they start off with a one-man show, and that one man cannot scale it up.

And these speak to the lack of governance structures. Governance structures in terms of being accountable to other people beyond yourself, and building structures that ensure for transparency, because sometimes what you then find is, there’s a mixture between the personal assets and the business assets, all of these gets intertwined.

And because they become intertwined, it then starts to affect the value or enterprise value that you build in that business. And if it affects the enterprise value, it also affects the future interventions that could have happened.

For instance, investors cannot look at your business as something attractive enough for them to put in capital. Some of these stand in the way of these family businesses then launching to the next level.

So there are factors definitely internally, there are factors externally. Those external factors sometimes speak to the macro-economic conditions, but we’ve seen that businesses have scaled beyond some of these external issues and at the end of it, what you’re then left with is those core issues that are looking at you in the face and you probably don’t know because you have a blind spot. It’s about looking at the family, the business, but also the wealth that you’re creating from those two pillars.

It’s a good thing you drew a big distinction between the micro and macro issues. Finally, how can family businesses build resilience in an age of volatility? How can family businesses be resilient to help them build multi-generational enterprises?

I think for that, it’s really about going back to the ethos for why these businesses were founded.
What are the values and what is our purpose for setting out to do this, because sometimes also, it may mean that when we revisit those, the products that we’re launching might change, it might be that this good that we’re delivering is not probably required.

For instance, if I take bakers, bakeries have been hard hit because of the huge cost in diesel, the huge cost in wheat products that have been imported over time; 90% of what we use for bread is imported and that’s also because of the crisis in Ukraine; that has affected food security.

Now, a businessman that has set out to say, oh, there was at a time, the fact that we could supply bread easily, maybe in this environment, and we wanted to set up a new bakery so that we could supply bread to our immediate neighbors, and now, can’t do that.

He needs to start asking questions around, oh, the dynamics have changed, there’s so much volatility in terms of how I can buy this product, because the exchange rate is just fighting against me.

And then it takes us back to the drawing board of where do we now need to start sourcing products, it can also take us back to do we now start to go into backward integration, do we need a farm?

Can we also change the ingredients for the bread so that it’s not all solely wheats, and maybe we can even add cassava because I can remember that during the last regime, there was also a plan around, maybe we need to think of the ingredients for bread to include a percentage of cassava.

And these kinds of innovations, then calls for businesses to move beyond where they currently are. And the innovations by themselves, why it is also very beautiful to do this within family businesses is because when you have that environment of trust, when you have an environment that you can easily, you know, just speak up, no matter how foolish that idea may sound to you, you don’t feel emburdened speaking to your family member, it’s a beautiful ground for bringing out innovations, it’s a beautiful ground for sparking intelligent business ideas that can take businesses over and off.

So innovation is critical if we’re going to build resilience, going back to the drawing board, and then saying, oh, we can do things differently

Admitting the next generation is also a critical issue with family businesses where the next generation is seen as maybe not competent enough to carry on the ideals or ideas of the founder.

And we’ve also had myths around family businesses usually die off at the third generation but it’s not always the case.

In fact, reaching out to the next generation is probably the next link for sustaining you in the new world of business, especially where there are these generational shifts, and where there’s so much volatility.

It’s making sure that we also harness the power in the next generation, take advantage of innovation, not lose sight of the long-termism that family businesses present. I think those are very fantastic ingredients that will ensure the resilience of family businesses.

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