India has 108 family owned listed (BSE/NSE) businesses; next to China (167) and USA (121). India is the 3rd largest country in the world having more number of family owned listed companies after China and USA. As an entrepreneur, one should know the difference between “business”, “management”, and “entrepreneurship”.

Family run businesses can be categories into:

  1. Family Owned Businesses: specific family or group of families owns the majority stake in the company (>50%).
  2. Family Controlled Businesses: even if the family does not own the majority stake in the company; they can control a business by having more number of representations in Board of Directors in controlling the company.
  3. Family Managed Businesses: here family members not only own and control, they even professionally manage the firm by taking care of day to day operations and services.

 Examples: The family businesses contribute to employment and economy of a country. In India, there are enterprises became successful even in 3rd generation. For example, Tata firms, Kirloskar group, Birla group, Godrej group, Ambani Firms (Reliance group), etc. Why even to go business organizations?, take educational institutions in our neighborhood, which were run by 3rd generation edu-preneurs. Examples include: Galgotia educational institutions, Chaitanya Bharati educational institutions in Hyderabad, etc. Some of the publishers such as S. Chand & Co., Gita Press, Gorakhpur. All these groups are successful even in 3rd generation.

However, family enterprises do have Pros and Cons. There are certain strategies to handle/balance them.

Pros: following are the positives coming with family run businesses:

  1. Loyalty, commitment, dedication, entrepreneurial spirit, financial resources and initiative comes from family members/founder.
  2. Family businesses are more stable.
  3. Family reputation becomes the goodwill of the company
  4. They have freedom in long term investments and plans.
  5. Families control firms by interlocking Board of Directors roles, inter-group investments, and gain control by blocking majority shares (>50%) in their firms. (if they are listed)

Cons: following are the negatives coming with family enterprises:

  1. Succession of business goes in to next generation family members.
  2. Favoritism towards other family members and relatives in the organization.
  3. Family rigidity results into profit declines.
  4. Other employees think twice before entering into family fluid.
  5. Successor may not have experience or interest in running a business

How to Balance?:  following are the strategies to balance between pros and cons:

  1. Best practice is to separate/draw a line between family and business.
  2. Recruitment of family members/relatives takes place, only if they meet
  3. company standards.
  4. Best practice is to share information among family members and professional managers.
  5. Professionals are to be employed where there is a potential conflict between family members.
  6. Founder should maintain morale and motivation among all employees.

In a study done in US, only 30% of the family businesses continue to exist in 2nd generation; and only 15% of the family businesses continue to exist in 3rd generation of family members.

Hence, balancing between family and business, balancing ownership/control/management; and balancing between self-managed vs. professional managers are the success factors for family businesses to pass on to next generations.

Happy Reading…….

Dr.Goparaju Purna Sudhakar


Reference: “India has third highest number of family owned business”, Business Line, January 08, 2018.

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