Inheriting the Legacy of Entrepreneurship
Dr. Manesa K Kakulavarapu
Feb 15, 2015
Family firms have sustained over decades (and some over centuries) largely due to their long-term
orientation, ability to fostering employee commitment & engagement and efficiency at innovation. They
have also long obsessed about the obstacles to their perpetuity owing largely due to challenges in
succession. However, with changing trends in the landscape of businesses, a different story seems to
What does this imply for the Family Firms?
- In a recent study comparing Fortune 500 companies in 1955 to the Fortune 500 companies in 2014, only 61 companies appeared in both lists.
- This means that only 12.2% of the Fortune 500 companies in 1955 survived on the list 59 years later in 2014 while almost 88% of the companies from 1955 either went bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues).
- Most of the companies on the list in 1955 are unrecognizable and forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile).
- Fifty years ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Today, it’s less than 15 years and declining all the time.
- An analysis by Boston Consulting Group looking at the patterns of entry, growth, and exit for 35,000 publicly listed companies in the US since 1950 shows that over the long-term human lifespans have increased markedly since 1950, company life expectancy has almost halved. The trend is no different in India.
In the current context of the business landscape, there are two existential questions that every entrepreneurial family should ask itself.
- With the rapidly declining age of the firms coupled with increased human lifespans, the challenge faced by family firms will be to engage two or three generations together to spin off several new ventures by rapidly scanning new opportunities & technologies.
- This would call for a heightened appetite for calculative risk taking & speedy decision-making.
- The game is no longer about sustaining existing or declining business carried on from past generations. Neither is it limited to diversification of the business.
- It is now about grooming “entrepreneurs” within the family.
- The real value from the perpetuity of the family business will now be viewed as one that can create rapid and successful entrepreneurial ventures across generations.
- This leaves very little room for Next Generation family members with an inheritance or consumption mindset.
This calls for shifting the family’s self-understanding from controlling a “family business” to being an “entrepreneurial family”.
- What if the family business is used as a springboard to launch a portfolio of entrepreneurial ventures and then decides to exit or sell the original business?
- What is the real long-term goal of an entrepreneurial family? To continue & sustain their core business irrespective of the changing market conditions or is it to continue collaborating on ventures that provide the family members with an opportunity to give wings to their entrepreneurial aspirations in addition to wealth creation & a sense of fulfillment?
Start-up Boom in India
- An entrepreneurial family is one that is capable of identifying new business opportunities over time and creating multiple options for the involvement of the next generation.
- The options could range from launching new businesses, to setting up new subsidiaries of existing businesses, to creating internal venture funds, or developing a philanthropic arm for impact investments.
- Given the increasing thrust on Entrepreneurship in India, it is essential that the entrepreneurial families increasingly involve and encourage their next generation successors into innovative technology startups & other emerging areas.
The Indian technology startups landscape has seen a tremendous growth in the emergence of innovative ventures and creative entrepreneurs.
The “Start-up” Ready Family Businesses in India
- According to latest Nasscom report, within one year, the number of start-ups in India has grown by 40 per cent, and this number is expected to cross 4,200 with three to four tech start-ups being born every day.
- With 100% growth in the number of private equity, venture capitalists, angel investors along with a 125% growth in funding over last year, Indian start-up ecosystem has risen to the next level.
- The total funding in the India based startups is estimated to be nearly $5 billion in 2015.
- India is the world's youngest start-up nation with 72% founders less than 35 years.
- At over 350 million, India has the third most Internet users in the world, after the United States and China. Most of them are using the Web on mobile devices. That number is expected to grow to 580 million people by 2018.
- It is possible that India will overtake UK in terms of number of startups (UK has 45005000) next year. USA is still far ahead (47,00048,000).
- In order to support growth of Entrepreneurship in India, RBI will ease regulations to allow startups to raise foreign venture capital through innovative instruments.
Some of the big Indian family business houses are now drawing up & implementing big plans to join the digital economy and get leverage from the ongoing startup boom. Looking back at the history of conglomerates in the last 10-15 years many industries have now become obsolete.
The Entrepreneurial Drive among India Inc.’s Inheritors
- Corporate houses such as Reliance Industries, Aditya Birla Group and RPG (RP Goenka) Group are looking to invest in startups closer to their businesses.
