Authors Mr M S A Kumar, Family Business Advisor, and Mr Navas Meeran, Chairman of Group Meeran, in conversation with Mr C K Ranganathan, Chairman & Managing Director, CavinKare Pvt Ltd and Mr Tatwamasi Dixit, Founder Chairman, Family Business Research International Centre (FABRIC).
Mr Kumar: Navas Meeran and I know each other for the last 20 years. Eastern Condiments is the company started by his father Meeran Sahib. Navas is a second-generation family business entrepreneur and he is very simple and unassuming. After building the business, three years back, they sold Eastern Condiments with an enterprise value of around 2000 crores to Orkla. Navas continues to be its CEO. From the third generation, his son has also joined the family business.
Mr Ranganathan: I am happy that the authors of the book have discussed eleven other successful family business companies apart from the Meeran group. I like the seven C’s, which are prescribed by them for any family business or entrepreneur. Even professionals need to know these seven C’s, which are Clarity, Commitment, Consistency, Courage, Cohesion, Competency and Compounding for scale up. If you do the first six Cs right, the seventh one, which is compounding for scale up, will follow. The six are interrelated. It has a positive synergy effect. One feeds into the other.
Running a business successfully is not easy. A lot of people start a business. But the failure rate is very high. It is around 70%. In this context, taking a family business up to the third generation is a big task. History says that the third generation actively destroys wealth. The first generation builds the business. Their son and daughters carry the values from the first generation, as they have risen from the bottom of the pyramid. But the third generation doesn’t experience the pain at all. They grow up with the affluent mindset. Often, they are pampered. They have no hunger. They don’t need to work. Everything is given to them on a platter. That is why, family business running successfully up to the third generation is a miracle. I am also intrigued by the fact that many companies prefer to remain small.
Fail Fast but Cheap
Experimentation is a way of life. That’s a very important foundation for any business to grow. A flourishing environment is created when failure is not punished. We only learn from the failures. In our company, we have one very important philosophy: Fail fast; Fail cheap. We have started embracing it in the last four or five years and there is no looking back. We were able to do multiple experiments.
There is no sense in spoiling your future for the mistakes of your past. Forgive yourself, grow from it, and then let it go. While we must not brood over past failures, we must ensure that we don’t keep on doing them. The cohesion among family members and between family and professionals is also important, without which businesses, have failed. Finally, you must have the courage and risk-taking ability to scale up the business.
Mr Tatwamasi Dixit: As a child, I was deeply influenced by two great scholars—Chanakya and Confucius. Chanakya said that if you want to be happy, you have to follow your dharma. In India, each human being is supposed to have some Swadharma. A carpenter’s son becomes a carpenter, a teacher’s son becomes a teacher and a businessman’s son becomes a businessman. This has been the dharma of this country and the basis for family business. The family business concept originated in India, but unfortunately, we did not have a scientific framework or a research structure. We did not have support from educational institutions to do all the research. Thanks to the Western contribution, there is so much of literature available in the field of family business, because the universities there largely support them.
India started to wake up to the concept of family business in late 90s when John Ward came to India and started educating everybody about the family business. Chanakya goes on to say that if you want to follow your dharma, you need money. It’s very important to make money. I have worked in the West where the big wealth creators are big business houses and they are revered and respected because they say that they build the country’s economy. But in India, the businessmen are not respected. They are perceived as if they loot.
Debt-based Model
It is difficult to build a business in India, because India has been a debt-based economy. We never had capital in this country to build the business. The equity was never available. Building a business by taking a debt is not an easy task. Chanakya further says that if you want to build a country, then you have to build an economic model, which can continuously support a country. That is possible only if you support family run businesses. The Vaishya community have been deeply working to build the business framework in this country.
Confucius says that the family, not the individual, is the basic unit of the society. Family is more important than any individual member. Harmony is the most important value for all family members. The will of the individual must be subordinated to the family group. Children must be taught to restrain individualism to maintain harmony in the family. Today, there is too much of individual identity and family is slowly disintegrating. The concept of joint family system has been facing a lot of challenge and nuclear families are taking over.
