All good things come to an end, even this series on family businesses. We set out in the series to investigate family businesses. We wanted to know whether it is a form of business that warrants any special handling as far as investment or management is concerned. Although my interest is from an investment perspective I also tried to pass on relevant information to our readers who are running family businesses or who would like to keep their first generation business in the family.

In summary the most important lessons I learnt in writing the series is the following.

* In most countries' economies it seems that it is safe to say that

more than 3/4 of the privately owned businesses in that economy will be family owned businesses.

* 70% of family businesses do not survive the first to second

generation transfer.

* There is very little support for family businesses, which could increase its survival rate. I think this point is important. If a country has a capitalist system as opposed to a socialist one then I believe it can substantially increase its competitive position in the global economy by supporting family businesses. It is much more difficult and taxing on the resources of a country to get a business off the ground than keeping an existing one going. If a business fails the capital is redistributed in the economy. Only 10% of small businesses survive into year three and only 1% survives into year six.

That capital is going to mill around in the economy for a long time, before it comes together in a successful business again. Although it is great for wealth distribution, I believe that it is better for the economy if capital, which has been applied successfully is safeguarded. This can be achieved by better support for family businesses.

* It is difficult to tell how many family businesses fail, because it lost its competitive position. However, it became clear in the series that most family businesses fail due to management problems. Most of the management problems was introduced or exuberated by the family's involvement. One of the main problems stems from the drive or desire to succeed that is lost. The first generation frequently comes from an underprivileged background and there is a desire to make something better of their lives. This generation mostly desire to provide better opportunities to the next generation. Although, the first generation succeeds in this the lessons learnt on the journey is not passed on. Also, the appreciation for where the first generation came from is not passed on. I once told my Father that it is much more difficult to keep money than to make it. Any wisdom contained in that remark was most likely a fluke than due to intellectual insight on my part. However, after writing this series it does look that I might have been onto something with that remark. As the first generation you must ensure that you make the second generation appreciate that what they will one day inherit did not fall out of the sky. The second generation must also appreciate the value of the saying 'money makes money'. The saying is true. The second generation will most certainly lose the business if they are not made to appreciate how lucky they are to be handed a business, simply because they came out of the right womb. Unfortunately, they will mostly only appreciate what they had, once it is to late. There are various ways of passing on the wisdom. An example would be when Chippie Brand refused to buy his son, Stu, a bicycle when he asked for one. However, he was prepared to come up with half the money as long as Stu came up with the other half. Make sure the second generation are taught the lessons learnt by the first generation; otherwise the business would be doomed in most of the cases.

* Most kids actually don't want to go into the family business. I believe part of this is due to the lack of appreciation of the opportunity at hand. However, if this is not the case then the older generation must be realistic about this. If Johnny does not want to follow in the footsteps of John then you must either sell the business or groom someone outside the family. Kleeneze is a listed UK company, a family business and an investment of Mr B. Recently, the founder passed away. The son did not suddenly step in to take over the management of the business, but decided to leave things with current management. He was not involved with the day-to-day affairs of the business before, so why now suddenly try and run the show.

* There is a lack of awareness for the family dynamics involved in a family business. Family members involved in the business need to be made used to wearing different hats. They need to separate roles in the family and in the business. Most conflict stems from a confusion of the roles. That and a lack of proper succession planning are very likely the two main causes for failure of the business. It is much better for all stakeholders to know exactly what the two, five and ten year plans of the business are and especially who is going to be leading the family and the business or the family and the business. Don't try and leave things to the last minute. Discuss things openly and put everybody in the picture. To leave things up in the air is a recipe for disaster. Importantly, disasters in family businesses almost always take on gigantic proportions.

That is the most important lessons from the series in a nutshell. I am taking a couple of weeks of. We have not yet finalised the topic for our next series, but currently it looks like we are going back to the basics. We will very likely do a series on investment basics, which is appropriate in light of the investment environment, which is becoming better by the day. Although, I don't believe anybody can call the market, I do feel the bargains are going to come our way in the next couple of years. So take it for what its worth. Last year, when someone commented on one of our newsletters, they said that value was dead. I haven't heard from that commentator lately. I wonder why? Also, everyday the markets fall Austin Powers jumps up in my minds eye and shouts; Yeah Baby, Yeah Baby, Yeah Baby, YEAH!!! Hang onto your cash this is going to get

interesting!

Whatever you are up to, I hope it is profitable and ethical!

Mr. B

mail_mrb@yahoo.com

Posted: 2002/08/05 08:10 View Archive