Karnataka - Bangalore

`Survival rate of family businesses disappointing'

By Our Staff Reporter

BANGALORE, JAN. 30. The survival rate of family businesses has been disappointing. Only 33 per cent pass on from first generation to the next. And from this stage, the survival goes down at the rate of 50 per cent every generation.

According to Marshall Paisner, author of the book, Sustaining the Family Business, Indian family businesses contribute to 75 per cent to the employment of Indian citizens and make up 65 per cent of the GDP and account for 71 per cent of the market capitalisation.

With entrepreneurial skills as their assets, Indian business families can reap advantages.

The joint family system that has been carried over for generations has not been effective in tackling the conflicts in the family due to individualistic culture.

Capital

Shrinking of capital due to partition, loss of synergies, market advantages, managerial and entrepreneur skills that pass from generation to generation have disabled family businesses to cope with the demands of modernisation of business.

On the failure rate of new family businesses, he said 80 per cent of all start-up entrepreneurs fail within five years and of the remaining 20 per cent, the typical business life existence is 24 years. Financial institutions and banks should create separate wings for rendering advisory and educative services to high network business families as part of wealth management services.

Banks

Progressive banks should take up such services. Bankers should think of pre-sanction conditions such as putting in place family business continuity plans and governance system by the family business borrowers to protect them against the failure caused by splits as a measure of risk management system.

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