Fading Away Through Generations
As the authors have mentioned, only 13% of the family businesses transition to the third generation and only 4% of the family businesses go to the fourth generation and beyond. It’s a very tiny number. By the third generation, the entrepreneurship dies in the family system, because they have so much money. 75% of India’s GDP comes from family run businesses and 85% of the businesses are family businesses in India. That underlines the significance of family businesses.
I have found that the first-generation entrepreneur has a clear purpose and it is to meet the economic need of the family. But from the second generation onwards, their purpose is not curated. The only purpose they find is that their father or grandfather started the business and so they need to support them. What makes the family businesses special is that the older family members are working together. That’s how the family business story comes alive. One big differentiator is the ownership dimension of the family business.
Parallel Strategy
There is a strategy in the family business concept called parallel strategy for ownership, where we look at three things. One is: what is the control I want to have as an owner? The second is: what kind of growth do I want to have? And third: what is the liquidity as family members, we are all looking for? There is a big trade-off between these three all the time. If you want to grow, you must be ready to dilute to create the growth. If you’re going to dilute, you’re always going to be challenged by the controlling stake in the company, which will start going down.
You must have a dividend policy. The family members expect dividends to support their lifestyle. In larger organizations where there is a great CEO, then the CEO will prepare the business plan and the family business owner can prepare the ownership strategy plan. They both have to interact with each other. That’s how the business grows from generation to generation. If there’s going to be disharmony between the owners and managers, it’s going to invite troubles.
Four Roles
There are basically four roles the family businesses have. The first one I call as owner managers, where you are involved in the day-to-day function and you are driving it. The second role is an owner strategist, where you have a CEO to run a day-to-day operation and you are only involved at a strategic level. As the generation becomes deeper, the family members grow. The third role is called owner governor, where you are only on the board as a governor. The fourth one, which is common in large families in Europe, is where they do not have any interest -either to be as a manager or a board member. They are pure investors and shareholders.
If you do not create an alignment between these four different roles within the family members, where some of them are working and some of them are not working, it will be a huge challenge to perpetuate the business from generation to generation. Each one has a different expectation from the family business. Amidst all these things, there’s always a conflict running between the family members.
Hats Off
I want to quote a case study. A father and son were not getting along with each other. They worked for 10 years together. I and my colleague happened to work with them in Europe. One day, the father called his son. He wore a hat where it was written ‘Boss.’ He said, “Look, I’m not happy with you. So, you are being fired from this role.” He gave him a pink slip. After one minute, he took out that hat, wore another hat where it was written ‘Father.’ Now, with this hat, he asked him, “Son, I believe you are just being fired and I am very sad for you. How can I help you?” These are two different roles.
There must be governance to ensure harmony in the business. India is going through a great transition. Globally, many businesses are changing hands. We are going through a situation called, ‘a great wealth transfer.’ About $68 trillion is changing hands. At this juncture, so much of research literature must come out in India on family businesses and it is the need of the hour.
Mr Meeran: I feel sorry for the third generation. If you shoot from a revolver and there is a 0.01 mm difference at the starting point, you can imagine what will be the difference at the 100-meter level. That is the curse for the poor third generation. Many of the family run businesses tend to push the issues under the carpet. They don’t have the courage to talk about succession, about letting it go and about value unlocking. When you’re creating value, you must know how to unlock it, so you can enjoy it. If in a family of four brothers, let’s assume that the third one is the most entrepreneurial. But in the Indian condition, when succession happens, only the eldest is going to rule the business. The wives of the brothers may bring in their own conditions. These are some of the challenges of running family organizations.
Mr Ranganathan: Other than the seven C’s, how important are the family values in holding the family together?
Mr Meeran: One of the groups which we studied is Orange County. They decided to get into the niche super luxury resorts and created an SOP. Eventually, that SOP became the values of that organization. Underneath every business journey, there is a strong push and support for value system, which the family inherits. That is non-negotiable.
