“A family business is a never-ending journey, one that is continually evolving and adapting.”
By Jubin Mishra: Around the world, family-owned businesses serve as the bedrock of economies, fostering growth, and contributing significantly to development. In India, these businesses boast a rich history, surviving across generations to become indispensable components of the country’s economic landscape.
Despite the rise of startups in recent years, family businesses persistently thrive, accounting for a staggering 79% of the national GDP each year. This phenomenon resonates globally, with over two-thirds of businesses worldwide being family-owned and operated.
The 10th Global Family Business Survey conducted by PwC provides valuable insights into the dynamics of family businesses in India. Among its findings, it emerges that 71% of family businesses equipped with robust digital capabilities could swiftly adapt their strategies to navigate emergent challenges.
This juxtaposition underscores the essence of embracing modern tools and techniques while acknowledging the inherent resistance to change among family businesses.
Let us delve into the benefits of diversification that families can reap –
- Navigating Winds of Change
The journey of diversification for family-owned businesses intertwines intricately with their ethos, goals, and aspirations. This connection holds particularly true for India’s mid-market family enterprises. Serving as both the emotional and economic nucleus, the family guides the trajectory of diversification, with the acknowledgment that sustaining and nurturing wealth must harmonize with the imperative of surpassing the ordinary.
A pivotal advantage of diversification lies in solidifying the ownership’s enduring commitment to the business. By dispersing ownership across multiple ventures, families enhance their financial resilience, a shield against economic undulations. A diversified company’s stock price showcases decreased volatility, tempering hasty inclinations to sell.
- The Recession-Proof Paradigm
Economic recessions, a recurrent feature of global economies, pose substantial threats to business continuity. However, family-owned businesses that have diversified their portfolios are better positioned to weather such storms. As one sector encounters a downturn, others may thrive, offsetting losses and ensuring a steady revenue stream. This recession-proof paradigm is the result of meticulous portfolio curation, where different sectors’ cycles and risks are strategically balanced.
- Balancing Legacy and Aspiration
The influx of next-generation leaders in family businesses, armed with global academic achievements, often seeks avenues beyond traditional spheres, challenging established norms. The clash between legacy and aspiration can be addressed through diversification – a strategy that allows these successors to explore uncharted territories while preserving the family’s heritage. Diversification, by branching into new industries or services, harmonizes tradition and innovation and empowers the next generation to drive growth.
- Harnessing Growth Opportunities
Government efforts such as streamlined tax reforms and the “Make in India” initiative have significantly eased the business environment for SMBs and MSMEs, catalyzing their expansion and global competitiveness. Concurrently, the PLI schemes have incentivized domestic manufacturing, fostering innovation and attracting investments. However, to fully leverage these initiatives, family businesses must consider diversification. By branching out into new sectors and complementary industries, they can seize these policy-driven growth prospects.
- Harmonizing Culture and Seizing Opportunities
The unique cultural fabric of a family business, characterized by values like integrity and trust, assumes pivotal significance in the context of diversification. Such attributes facilitate managerial autonomy among diversified units, empowering individual operators.
The emphasis on culture also dovetails with the pursuit of innovative and contrarian strategies, a strength that is particularly valuable in a diversified business landscape. This nimbleness enables family businesses to seize emerging opportunities before the market fully recognizes them, capitalizing on internal resources for financing.
Incorporating the “Nose In, Fingers Out” Ownership Theory, family businesses can integrate governance systems that strike a balance between oversight and operational autonomy.
- A Magnet for Top Talent in Business
Diversification emerges as a powerful strategy in this pursuit, acting as a magnet for exceptional talent capable of propelling the company forward. Among its manifold advantages, diversification enables companies to attract proficient individuals who can lead with innovation and vision. Family-owned businesses can, thus, tap into the reservoirs of global success stories where professionalized management has acted as a catalyst for accelerated growth.
- The Size and Scope Balancing Act
Central to the success of family business diversification is the careful calibration of portfolio size and composition. Optimal performance hinges on businesses that are large enough to command economies of scale but not overly broad to hinder effective ownership oversight.
Families businesses can adeptly address this challenge by venturing into niche markets where geographical dominance is attainable, or by engaging in fragmented industries where scale’s significance is diminished.
Crucially, the portfolio’s diversity must be balanced to capture the desired advantages while maintaining accessible oversight. Moreover, businesses within the portfolio should possess distinct cycles and risk profiles, enabling resilience through uncorrelated performance trends.
In this way, when one sector faces a downturn, another may thrive, offering a natural hedge against market volatility.
In conclusion, for family-owned businesses, diversification emerges as a strategic imperative for maximizing value and ensuring enduring success. Additionally, it also makes them a viable candidate to attract private capital.
By aligning digital transformation, cultural cohesion, and strategic opportunism, family businesses can harness their inherent strengths while overcoming the challenges associated with diversification.
AUTHOR – JUBIN MISHRA
The author, Jubin Mishra holds an extensive understanding of India’s family-owned businesses, his insights proved invaluable in shaping the strategies and legacies of these enterprises. As a partner at Blue Helion, Jubin acts as an advisor, mentor, and member of the CXO and Founder’s core teams. Here, he leverages his extensive experience to steer companies toward their visions, augment market share, unlock value, and attain competitive differentiation.
