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BW Businessworld

It’s All In The Family

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In almost any country, family businesses make up about 90 per cent of all the enterprises. At the same time, family businesses also tend to have a high mortality rate. In the US, one study estimated that barely 30 per cent of the family businesses  last till the second generation, 12 per cent till the third generation, and just 4 per cent family businesses survive till the fourth generation.

There are many reasons for this. First, the founder is generally an exceptionally enterprising person who takes great risk to set up a business. By the third generation, often the entrepreneurship drive and the risk-taking ability gets lost as families get used to the good life and a business that is already big and established.

Then, there are problems of succession planning. Often founders find it hard to give up control, and the second generation sometimes gets the company when it is already on its way down. The history of Ford Motor Company is a good illustration of this. Henry Ford, the founder, did not give his son Edsel any real powers. After Edsel's death, it was his son — Henry Ford II — who took charge finally, and pushed out the old man's coterie of managers, and revived an ailing company. There are plenty of other reasons as well.

In that sense, the Godrej clan is one of those rare business families that have lasted three generations with the fourth now preparing to run the group companies. It has retained its unity and cohesiveness, even as many of its contemporaries have splintered and lost out.

At the same time, the Godrej family has been too conservative in its approach — and missed out on a host of opportunities that liberalisation of the economy presented. Many entrepreneurs, who started out much smaller and much later, have overtaken it.

As the family prepares its fourth generation to take charge, it has also prepared an ambitious blueprint to play catch-up. It has set itself a target of growing to 10 times its size within the next 10 years, and each member of the fourth generation has specific growth goals to meet.

Is that possible? Yes, it is. Is it probable? To get an answer to that, read senior editors Prasad Sangameshwaran and Nevin John's report on what the family intends to do, and the challenges they face.

(This story was published in Businessworld Issue Dated 11-07-2011)