5 crucial factors that shape the fate of family-run businesses

Mahesh Pai lists out the important factors that go into managing a family run business

Family-run businesses have a unique charm, often driven by a passion that stems from generations of hard work
and dedication. However, navigating the complexities of running such enterprises can be challenging. Many of these businesses thrive while others struggle to survive the test of time. In this article, there are five key factors that can make or break a family-run business and offers insights into how they can ensure long-term success.

Lack of long-term leadership and strategy

The foundation of any successful business lies in a well-defined vision and a robust strategy to achieve it. Unfortunately, many family-run businesses suffer from a lack of clear, written-down plans. The business is stifled when business heads are overly conservative in their approach, fail to execute their strategies, or keep exercising
paternalistic control. Tunnel vision and a focus on day-to-day routines without considering long-term objectives can also hinder progress. To ensure growth and expansion, family business leaders must develop a comprehensive vision, mission, objective, strategy, and action plan. Encouraging the involvement of other family members and
leveraging their intelligence can open doors to new ideas and approaches. Embracing change and letting go absolute control can lead to innovation and a thriving family business.

Succession planning

A well-thought-out succession plan is vital for the continuity of family-run businesses. Shockingly, only 15% of Indian family businesses have a robust succession plan in place, as per a PWC report. Inadequate succession planning, often leads to a crisis when the business head suddenly departs, leaving behind a leadership vacuum. If a
succession plan is made during a crisis then there is a high tendency of choosing the wrong leader. Effective succession planning involves systematic training of successors well in advance. This process ensures a smooth transition of power and prevents internal conflicts. Role and goal clarity are of paramount importance during this phase, as it minimises potential family disputes and keeps the business on a steady path towards growth. In fact, most businesses in India fall apart by the second or third generation due to lack of role and goal clarity. By
combining the experience of the current business leader with the energy of the next generation (successor), family businesses can surpass their anticipated potential.


Embracing the right practices and fostering an inclusive and forward-thinking environment will ensure that the legacy of the family business continues to thrive for generations to come



Wealth management

Incorporating family members into the business and deciding their equity involvement during entry and exit stages
is a crucial aspect of wealth management. To avoid conflicts and ensure transparency, family businesses should establish clear policies and communicate them effectively to all stakeholders. Having a long-term vision and a written roadmap helps maintain consistency and trust among family members. Differentiating between participating
and non-participating members can also help address issues related to compensation, dividends, profits, and payouts. Trust issues often arise due to ambiguous wealth management plans, which can lead to discord within the family and jeopardise the business’s prosperity.

Managing family relationships

The success of a family-run business depends  on the strength of family relationships. Effective communication, trust, and mutual respect among family members are essential for conveying the business vision and maintaining productivity. In contrast, strained relationships can hinder progress and breed discontent, and can slow down the speed of growth in the business. Lack of communication makes it difficult for the leader to communicate the business vision to his successor. Recruiting professionals from outside the family can bring fresh perspectives
and expertise into the business. If family members are involved in leadership roles, they must receive proper training to ensure that they possess the necessary skills to make sound decisions. Balancing professional competence with family values is key to achieving a harmonious and prosperous family-run business.

Lack of professionalisation

To thrive in the competitive business landscape, family-run enterprises must embrace professionalisation. This entails hiring skilled professionals and treating them like family or investing in the training of family members to ensure they possess the required expertise. By professionalising the business, the first four factors naturally fall into place. Efficient professionals can help shape a clear long-term vision, implement effective succession planning, manage wealth wisely, and foster strong family relationships. Ultimately, the convergence of professional expertise and familial values lays the foundation for a flourishing family-run business.


Family-run businesses are a testament to tradition, values, and the dreams of generations. However, to achieve lasting success, they must navigate the challenges that come with familial dynamics and the complexities of running a business. By addressing key factors such as long-term leadership, succession planning, wealth management, family relationships, and professionalisation, family-run businesses can chart a course towards a prosperous and sustainable future. Embracing the right practices and fostering an inclusive and forward-thinking environment will ensure that the legacy of the family business continues to thrive for generations to come.

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