Families are a part of us from the first day of our lives till the end of life and everything in between. Some multinational businesses worldwide have come from small family businesses. Reported examples include Mars, Bechtel, News Corporation, Comcast, Ford, Wal-Mart, Koch Industries and Cargill are some of family owned giant businesses in the US. A 2011 report by Family Business Magazine reported the top 10 family businesses collectively generated $1trillion in revenue.
Outside of the US, giant family businesses like ArcelorMittal, Hyundai Motor, BMW Group, Fiat, Samsung Electronics and Toyota are all family owned businesses, each worth billions of dollars but at some point started small from efforts of the family. The role of families in the birth, survival and growth of businesses is therefore an obvious phenomenon that needs no mention.
For a small scale business, family plays a bigger role. My interaction with entrepreneurs and small scale business owner-managers revealed the tremendous impact of the role of family in the growth and survival of businesses. My study of some selected small scale businesses revealed how this relationship between family and business affects growth and survival of the business.
The benefits of the family to business start ups
Families in Africa are the backbones of many developments and decisions. They influence subtly and significantly as well. In small scale business startups, they play very important roles.
Seed Money: Many successful enterprenuers started their successful businesses by borrowing small sums of money from family and/or friends at zero interest. Some actually did not pay back the borrowed sums to their family lenders. The family is therefore a vital source of raising capital – usually interest free – for startups or for expansion of business. Some entrepreneurs also indicated that their current premises or premises from where they begun their businesses was rented out to them by family members at almost negligible rates and in some cases for free for as long as it took their businesses to become profitable and able to pay for business premises at commercial rates.
Cheap labour: Enterprenuers are able to employ members of their families at comparatively cheap rates, and sometimes for free. This kind of assistance is very good for business start ups to stand on their feet. Employed family members who spoke with me expressed their understanding, willingness and the need to work for the family entrepreneur for free or for comparatively lower wages in order to help grow the business. Once the sales rises enough to cover cost of production and other unavoidable expenses, then it begins to pay for the wages and salaries of employed family members.
Technical Assistance: For most small scale entrepreneurs, technical expertise is something they cannot afford. They are therefore compelled to play the role of supporting functions such as an accountant, a legal advisor, information system analyst and a marketing and brands manager. These roles though poorly performed, ends up taking their time and attention from what they are really good at – which in most cases is the business they are engaged in. Family members who are experts in any of these fields are able to provide periodic assistance to the entrepreneur. For example, some of the businesses had to wait till weekends before their accounting records are updated by a family member or friend who is an accountant. However, this assistance provides some financial reliefs to the business as it usually comes at no cost to the business. Some SME owners indicated that their websites, business logos, marketing campaigns, taxes, business registration and legal issues were handled by family members for free.
Word-of-mouth marketing: Family is able to and in most of the businesses sampled for this study actually do some level of marketing for the business. Family members, in the course of their day to day activities, immediately refer people to the business of their family members when the opportunity arises and these business referrals mostly result in successful sales.
In present day, social media is combined with word-of-mouth marketing. Family and friends use pictures of the products, services, business name/logo as their display pictures (dp), or profile pictures on whatsapp, facebook, instagram and twitter to market the business, products and services of the entrepreneur either at his request or out of goodwill. They write on their walls, update their statuses and tweet about the business. It doesn’t end there. Family members also request some of their friends to use their profile pictures and statuses to market the business and its products and this online advertising web keeps growing larger and larger. This cheap way of advertising can help create awareness for the business and its products and services which goes beyond the local market boundaries of the business and results in some level of sales emanating from outside the local market of the business. For small scale businesses that do not have the financial strength to pay for sponsored ads on social media, the family becomes a very important marketing tool.
Guarantors of loan: When businesses begin to grow and spot an opportunity to expand their operations, they look forward to raising money to fund the growth. Since most SMEs are unable to meet the requirements of many stock exchanges, they usually turn to loans. However, at this point and especially in most parts of Africa, having a guarantor is necessary in obtaining approval for loans especially for small start ups with little or no track records. It is at this point that supportive family members become very important. Some entrepreneurs stated that there have been loans obtained in the past that was as a result of guarantees made by family members. These family members stand in as secondary obligors, and due to their creditworthiness and wealth, the entrepreneur is able to secure the needed loan for business growth.
There are several other benefits that the family (both nuclear and extended) offer to both budding and experienced entrepreneurs. Africans value the importance of families and this permeates almost every sphere of life. In another article, I looked how family involvement negatively impacted businesses even to the point of threatening their survival.