With the various family-owned businesses we’ve consulted and mentored with, we’ve seen how the ownership structure can be pivotal in the long-term success or failure of the business.

But the weird thing is that there’s no single “right” structure. While any two family-owned companies might share the same ownership protocol, their fortunes could easily be headed in opposite directions.

A family business is a business owned by 2 or more family members, either concurrently or consecutively across generations. In South Africa, family businesses are increasing in both number and economic impact. Despite there being far fewer family businesses as a proportion of all companies than in other countries, they contribute 50% toward economic growth. In the USA, they contribute 50% of GDP and account for 80% of all businesses. (“An exploration into family business and SMEs in South Africa”, 2014)

With most family companies being small businesses, they often fit the stereotype of all SMEs. According to Family Firm Institute of Boston, “30% of family-owned businesses survive to the second generation…while only 12% survive to the third generation.”

Fun fact: did you know that Jose Cuervo, the world-renowned tequila maker that sold its first bottle of tequila in 1906, is now managed by its sixth-generation leader? (Wikipedia)

Except, what makes family businesses unique is the heavy influence of personal relationships as well as the overlap between family relationships and shareholder control. This is where ownership structure could be reinforced by the family dynamics or where family dynamics could work against the chosen ownership regime.

Hence, ownership structure is not just a “simple” legal formality like it might be with most other businesses. I’ve noticed with many of our clients how shareholding amplifies or restricts family members’ involvement, which can often show up as a latent cause of conflict both in the business and in family relationships.

We’ve noticed critical lessons from our work with dozens of family-owned companies. Here’s a summary of them, organised into a four-part framework (framework sourced from Harvard Business Review, January-February 2021):

Sole owner is where a single person is responsible for all decisions. Works well where decisive leadership is needed to execute an agile strategy in dynamic conditions. For this to work, though, either the business must reliably create enough cash for the family, or the family must have a low financial dependence on the business.

I’ve noticed that this structure works best when the family head is also the owner i.e. when domestic and business relationships are congruent.

“Partnership” family businesses limit shareholding to only family members who are active in the business. The advantage is that ownership can be based on merit and there’s little dead weight in the business. Shareholders can earn their place competitively, not just through inheritance or a trust fund.

However, conflict is likely if the rules governing admission to ownership are unclear, or when performance management can’t be objectively measured or implemented.

Distributed ownership allows any family member into the owners “club”, often through inheritance. The upside is that acquiring ownership can be done fairly if shares devolve to descendants in equal ratios.

The pitfall, though, is the challenge that’s typical of silent partners: shareholders who are “too” silent seldom fulfil their shareholder duties, or they’re seen as freeloaders. This not only hinders the quality and speed of executive decision making, it can cause resentment and the breakdown of family relationships.

Concentrated ownership is effectively a mash-up of the distributed ownership and partnership structures, where any family member can be a shareholder, but with decision-making in the hands of only a sub-set of shareholders.

This approach makes for a more agile leadership team when decisive execution is not slowed by absent shareholders.

Almost without exception, though, the challenge I’ve noticed among my clients with this structure is that shareholders without power can easily lose interest. They then become obstacles through apathy, passive resistance or even active sabotage, damaging family relations in the process. Very hard to recover from this scenario. To avoid this outcome, it takes mature leadership and strong family relations to sustain an inclusive approach.

Some of our most rewarding work has been with family-owned companies, when our “whole person” philosophy is automatically put into practice. After all, we don’t just grow businesses, we help owners grow their wealth and make a difference through their business.

If you want to build your business as a legacy to your family, which of these four structures would fit your family dynamics and business strategy best?

VBS Mutual Bank is slowly collecting debts owed to it and recovering its losses from corruption. Only, it’s slower than it ought to be.

No doubt there’s a morass of bureaucratic processes to be wrangled, but the challenge can’t be solved by simply throwing money and cheap labour at the problem (excuse the irony). The solution to this problem doesn’t scale easily. That’s because, in order to conceal the corruption, convoluted deals were set up to obfuscate what was really going on.

A Gauteng High Court case, Rooplal vs Firmanox (SAFLII, 20 November 2020), anecdotally illustrates how recovering VBS’s losses is not as simple as pushing paper. The real work is in untangling the contractual contingencies and their loops within loops of counter contingencies that were contracted with multiple parties.

VBS’s liquidator, Rooplal, approached the court to have a debtor, Firmanox, liquidated in order to recover a debt of about R24 million. Firmanox countered with a rebuttal of the debt, citing another contract it had with VBS and its baffling variety of conditions that would, somehow, let it off the hook.

The court saw through the smokescreen, but only after legal argy-bargy and concern for “abuse of court processes”. In other words, vast expense and time wasted. The court ordered that Firmanox be placed into final liquidation. For the VBS liquidator, that was only the end of the beginning of recovering its debt from Firmanox.

