BackFamily entrepreneurs: The new traditionals
Family-run businesses can be run over by their contemporary counterparts. If they adhere to some ground rules, they can come up trumps
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I see a surge in mid-sized family businesses trying to grow out of their traditional moulds and morph into professional avatars. The new traditionals think of themselves as ready to take on industry leaders.
The battle between Alukkas and Chemmanur Jewellers from Kerala against Tanishq from the house of Tatas is a case in point. With a heritage of over 100 years, they do not necessarily have to compete with Tanishq or other leaders to grow. There are enough ways to differentiate and carve out a niche. While Tanishq has grown on the back of geographical expansion and deep pockets, those like Chemmanur or Alukkas can aim for niches like design, heritage or customization. While they have been doing it for decades, the challenge now is to scale up even as they maintain their traditional value proposition. This calls for strategic orientation in their business.
Companies such as Paras Pharmaceuticals Ltd, Symphony Ltd, Tally Solutions Pvt. Ltd and Balsara Hygiene Products Ltd, now national brands, made it big using a judicious mix of tradition and modern management thinking. I have a few reasons to believe why firms like these succeed:
They concentrate on core competencies that a large, professionally managed organization may often find difficult, driven as they are by valuations and market capitalization. Retail expansion, for instance, comes at a sizeable cost that requires changes in merchandise strategy.
I was associated with Symphony—the maker of Symphony coolers—in its formative days. It thrived on its design capabilities. The founder, Achal Bakeri, not only understood the existing cooler market, but could visualize emerging trends he wanted to capitalize on. He put in extensive research and hard work to establish Symphony in a highly fragmented and unorganized market as the only organized firm differentiated by design.
When he veered away from the core in the mid-1990s into other areas in search of growth, the market was not as accommodating. Stay focused and away from un-known territories if the big guys are already there.
Another good example is Ramoji Film City. A unique business built on passion for film production by its founder, the firm has created several resources. While Ramoji Rao never stops thinking of the immense possibilities of growth, it is within his core business, which he fondly calls the magic of Indian cinema.
Cost is on the side of Indian entrepreneurs. Symphony, Paras Pharma and Ramoji Film City know that. Paras knew that if it had to compete with Iodex, it would have to be a cost-effective organization. How it went about building Moov to compete with Iodex is exemplary.
Naranbhai Patel of Paras and his sons planned every move with great care. They identified segments like truck drivers and made the product available at a point where they needed it most—like at check posts where maximum number of trucks park. It gave Paras a clear edge over Iodex, which was busy doing the predictable. Making Moov available at points of action not only proved effective, but also less expensive.
Again, like Bakeri of Symphony, they were open to the views of their professional marketing partners. Innovation seems to drive these entrepreneurs, who have little choice given the financial discipline they are required to follow.
In the entrepreneurial US of the 1970s, they did things different, smart and cheap. Direct marketing, catalogue marketing, telemarketing, networking and low cost differentiation have all had their roots in bright family entrepreneurs.
Technology can play an important role in containing costs. Much of the digital marketing right now is experimental. How much it helps business is not sure. Prominent jewellers I know of seem to have stayed away from excessive use of new media like Facebook and Twitter. Why? Mass consumers lag in adopting new technologies when it comes to behavioural and attitudinal changes.
E-commerce may help low-cost fashion jewellery and apparel. But for more expensive varieties, online can at best serve as a catalogue. Even today the average transaction value online is low. However, working with the current online marketplaces like Flipkart and Amazon may help scale up retail companies.
There is much hype around the terms like Big Data and complex analytics. Once again, in the entrepreneurial America of the 1970s, home business and small business used direct-to-customer marketing. They used customer profile and transactional data to analyse future behaviour, likely response to a promo, merchandise selection, likelihood of purchase, etc. They did not have any fancy analytics tools. They used common sense with some knowledge of customer data and creative thinking, and arrived at amazing results.
Data intuitivism is what gets results. not complex software. Entrepreneurs can do this effectively with some amount of training, especially in retail businesses. The system is very cost effective and works wonders for business of any size.
Many family businesses want to diversify. The new generation is unwilling to get stuck in traditional businesses. Identifying which industry is ripe for entry is crucial for growth. This has been a sore point for many of these businesses. Should it be a related diversification or an unrelated one? Should it be a geographical expansion or market penetration? Every entrepreneur is grappling with these. Mistakes can be costly.
Much depends on how much leverage the business has and its ability to define its business boundaries within which its capabilities have been built. Working with strategy firms becomes inevitable in such scenarios.
Going by the jewellery example, one prominent jeweller known for fine designs burnt its fingers by starting an upmarket store in another city. Retailing was perhaps not its forte. Creating upmarket design is. Tanishq, on the other hand, is master at retailing. Design with mass appeal is its strength, which allows it to retail across cities.
Ramoji Film City is another good example of how to diversify effectively, while maintaining the core. Passion for films and building key resources and capabilities in that field presented the founders with opportunities to grow into theme hotels, theme parks, entertainment, world-class music studios, exotic parks, themed corporate outdoors and many more.
It is about time Symphony thinks of diversification, but into adjacent businesses with a clear understating of its key capabilities. I have seen that most single product line companies reach some sort of maturity in seven-eight years and need to think of a breakout strategy. While it has surely grown and created significant value for shareholders, ₹ 500 crore of business during the 25 years of existence, it needs a renewed push.
The road to success for these family entrepreneurs is exciting, but tough; maintaining a fine balance between their traditional ways, modern management practices and technology is the way out.
A longer version of this story is available on www.foundingfuel.com
Harsh Vardhan is co-founder of Strategic Marketing Group. He has over three decades of experience at various organizations in operational, strategic and leadership roles.
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