To give an example, one day, my dad was upset with a mistake committed by a family member but he was very angry with one of our lower-level staff, whom he knew, had not committed the mistake. During lunch, he called that staff and asked him, “When I was angry with you, why didn’t you tell me that you were not the guy who did that mistake?”. The staff said, “Sir, when you shouted at me, the person to whom it should have been told to, was also listening to it. So, I did not think it was necessary on my part to say so.” That was the maturity shown by a lower-level staff. My dad told this to me once and said, “In organizations, we must never abuse people.”
We have more than 40 to 50 people who are with us for 25 years. Even if somebody works with us for a decade and moves out, they’re treated as family and they have the liberty to come and have a cup of tea with us, though they probably might be working with the competition. That is the power of values.
Mr Kumar: In the case of Orange County, they focussed on three things: positioning, purpose and partnership. They positioned as super luxury resorts. If you go their resorts, say in Coorg or Hampi, it may cost 60 to 70K a night, but still people flock there. The positioning led to certain ground rules for everyone and evolved as a practice. And that, over a period of time became their values. Informally professional is also one of the values in organisations.
Mr Dixit: You have written about the concept of mindset for long haul. What do you mean by that?
Mr Kumar: In the case of Eastern, Navas’s father Meeran Sahib had the mindset to start the business. He passed it on to his son Navas who wanted to expand the business. In funding internally, there were restrictions and he decided to go for private equity. It again reflects the mindset. We always say the battle is not lost in the battlefield but the minds for the soldiers.
Mr Meeran: Lack of clarity is one of the major issues which troubles the entire organization. In the last 3 years, I’ve taken out my entrepreneurial cap and worn a professional’s cap. I am working as per contract, for Orkla as the CEO of Eastern. Having been an entrepreneur, to be in a professional CEO’s role and doing the same things, sort of bores me. But top line and bottom line have gone up extremely well.
As an entrepreneur, we keep experimenting and may lose 4 to 5 crores, launching new products and failing in the market. When you talk about long haul, you must be clear about what you’re trying to achieve. What will drive the business at the end of the day? A top line of 2500 or 5000 crores always fascinates people but ultimately, if it is not backed by bottom line, there is no fun in it. Those businesses with less margins and less of profits, will not survive.
Business owners have the moral responsibility to protect the profitability of their business because if profitability comes down, it will have a social impact. I’ve got thousands of people working with me. These are the people who are immediately getting affected, if I have a problem with the organization. We need to carry in mind that in the long haul, if there are too many verticals, they need to be balanced.
Mr Dixit: With one of my clients, the father takes all the decision and the next generation is fed up because the father doesn’t want to let go of any decision. One day, I had a session with the next generation and said, “Why don’t you think in your mind that your father is working for you? Think that you have done a reverse delegation. It’s good for you.”
Mr Kumar: The next generation should not think that their father and grandfather are useless and that they have done nothing. He or she is sitting on a platform generated by the father and grandfather. The responsibility lies with both sides -the previous generation and the next gen.
Mr Meeran: The second generation, when they join the business, must create a strategy within their mind. They must have the patience to talk to the father, at a time when the father is in a good mood. My dad and I used to have arguments. A very senior friend of my dad called me once and said, “You’re talking about strategy and you have not seen money. Your father has seen money. You have to be within the boat to navigate it, rather than being out and saying that my dad is not doing it right.”
I’ll tell a classic case. We had a brand logo, which was outdated to the core. If we had to scale up, that was not the logo. If I go and tell my dad, he would not accept. So, what I did was, I took photos of most of the big brands and placed the old Eastern brand alongside, all one in poster. In another poster, I put the newly designed logo and placed both in my dad’s room. When he came there, he asked my wife, “What is this?” She said, “I don’t know. But Navas was telling that this is the old Eastern logo and this is the proposed new Eastern logo.” He just had a look at it, called me and said, “The new logo is approved. Start working on that.”