What makes this case interesting is that the related contract Firmanox relied on in its counter relates to a funding deal with it, VBS and other parties to establish a religious TV program. The complexity was borne out of not only the multifaceted relationships between the parties, but the tenuous conditions attached to each party’s obligations.

When we consult with clients on acquisition growth strategies and how to fund them, we’re mindful of the increasing complexity involved in even simple deals when bringing just one more party to the negotiating table.

Keeping acquisition and related funding deals simple is not only to smooth out the break-up of the relationship, as in the Rooplal-Firmanox case. One of the biggest reasons acquisitions fail is because of poor implementation. Literally, being unable to effectively integrate the merging organisations.

Although acquisitions can be inherently complicated, complex contract terms are anathema to successful acquisitions and funding deals. Keep the number of stakeholders low and minimise the moving parts in the deal.

If there’s one thing we’re learning from the coronavirus debacle, it’s that the slow-to-adapt are likely to perish. And fundamental to adapting to any situation is the ability to learn.

Whether it’s watching a few YouTube tutorials on how to video conference effectively – boy, have I seen some sad Zoom meetings! – or re-inventing your business to sell entirely new products to an entirely new audience, learning is the starting point.

This is not about the luck of a crisis boosting demand, or bad luck if you’re in a “wrong” industry. E-commerce companies are predisposed to thrive in a lockdown –illogical government limits aside – while most manufacturers, retailers and small businesses are suffering.

But unless your business really is at the extreme “unlucky” end of the continuum, there’s a lot you can do to avoid shutting down and maybe even limit downsizing.

Here are 4 principles we use that are not only good for long-term strategy, but can be applied tactically for quick solutions:

1. An intrinsic culture of learning and striving for self-mastery is paramount. This is integral to our philosophy at Growth Surge and how we choose our clients. Tolerate and even encourage acceptable mistakes and risk-taking. This shows up in agile principles of short development cycles, trial and error, and continual feedback. Review key events and decisions. Then make it explicit – see #2.

2. Systemise both individual and organisation learning. E.g. share personal on-the-job learning in master class-style forums. Keeping track of work and progress is a learning function e.g. a central dashboard of key goals for the week. Share and retain institutional knowledge through collaboration tools like Slack, MS Teams, and up-to-date job descriptions, policies and procedure for important processes.

3. Integrate learning into key functions and decisions. E.g. regularly survey customers after each major interaction to learn what worked and what needs fixing. With this, pivoting out of a crisis is more likely to succeed not only because of better market intel, but because you’re certain and confident.

4. Lastly – though there are many more points! – I’ve written about Learning To Learn (Feb. 2020) and I think this applies perfectly here. Budget the time and investment for at least 5 days every 3 months for continuing professional development. Lead by example: don't take a course and keep it secret. Apply point 2 e.g. talk about it, update your business systems.

If you’re trying to keep your business alive and survive the new normal, how is learning supporting this?

Hello, world! Growth Surge is born.

Since Greig and I started collaborating in 2004, we’ve worked with thousands of entrepreneurs. A consistently strong theme throughout, whether at “light touch” workshops or deeper consulting and business coaching, is that almost no-one is supporting the business owner.

Although there is indirect support, it’s invariably in the context of growing or fixing the business. Even in business / executive coaching, almost all coaches I know – including me, until now – engage through the business case and ROI of improving the business as the end-goal.

This makes no sense when we hear almost every entrepreneur's story: you started your own business to make a bigger difference and earn greater rewards as an entrepreneur than as an employee with your wings clipped inside someone else’s business. But almost no-one is looking after the owner’s wealth as the end objective.

In Growth Surge, Greig and I have now formally combined our specialisations from Evergrow and ProMentor to fill this gaping chasm.

Our goal is to help you strategise and project manage scaling up your business for your financial freedom. That means we will always frame you front and centre. Your business may be your passion, but ultimately, it’s a means to an end.

So this “Hello, world” moment holds many metaphors. Just as it’s a popular concept programmers use as a proof of life test for a new system, so we see each evolution in your business coming to life. As with the sweet triumph of achieving the “Hello, world” milestone when learning a new coding language, so it’s a mark of your success in growing your capabilities as an entrepreneur. And like the time to reach “Hello, world” is a measure of a system’s ease of use or a programmer’s proficiency, we strive for early and frequent moments of success.

But as meaningful as these metaphors are, there’s one that is far more profound. The “Hello, world” program was first used around 1973 and, despite it being far from adequate as a contemporary test, it still has relevance and widespread, popular use today. That’s a powerful legacy that few might have predicted when this cartoon-inspired phrase was conceived nearly 50 years ago.

Every "Hello, world" event comes with this deep background – we feel awe and pride in our unveiling of Growth Surge.

But it’s not just about us. As chuffed as we are for our own start-up, we’d be honoured to play a supporting role in your sweet success.

Here’s to your many “Hello, world” moments to come.