Family bandwidth and family businesses

In a family business, the most important and valuable resource is the family's bandwidth.

There is a limit to what an individual can do in a day, day after day. And at the end of the day, the success of an enterprise is driven by the people behind it, who take the decisions, raise and deploy resources and generally do everything that the enterprise "does." In today's business, the value of "management bandwidth" is very well recognized.

So, for successful business growth, management bandwidth needs to grow both in size and productivity. Assuming that a generally successful business employs generally capable and efficient managers, there is a limit to the growth in management productivity (through systems, processes, support staff and technology interventions). Often, the only option left to drive growth is to recruit the additional management bandwidth.

And there lies the problem in family businesses. One cannot "recruit" to expand ones family. Of course, families also grow through strategic alliances (marriage!) and organic growth (procreation!), there is often a gap of 25-30 years before any significant management bandwidth can be added in a family business. This is further complicated by the emotional ties governing the family dynamics and the capability levels of the family member in question - One cannot fire ones son as easily as one can fire a CEO. Summing up, as a family business grows, the bandwidth of the family members in the business often becomes the most scarce and valuable resource in the firm.

The situation is all the more critical in countries like India. Traditionally, business in India was (and still is) largely dominated by family businesses. In a socialist, highly regulated and corrupt environment, only those few grand families which had the necessary resources, network, enterprise and luck were able to succeed in business - the common man just had no chance. Understandably, these families zealously guarded their "competitive advantage" within themselves and soon they became the pillars of Indian industry. Their resources and capabilities were enough to deliver 2-3% growth year after year - The Hindu growth rate.

While the nature of the Indian economy is drastically different today, it is still dominated by family businesses, though the number of such families has grown significantly. I suppose the inherent risk-averseness of the Indian middle class explains the lack of professional entrepreneurs in our society (tomes have been written on this subject, so I will not discuss it.) While a band of young, ambitious and highly qualified professionals are driving the 6-8% growth in this country, the overall control over the private sector resources still remains with a relatively small number of families.

Therefore, the value and scarcity of "family bandwidth," and by extension, of "family capability," is today more critical than ever before. While there is enormous focus on the training and development of professionals, the coaching and training of "family heirs," one of the most critical resources for India Inc, often remains under the radar.

Should we be worried? In my next post, I plan to discuss a few critical challenges emerging from mismanagement of family bandwidth, that I have observed.