November 2020

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Why Perpetuity of Family businesses Matters?

A majority of domestic companies in India -big or small- are run or controlled by a family. Family-run enterprises play a significant role in contributing to our economy. Globally, as well as in India, family businesses contribute to over 70 percent of GDP of most developing and developed countries

In the case of India, this could be even more because if you go deeper into the economy almost every small enterprise is family run. 91 percent of the listed firms in India are family- firms (Study by Bang, Ray and Ramachandran in 2017).

Historically, the joint family system was the backbone of businesses and provided the required resources and capital for the cohesion and growth of the firms. Be it the Industrial Revolution of eighteenth century, the license-raj of the early 1990s or the economic liberalization in 1991, family businesses have displayed resilience, character and adaptability over their long history and played a pivotal role in India's growth story.

Apart from superior financial performance and more robust share price returns, family firms have demonstrated stronger revenue growth, higher EBITDA margins and better cash flow returns. According to ET Intelligence Group's analysis (based on publicly available data), family businesses have earned 14 per cent annualized returns between Jan 2017-2020 on the stock exchanges compared with 6 per cent returns generated by their non-family-owned peers. Key reasons for this are due to their longer term outlook, less reilance on external funding and more investments into research and development.

The Indian family businesses also actively engaged in social causes and played a pivotal role in institutional building by partaking philanthropic activities such as setting up premier educational institutes, research, and cultural centers for the progress of the country.Therefore, family firms fulfil a larger socio-economic purpose.

However, they run the risk of premature mortality given their peculiar complexities thereby making it challenging for a micro, small and medium-sized (MSME) in the founder generation family business to grow and progress into a multi-generation conglomerate. Very few family companies sustain beyond the fourth generation, without concerted action to prevent their decline and death.

To conclude, family-run SMEs are the hidden champions who contribute silently yet diligently to fuel the economy through steadfast and focused efforts in innovative products and services. By gaining the right and timely awareness about the complexities of family-run businesses, they will stand to benefit greatly by putting in place adequate measures and processess to address their future growth, harmony and perpetuity.

Featured Video Small & Medium Size businesses as "Hidden Champions"-Dennis Jaffe

'Essential Mantras for Family Business' A Series of Online Symposiums
Delivered by World-Class Experts

Successfully Completed

Session-5: Togetherness in a Large, Multi-generation Family Firm - Is it "impossible" to stay together in the long run?

Speaker Mr. Antoine Mayaud

Expert Moderator: Peter Leach

Held on: 17th October, 2020

Over 450 registrations from 13 countries including USA, Canada, Singapore, Italy and many more

92% of the attendees rated the session as "Outstanding" and "Very Good"

Feedback from Participants

Humility of the speaker, forthright about challenges and how they have been dealt, such leadership behavior can make a real change possible

The lucid and easy to understand narrative which makes people yearn for more information

An interesting look at family investment and the support of young people

Thank you for your interest in PFBI Connect. Each month you'll receive a concise rundown of tips, trends and analytics on topics that can leverage the best of both family and business.

This Diwali, strenghten your family businesses with the power of togetherness and transformation.

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