- Reliance Industries launched an acceleration programme (GenNext Innovation Hub) and also looks to work with more mature startups and entrepreneurs with promising ideas in areas relevant to the conglomerate's operations. It has backed startups such as Covascis, Ecorithim and Videonetics through GenNext Ventures, which has a war chest of Rs 200 crore, and owns travel portal Yatra and movies ticket booking site BookMyShow after its acquisition of the Network18 Group.
- The number of startups operating in Reliance's GenNext Innovation Hub has quadrupled in one year to 40, including 10 enrolled in the accelerator programme.
- Post retirement from the Tata Group as chairman, Ratan Tata has already made more than eight investments in Indian and international companies, of which five are in internet-based ventures.
- PremjiInvest, an investment firm owned by Azim Premji, made a quiet start in 2006 and has since built an estimated portfolio of around $16 billion.
- Infosys co-founder, Narayana Murthy, had also set up Catamaran Ventures in 2010 with a corpus of Rs600 crore. Catamaran has joined hands with Amazon, the world’s largest online retailer, to set up an e-commerce joint venture in India.
- Experts attribute family businesses' increasing interest in startups and the digital space to the stunning success of some new age enterprises in the country as well as the influence of the new generation within business families.
Among the Next Generation successors of Indian Business houses, a majority of them who are stepping into key positions are not the “entitled no-gooders” they're often made out to be. Instead they are smart, professionally trained, brimming with ideas, willing to earn their stripes in the field and mindful of the challenges and opportunities that lie ahead. Mentored by a generation that survived and flourished in a new India post-1991, today's breed understands that sitting on past laurels or getting sucked into a succession squabble are recipes for disaster.
Among the Indian Family Enterprises, there are several examples of the new generation entrepreneurs who decided to use their strengths to nurture new ideas. They are not joining their family businesses yet. They prefer to first chart their own entrepreneurial path.
||Radha Kapoor, daughter of Yes Bank's Rana Kapoor launched “DOIT Creations”, a holding company for her ventures to conceptualize and promote new creative and innovative concepts. She has also forayed into the media business with “DOIT Creations” acquiring a 40 per cent stake in Businessworld magazine.
Her younger sister Raakhe Kapoor, has set up business incubation firm named Rural Agri Ventures India aimed at nurturing agri businesses.
||Ananya Birla, 21, daughter of Kumar Mangalam Birla (chairman of the Aditya Birla Group) had the choice of joining a $40 billion group that does business in sectors ranging from mining and telecom to financial services. Instead, she started a microfinance firm named Svatantra.
The seed capital of Rs 5 crore for Svatantra came from Ananya's father Kumar Mangalam Birla when she was an undergrad at Oxford University in Economics and Management. Today, Svatantra has a loan book of Rs 147 crore, which is expected to grow to Rs 500 crore during the next financial year. The venture's workforce has grown to 400. It has 63,362 customers across Maharashtra, Madhya Pradesh and Rajasthan.
||Kavin Mittal (son of Sunil Mittal of Bharti Enterprises), along with his classmate Namit Chadha, founded AppStark-a start-up that develops apps for mobiles. A year later, AppStark launched MoviesNow, an app to buy movie tickets on the go. It was recognised by Apple as one of the 10 essential movie-goer apps for iPhone. In 2012 when he launched India's first homegrown instant messenger service Hike, a joint venture between Bharti Enterprises and Japanese technology giant SoftBank Corp.
||Parth Jindal was only 23 years old when he rushed JSW into the world of football and Olympics in 2012. Last year, Parth, son of steel magnate Sajjan Jindal, founded a venture capital fund of Rs. 100 crores to invest in tech startups. Parth wants to diversify his father's commodity business — to shield it from the wild fluctuations of the market.
||When Anand Piramal (son of Ajay Piramal, Piramal Healthcare) returned to India armed with a degree from Harvard, had three choices. Inherit the wealth and live off it, join his dad and run the rest of business, or start afresh. He opted for the third by launching Piramal Realty – a real estate business.
An increasing majority of the next generation members in family business are motivated by a deep desire to pursue their own dreams and create businesses from the scratch, leading to multiple opportunities for learning and showcasing their business building skills. Given that the lifespan of the New Age Enterprises is becoming short-lived, the perpetuity of a family business lies in building & sustaining a legacy of entrepreneurship from generation to generation.
This author of this article is Dr. Manesa K Kakulavarapu - Programme Manager, Research & Education Services (PFBI).