New vines from strong roots
This year's survey covers more companies locally and globally than any of our previous surveys.
Despite the current economic uncertainty and the accelerating pace of change, South Africa’s family business sector has high ambitions for quick and aggressive growth over the next five years.
But our own experience in this sector is that only a limited number achieve their very ambitious targets. Many struggle to attract and retain the top talent that they need and others are hampered by a lack of funding.
Four out of five (81%) of South African respondents recognised stronger cultures and values as the factors that define a family business.
Family enterprises are often led and stewarded by family members who are guided by values that were ingrained in the day-to-day operations of the business by the founder and have been passed on to the next generation.
Conventionally, the success of a business is measured by some variation on income, turnover, share price or market capitalisation. But for the family business, success is not only calculated in financial terms.
Typically, it is measured in ensuring job satisfaction for employees and family members, making an impact on the community and leaving behind a lasting legacy. Eighty-one per cent of the South African respondents (Global: 74%) agree that success cannot only be measured in numbers on a page.
Family-run companies, in particular, are more likely to have a business model built on trust, personal relationships and strong values, and as stakeholder expectations change this could become a significant competitive advantage.
Seventy-eight per cent of South African respondents believe family businesses have a longer-term approach to decision-making than non-family businesses.
They also believe they make more streamlined and faster decisions as there are no formal corporate channels that must be followed. These business decisions often involve the input of multiple family members and can give rise to various conflict situations.
South African family businesses have maintained a consistent level of performance over the last financial year compared to the results of our 2014/2015 survey.
Seventy-eight per-cent have seen sales growth over the last year, while 10% have seen a reduction in sales.
Globally, 64% of family businesses grew while 20% shrank. South African family businesses are bullish about the future with 84% expecting to grow and 22% expecting to grow quickly and aggressively (compared with 15% globally expecting similarly fast growth).
Among those South African family businesses expecting to grow by 10% or more, the majority (83%) will use external financing to help fund this growth. Sixty-nine per cent will use their own capital.
Growth will primarily be achieved through growing their core business in existing markets, coupled with expanding into new markets and acquisitions.
International sales currently account for 17% of South African family businesses’ turnover but are predicted to account for 25% in five years’ time.
The most significant issues facing South African family businesses over the next 12 months are:
Major challenges anticipated over the next five years are similar to those expected in the short term, but also include:
In terms of respondents’ personal and business goals over the next five years, many want to ensure the long-term future of their businesses,
improve profitability, enjoy work and stay interested.
Survey respondents in South Africa feel they have some advantages over non-family businesses. More than 80% think family businesses have a stronger culture and values, as well as a faster decision-making process, and as well as are more streamlined and more entrepreneurial than non-family businesses. However, over half also think that family businesses need to work harder to recruit and retain top talent.
Eighty-eight per cent of South African family businesses surveyed have at least one procedure/mechanism in place to deal with family conflict (Global: 82%).
Seventeen per cent say they have a robust, documented and communicated succession plan in place (Global: 15%). More than a third of family businesses in South Africa plan to pass the business ownership (but not the management) on to the next generation. The same proportion plan to pass the management of the business on to the next generation, while 22% plan to sell or float the business.
South African family businesses recognise the importance of digital transformation. Fifty-five per cent of respondents claim to understand the tangible benefits of going digital and say they have a realistic plan for measuring them (Global: 59%).
At least half of South African family businesses believe that digital transformation is already integrated into their business’s culture and that they have a strategy fit for the digital age. A quarter believe that they are vulnerable to digital disruption.
“It is important to remember that succession is a process not an event: The next generation needs to be fully prepared to take over, with their parents’ support, and after the formal handover, the parents can continue to offer help and guidance, as long as they accept they’re no longer making the decisions.”