How to grow a family business into a JSE powerhouse

A significant portion of small businesses in South Africa is made up by family businesses and their importance in economic growth is illustrated by the fact that 60% of the companies listed on the JSE were founded or are still run by families.

Despite a unique set of challenges, family-run businesses can take decisive steps to trigger a positive and sustainable growth path and in the global business context, where purpose-driven leadership is touted as the key to long-term success, family businesses have a unique opportunity to leverage their core values and gain a foothold in the market now more than ever, says Arnold February, regional investment manager at Business Partners Limited.

Consumers holding brands to higher standard

Recent research by Deloitte suggests that consumers are increasingly questioning the values of the brands and businesses they support in search of ideals such as authenticity, relatability and integrity.

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“Driven by the evolving consumer demands of younger generations, a fundamental market shift from the sole focus on profit to ‘purpose, people and ‘planet’ is evident globally and abroad, with company values as the cornerstones of purpose,” says February.

Therefore, he emphasises the importance of communicating company values clearly and particularly in a family business, where trust and cohesion play such a pivotal role in the achievement of milestones.

“Not only will the clear communication of values assist with driving an internal culture of mutual cooperation, but from a customer relations perspective, it is a powerful and persuasive tool for attracting and driving customer loyalty.”

According to PwC’s most recent African Family Business Survey, the vast majority of the 80% of the South African family businesses that follow a clearly defined set of values, claim that this helped them mitigate the impact of the pandemic on their operations.

In addition, nearly four out of five respondents claimed that having these values in a written and accessible form correlates strongly with long-term success.

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Change and agility

February encourages entrepreneurs to view agility as a business imperative. “Tradition and heritage are fundamentals in family-run businesses, but rigidity and an inability to adapt to an evolving social and business environment can serve as a barrier to further growth.”

KPMG Private Enterprise echoed this in an article, Sustaining a culture of continuous transformation in family business saying that a proactive rather than a reactive stance to sector developments is advised.

In a roundtable involving South African family business leaders, participants acknowledged the importance of becoming drivers of change, rather than mere passengers.

“Embracing change and implementing solid change management policies and practices should be a matter of priority for businesses, particularly given the rapid technological advancements that are transforming various industries,” February says.

In addition, an open-minded approach to changes within the industry, as well as in the way that customers relate to businesses and each other, is a vital component of becoming adaptable and ultimately, thriving during periods of disruption or uncertainty.

February says that while many may view change through the lens of digital transformation, particularly now with the impact of the Fourth Industrial Revolution, this is only one contributor to business longevity. “Family entrepreneurs must scrutinise and formalise their governance policies and structures wherever possible.”

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Renewed focus on governance

“The G in ESG is often neglected in family-run businesses and as a result, the human and social capital of those companies is not fully realised,” he says.

South African family businesses are, in general, as the report by PwC suggests, on a positive trajectory where the defining of roles and responsibilities are concerned, with almost 90% of respondents claiming that their leadership teams are strong and equipped with the data and tools they need to execute their duties.

However, governance is a multi-faceted component in family businesses and has a direct influence on whether communication systems support positive growth or lead to internal divisions and the breakdown of value systems.

A family business growth strategy needs to include aspects such as succession and business continuity planning.

“To avoid factors such as the transfer of leadership and ownership from one generation to the next becoming disruptive forces, open discussion and contractual agreements need to be encouraged and facilitated. Family members must see themselves not only as employees and team members, but as custodians of their family’s legacy.”