By Brad Breetzke
Think of a family business – the image that probably comes to mind is the “mom and pop” corner store with kids carrying stock and doing counter duty. The reality, however, is different.
The African multigenerational business of today is likely to employ hundreds of people and, ultimately, might find itself moving towards being listed on one of the stock exchanges.
Multigenerational, family-owned businesses are estimated to contribute between 20% and 30% of South Africa’s gross domestic product (GDP). In fact, 60% of JSE-listed entities were either founded by or are managed by families. Perhaps most notably, family businesses comprise about 70% of all South African companies and employ approximately 60% of the workforce.
Globally, family businesses contribute approximately 70% to global GDP and employ 60% of the world’s workforce, as reported in the 2024 PwC Africa NextGen Survey.
The impressive statistics and success stories are not just about entrepreneurs who have identified opportunities but also about their strategic vision, hard work and the transformation of fledgling enterprises into powerhouses. Family-owned businesses, which span all market sectors, including agriculture, agri-processing, manufacturing and logistics, also share other characteristics that contribute to their success.
They tend to grow market share by investing locally at first and have consistently grown above inflation and the national average GDP growth rate. Most often, their focus is on building sustainable businesses that are the mainstay of a family legacy. The entities demonstrated impressive resilience during Covid and have managed sustained growth over a long period of relative weakness in the overall SA economy.
Multigenerational businesses, despite their success, also face various challenges. For example:
– They hold different views regarding capital allocation. Some family members may want capital preserved, while others may favour investment and fast growth.
– They often must meet growth demands by adapting and “corporatising” business structures to respond to market conditions and stay current.
– They must recognise a need for adapting employment practices and acquiring specialised skills. Regarding the latter, if the business is to remain sustainable, the skills required may need to be reviewed in the light of changed operational circumstances.
– Succession planning is a critical issue that needs to be addressed as a business grows and matures.
– There may be issues around how to allocate equity within the business and how “external” parties are integrated into the family arrangement.
– With the advent of new trading conditions and treaties across Africa, creating partnerships that can maximise local growth and facilitate cross-border trade and operations in neighbouring countries or even further abroad is a key competitive differentiator.
The common denominator for all multigenerational businesses is that success and growth means increased complexity. As complexity increases, meticulous planning, access to finance and strategic support tend to play pivotal roles.
There are various issues in this vital economic sector that have the potential to impact company’s success. These include:
– Helping businesses respond to requests about how to successfully expand across borders and diversify operations to meet new markets. Demand for assistance with international introductions and seamless integration of banking services has risen by about 30% over the past year.
– Recognising that although an “owner-managed” culture is influential, owners often need assistance when it comes to adapting to changed environments and changing business direction.
– Changing business focus from being niche bound to expanding across value chains, identifying opportunities and knowing when and how to take advantage of them.
– Conducting wealth and estate planning to ensure unified leadership and the transfer of ownership and assets across generations.
– Making good equity and leverage decisions, which often becomes important as businesses grow. For instance, such decisions may revolve around the need of a family-owned business to enter an empowerment deal or undertake an acquisition.
At the heart of most discussions in this regard is the issue of professionalising the family business so that the structure assists with the innovation required to allow the company to grow. Issues involved may range from appointing non-family members to the board to implementing governance structures and using technology to improve productivity and control costs.
Take Artificial Intelligence (AI) for instance. According to the 2024 PwC Africa NextGen Survey, while African family businesses acknowledge the benefits of AI in maintaining competitiveness, their limited adoption – of only 15% in terms of specialised AI teams – could prevent them from fully optimising the technology. Thus, emphasising effective governance and succession planning becomes crucial for ensuring business continuity, especially as younger generations step into leadership positions.
Furthermore, sustainability and innovation are increasingly important aspects of corporate strategies. In addition, there is an increased emphasis on using digital tools to seek out fresh market possibilities, which is essential for ensuring the endurance and significance of family businesses amid competition.
Africa is open for business, and many of South Africa’s leading multigenerational companies are positioning themselves for the local and international opportunities that will arise.
Navigating the complexities required for growth is critical for ensuring the sustainability and success of family-owned enterprises.
Brad Breetzke, executive head: Commercial Banking Client Management at at Standard Bank South Africa and advises on multigenerational companies.
BUSINESS REPORT