Like the rest of India, family-run businesses are the backbone of Coimbatore's business economy. In fact the biggest companies and many of the entrepreneurial ventures until the turn of the century have been family-run businesses. The city's well known and chronicled business history is because of family-run enterprises.
From Lakshmi Mills to Pricol to PSG to Ramakrishna to Sakthi Group to Bannari Amman to new age giants like Emerald Jewel Industry and many more are all family- run traditional businesses. Strong business ethics, a clear profit-loss rational revenue model, achieving consistent growth year-over-year and consolidation of assets are the pillars of family-run businesses.
But, in the last 10 years or so, a new wave of companies has sprung out of the blue bringing in innovative new business ideas.They have attracted huge investments and are in the high-paced, growth focussed, technology-driven startup ecosystem. Innovation and creating new markets is the backbone of the startup ecosystem and with the venture capital investors looking to make big investments despite huge risks in expectation of high returns, these businesses have carved out a market for themselves.
So, with each of these business models having their own pros and cons, how does each of them evolve in today's business climate of new markets, immersive & disruptive technologies and quick growth?
Right off the bat, startups need to learn to build a credible, long-term business model just like the traditional businesses do. Many startup businesses look at getting funded for their quick growth and focus on quick returns for investors and many do fizzle out after their first couple of rounds of investments. Since so much of the focus is based on getting funded quickly, many a time, the revenue model is the last of the consideration and that has led to the downfall of many startups which provide unique services to customers, create/carve a market, acquire market share, technology driven and have professional management but fail to generate revenues to sustain their growth.
Family-run, traditional businesses on the other hand are always focussed on having the revenue model in their eyeline, while creating their business model. A whopping 79 per cent of our GDP is contributed by family-owned and run businesses. Family run/traditional businesses never accept the concept of "let me acquire marketshare and then look at monetizing it." While this is good, family run businesses, have eventually failed to take the risks that their first generation founders took to create the business in the first place and thus have stayed away from creating new markets or expanding into other business ventures. Non-financial goals like the business inheriting the character of the family are lofty but many a time not replicable across generations. The most successful family businesses have also been successful families across generations.
But with a war chest of cash, high credibility in the market and with support from financial institutions, a lot of new ventures and new markets could have been envisioned if the businesses were focussed on innovation. Kin-management, cultural and community-based hindrances, keeping things simple within the family and steering clear of feuds and break-ups have consumed the innovative spirit of many family run businesses, which were all started by visionary founders, who went against all odds to create these businesses.
Today, from the first to second generation, survival rate of family businesses is 30 per cent. Then it drops sharply to 12 per cent and just 3 per cent after that, according to Pranav Sayta, partner, Ernst & Young family business practice.
In accordance to that, there seems to be a new outlook in both of these businesses as each of them has started to borrow the key traits from the other. Earlier it took family-run businesses, 50-60 years to diversify. Now they start doing it much earlier. Some family-run businesses, have shown to diversify into various new market segments where they traditionally would not go. At the same time, startups have started to think of strong revenue models for their businesses. Startups have started to think how to create a sustainable business rather than quick paced stake-outs.
It's just a start for now and in the coming years, it would be fascinating to see if we have a new hybrid business model which inculcates the best of both these models (family run and startup) and create sustainable and enriching businesses and entrepreneurs, the pillars of our City.