The rise and fall of a family business AB Susanto  ;   Chairman of The Jakarta Consulting Group

                                                JAKARTA POST,  14 Februari 2014                

                                                                                                                       

                                                                                         

                                                      

Over my 30 years or more working as a strategic management consultant, I have made some careful observations. I have witnessed family businesses being formed and handed over to the next generation, flourishing and achieving peak performance and unfortunately some of them then falling apart. I have seen a few of them able to rise again and still exist today but in which the family only plays a marginal role, and some of them fade away entirely. What are the reasons behind this phenomenon? What lies behind a family business that appears so robust and expanding so rapidly, conquering the industry with such confidence then all of sudden being faced with problems and difficulties and ultimate collapse? Below I want to list a number of reasons attributed to the downfall of a business empire with the hope that family business owners take some preemptive actions to prevent such a downfall happening.  The foremost and primary reason is internal conflict. Instead of devoting time and energy to being outward-looking and taking care of their customers, developing and implementing strategies to beat the competition; conflict situations consume more time, energy and emotion in such a negative manner that the company tends  to neglect the dynamics of business, leading eventually to a reduced market position. The nature of such conflicts can stem from different perceptions, lifestyles or a generation gap that all lead to prejudice, envy, disputes and latent as well as open conflict.  This can happen among siblings, between parents and offspring and also in bigger families vertically as well as horizontally across generations. Another cause is often over-rapid expansion occurring without proper preparation by the organization. The magnitude of business increases quickly but the foundations and the structure of the organization remain the same or do not expand at the same pace.  In other words, the organization development lags behind. This is sometimes combined with a lack of some form of risk-management committee and the tendency to use short-term bank loans to finance a variety of long-term projects. In addition, a frequent cause of family-business failure is what is termed the “bigness mentality” combined with a “We have always done it this way” attitude. The bigness mentality is a state of mind that money will always flow in a big stream therefore luxury and inefficiency can be absorbed easily.  In difficult times this mind-set will have a heavy negative impact on cash flow and therefore the ability to survive over a long period becomes questionable.  The attitude that success will always lead to success regardless of changes in environment and competition will always result in disappointment. Having elaborated the three most frequently encountered reasons for the downfall of a once very successful family business venture, we might address the issue of what must be done by owners regardless of whether they are the founders or not. First, if conflict is not obviously manifest yet, try to engage in conflict resolution as soon as possible.  If this is not successful, then seek the help of competent parties well-versed in conflict resolution in family businesses. Second, always ensure that your organization is in line with the magnitude and complexity of your business. As you grow, you need to develop your corporate strategy and organization accordingly.  In many instances a formal corporate culture will strengthen standard operating procedures and governance, which should be mandatory. Third, a fast-growing corporation should exert a discipline to conduct proper strategic planning.  This will synchronize internal conditions with the opportunities intended to be taken. Last but not least, the company must have a board of commissioners that really can function as a supervisory board and be able to object to certain practices or intended undertakings. Good Luck! ●