Setting your ward to “succeed in family business”

Family run businesses are a significant segment of any nation’s industrial structure. 5% of US GDP is contributed by family businesses and 35% of Fortune 500 is family owned. They generate close to 50% of employment and 59% of all new job creations. In India 95% of business are family run, and 30% of BSE listed companies are family owned. These companies product more than 6000 products, contribute to 45% of manufacturing output and 40% of the total exports of the country.  Just about 20% survive a first generation transfer and over 65% of the succession plans go awry.  Succession has not been smooth affair within large companies like Tata’s and Mahindra’s.   Success of succession depends on the planning and execution.   Insights from successful entry and succession of wards into family business show there are some common principles that can be easily adopted.

While planning, entry at right level and mentoring are important, setting up wards with the right gamification principles ensures success.

  1. Do not burden the successor with constant reminder on results, instead focus on outcomes.
  2. Obsession with results can induce an undue pressure on the successor and induce her/him to focus on short term gains. Remember succession is an opportunity to rewire your business, and let somebody who is going to own and run the business in future unearth suboptimal approaches, bring fresh perspective and drive down the cobwebs.
  3. Limit praise, only for genuine reasons.
  4. Undue praise, which happens every day for no significant output, takes the charm out of appreciation. Overusing praise may make the successor believe less of you and less motivated
  5. Encourage them to take risk and experience failures
  6. Nothing teaches like the dirt on their own hands. Allow successors to fold up their sleeves, trip, fall and raise up to live with the experience.
  7. Allow them to solve the problems in their own way and learn
  8. Encourage them to go to the bottom of events, what happened, why it failed, what could they learn and how they would do it next time. Senior family members must dawn the role of mentor on the sides rather than leader on the dias if succession has to be successful

Growing leaders internally: what works and what does not

One common challenge in organizations of all colours and size is paucity of next line of leadership. While many companies have various types of employee development programs, very few of them help in creating a pool of leaders.  A recent survey of employee engagement spend indicates less than 10% of companies find returns from the employee engagement and development significant. A challenge grapple is how to turn career “managers” from short-haul oriented, self-centred individuals to leaders. Leadership is all about imbibing and living with sense of ownership, intense commitment for outcomes not just results and sense of urgency in reaching the outcomes.

Examples of failed leadership development experiences in many companies indicate three common challenges. Early push of an employee into a leadership position when he/she was not sure about the haul is the first cause of failure.  While the management may have identified the potential of the individual to be leader and pushed him/her to the pedestal the individual may have certain apprehension.  Capability or commitment required for the long haul of company’s growth, or utility of the job itself may inhibit the individual from embracing the new role. If the employee happens to come with an expiry date (an euphemism for an employee who stays in a job to a particular period so as to meet certain pre-requisites for a certification or industry experience), thrusting her/him with the leadership may not work.   Leadership experiments fail if they clear assessments are not carried out. Before even thrusting an individual to a leadership role, identify her/his strengths, values, positive orientation towards the future and overall satisfaction with the job and organization. Second area leadership development programs fail is insufficient exposure to challenges and associated experiences.  By placing the  individuals in cocoon and not allowing them to struggle in the new role limits their learning on the job. Finally, leadership development fails if continuous assessment of current skills and capabilities and gaps are not done.

Growing leaders internally is a process that requires planning, high intensity of follow through, and freedom to emerge from failures. Leadership engine can be sustained by adopting following principles.

  1. Identify and develop them early: Most successful internal leadership programs quickly identify leadership potentials and others very quickly. Look for obvious signs of quality of work, sense of ownership of team, quality of feedbacks to colleagues, penchant to DIM (do it myself), initiative for breaks with team, etc.
  2.  Leadership at all levels: Internal leadership program must not restrict to a certain layer of organization, but rather be pursued as a common program across the organization. Internal leaders can emerge at various levels and the program must be flexible enough to identify and sustain leaderships of various forms. Leadership at some level may be highly task oriented, structured, process oriented, while leadership at another level may be one of managing unstructured, complex and volatile environment.
  3.  Assess their skills and capabilities, and identify right intervention strategies: Identify their life goals, self-esteem, creativity, optimism, happiness, personal strengths and motivation of the individual. Identify their natural leadership styles and design appropriate intervention strategies.
  4.  Support them with mentors: Internal leaders require mentors who could be from the company or outside. They act as sounding boards, motivational support and dogma sinks.
  5.  Rotate: Nothing works like a comprehensive view of the organization for would be leaders. Job rotation or a new geography broadens the work experience.
  6.  Push them to network smarter: Internal leadership program can be successful only if strong network outcomes are defined and orchestrated.  Goad the identified individuals to connect with their peers in professional forums, industry events, seminars and think tanks. Encourage them to express and reach out in the social media, by curating and directing their content appropriately.
  7.  Expose them to experience, and allow them to struggle:  Internal leadership development must have 3 quarter plans that help the individual gain practical experience of leading and managing at the newer plane.  If failures or setback happens, allow the individuals to mull over and gain from the experience. While setting them to win is important, the win must be cherished as self-gained.
  8.  Help them to do self-review: Internal leadership program thrive if platforms and process to self-review without the stigma of failures or low outcomes are encouraged. Create a informal self-review mechanisms where the individual can elicit the feedback, discuss and digest and push the agenda of improvement by themselves.

Customer funded startup: are you scaling rightly?????

India is the third largest startup country with 3,100 startups after the US which has 4,500 and the UK with 4,000 startups. While no statistical data exists, anecdotal data indicates 1 in 4 wrap up in the first year itself, 36%fail in the second year and 44% fail in the third year. Probability of failure increases if the product/service is a break through, has no external capital to support the growth or entry barriers are high.  In recent years, venture capitalists, angels and incubators have supplanted the startups with much needed capital. In the midst of chaos, there are startups that for various reasons want to grow with self-generated funds. They prefer to grow organically, gain from each customer win and experience and sustain the firm. Customer funded startups tend to preserve cash from each customer win, focus on optimization of resources and multi-skilling, and drive the growth incrementally.  Unlike their richer VC funded cousins, customer funded companies usually have their offices in backyards, hire people for their attitude, often hire from smaller schools, extensively rely on positive words of mouth to access newer customer. Customer funded startup founders major focus is on enabling great customer experiences at affordable costs.

From our analysis of customer funded startups, there are three broad stages of scaling up. First stage, is when the “relevance” needs to be established. In the initial stages, startup must play hard to prove why it can deliver better value and experience compared to an incumbent. The focus in this stage is all about smartly packaging winnable features compared to incumbent. Most customer funded startup find this stage is challenging, but albeit surmountable.

The next scale up stage happens around 6–14 months. Armed with their first customer experience, they need to assimilate, and standardize the offering so that it can work in various other settings than the initial customer environment. Customer funded startups go through this stage in an iterative “learning by doing” approach, eliminating some that did not work, ironing out the sticky corners and shaping the edges better so that the product/offering meets broad acceptance. In this stage, most customer funded startups, to gain broader experience pick orders that may not be right ones for them. Startups suffer when the engagement cost enlarge because of too much customization for the new client or they have chosen to work with a client with high transaction cost (both bonding, and monitoring costs). Many startups suffer are yet to figure out what resource to be assigned for which projects.  It is not uncommon to find their A resources working on projects of low margins!. Most of them suffer from utilization mentality rather than effectiveness. Another challenge customer funded projects find at this stage is picking up orders without a good analysis of costs and margins involved. Some do not even do a back of the envelope calculations and rely on their gut feels. Priority list of customers are not explored, no focused account mining is adopted and sales is at best reactive.  Key to scaling up in this stage is to know what customers to be dropped, what resources to be allocated when, automation efforts and reduction of overheads, and right costing. Startups have to adopt rigorous accounting principles, sales plans and reporting structure. Decisions related to industry specific versus industry agnostic or how to prioritize key customers and how to align functional process so as to enable the company to work seamlessly at higher scale need to be considered.

The next stage of scaling, emerges around 34-46 months. This is the most difficult one. At this stage, startup’s focus is more on “institutionalization”. How to ensure the culture that sustained them till this stage is preserved and extended, how to identify and encourage next level of leaders to emerge, how to formalize unique organizational practices, how to identify “intrapreneurs” who would own and drive the innovation and change, where to formalize the process and so on. And if it does have a lot on its plate already, how is execution of work going to happen?  Do they have a dedicated set of people who believe in the company’s culture, execute and deliver? Companies have to adopt some standardization and routines, bring in some formalization, even some positive bureaucracy. These are required to bring in both allocative and technical efficiency of operations.  To succeed in this stage, customer funded startups now must learn to wear the mask of the very “incumbents” they were attacking.  Evaluate the efficiencies of process and the scale at which they work, move away from optimization but focus on efficiency,  formal reporting and review to encourage decision making and ownership. While learning and aping from the “large incumbent”, the key is to understand what to assimilate, what to preserve and what to shed quickly.

Sindhu Raviraj