Insights from a founding member of a USD 300 Million family owned business

This is the 3rd article in a series that focuses on Restructuring. For this, I interviewed a founding member of a family owned business that our consulting firm is currently engaged with, to help restructure it.

He agreed to do this interview, for the benefit of founders of many family owned businesses in India. It is a long piece of 2722 words, but will definitely provide readers with crucial and helpful insights

Read on…

Mr. Singhal, what has necessitated the Restructuring of your businesses?

There wasn't necessarily a single event that triggered the need for restructuring at our company. It's more of a culmination of factors that, on top of our current family dispute, make a change necessary.

Here are a few key points:

• Company Growth: our company’s success has been a double-edged sword. We've grown rapidly, adding new verticals over time. This created a complex structure that's become cumbersome to manage.
• Lack of Clarity: With so many moving parts, it's getting difficult to track performance and make strategic decisions. Responsibilities can overlap, and communication gets muddled.
• Succession Planning: Ours is a family owned business; and we, the founders, are getting older, and we haven't formalized a succession plan. Bringing in a CEO has been a step towards ensuring our company’s future stability, regardless of what happens within the family.
• Family Conflict:? Let's face it; the tension within the family isn't helping. A neutral CEO can take the emotion out of decision-making and keep the focus on the business.

This restructuring isn't just about fixing problems caused by the family feud. It's about setting our company up for continued success in the long run.

I have observed that many family owners are reluctant to seek help from professionals in such situations. Sometimes it is because they do not want the world to know about their family issues; and sometimes they find the fee charged by restructuring experts prohibitive; and a waste; and believe they can do it themselves...what is your take on this?

You're absolutely right. Bringing in outsiders was a tough pill to swallow for us. There's a sense of pride and protectiveness involved. Here's what I think about the reasons you mentioned:

• Privacy Concerns: Look, nobody wants to air their dirty laundry in public. But the truth is, family squabbles can leak out anyway, and often in a way that damages the business. Bringing in a professional restructuring expert can be done confidentially.? These are people trained to handle sensitive situations.
• Cost Factor: Restructuring isn't cheap, that's true. But here's the thing: a poorly run, tangled company can cost you a lot more in the long run. Lost efficiency, missed opportunities, and internal conflicts can all drain your bottom line. Seeing a restructuring expert as an investment in the future of your business can change your perspective.
• DIY Mentality: Many family businesses are built on self-reliance. But our company’s situation highlights the danger of that.? Sometimes, the problems become too complex for the people who built the business to solve themselves.? An outside expert brings fresh eyes and proven methodologies to the table. They can see the blind spots you can't.???

In the end, it's about recognizing when your expertise is taking you as far as it can go.? Just like you wouldn't operate on yourself with a kitchen knife, you shouldn't try to solve complex business issues without the right tools and experience.? For family businesses facing similar challenges, I would say this: Don't be afraid to seek help. Bringing in a restructuring expert can be the smartest decision you make to save your family legacy.

In DIY approach, I have observed that many family business owners reach out to experts; and consult them; and basis their advice, try to do things themselves. It is obvious that business owners are looking to reduce costs. As a family business owner what are your thoughts on this approach?

You raise a valid point. I understand the appeal of the DIY approach in restructuring, especially for cost-conscious family businesses. Consulting with experts and then attempting the restructuring yourself can seem like a good compromise. Here's how I see it from my perspective:

Pros:

• Reduced Costs: There's no doubt that this approach can be cheaper than a full-blown, expert-led restructuring. You're paying for specific advice, not the entire project.
• Learning Experience: Consulting with experts allows you to gain valuable knowledge about restructuring principles and best practices. This can empower you to make informed decisions for your business.
• Sense of Control: ?By taking charge of the implementation, you maintain a sense of control over the process. This can be important for family businesses where ownership and decision-making are closely held.

?Cons:

• Knowledge Gap: Restructuring can be a complex process with legal, financial, and operational implications.? Experts have the experience and understanding to navigate these complexities. While consultations offer guidance, you might miss crucial nuances.
• Implementation Challenges: Putting theory into practice can be difficult, especially when dealing with ingrained company cultures and potential resistance from within. Experts can use their experience to manage these challenges effectively.
• Risk of Mistakes: DIY restructuring attempts can lead to costly mistakes.? If a key step is missed or implemented incorrectly, it could have serious consequences for the business.

My Thoughts:

In our company’s case, I believe the potential risks of the DIY approach outweigh the benefits.? Our situation is intricate, and the potential for missteps due to inexperience is high.? However, for a simpler family business facing a less complex restructuring, a consultation-based approach could be a viable option.

Here's what I would advise family business owners considering this route:

• Clearly Defined Scope: Be very specific about the areas where you need expert advice. Don't try to get a complete restructuring roadmap in a single consultation.
• Choose the Right Expert: Find a restructuring professional with experience in family-owned businesses. They'll understand the unique dynamics at play.
• Realistic Expectations: Don't expect a one-size-fits-all solution.? Consultations are a starting point, not a magic bullet.
• Be Prepared to Adapt: Even the best consultations might require adjustments during the implementation phase.? Be flexible and open to course corrections.

Ultimately, the decision depends on the specific needs and resources of your family business.? If you're unsure, consider getting quotes from both restructuring experts and consultants to compare costs and potential benefits.

What do you suggest should be the focus of the restructuring effort in such a situation? Should it be Organizational; Business; or Financial; or an integration of all of these?

In a situation like our company, where there's a complex structure, family conflict, and a need for futureproofing, the focus of the restructuring effort should absolutely be an integration of all three aspects: organizational, business, and financial.

Here's why:

• Interdependence: These areas are interconnected.? Organizational changes will impact business processes, which in turn, will affect financial performance.? A siloed approach wouldn't address the root causes of the problems.
• Holistic Approach: A comprehensive restructuring needs to address all aspects of the business. Streamlining the organization can improve efficiency (business) and reduce overhead costs (financial).? Likewise, optimizing business strategies can lead to better financial performance, which then allows for organizational investments.
• Long-Term Sustainability:? By taking a holistic view, you're laying the groundwork for our company’s long-term success.? A well-structured organization with efficient business processes and sound financial management is better equipped to handle future challenges and growth opportunities.

Here's a breakdown of how each area might be addressed in the restructuring:

Organizational:

• Simplifying the Structure: Evaluate the business verticals and companies that family owns.? Consolidate where possible, and create a clear reporting hierarchy.
• Defining Roles and Responsibilities:? Clearly define the roles of the CEO, family members (involved in the business), and the management team.? This minimizes overlap and confusion.
• Improving Communication:? Establish clear communication channels to ensure everyone is informed and aligned with the company's goals.

Business:

• Strategic Review: Evaluate the performance of each vertical.? Are there any that are underperforming or no longer align with the company's vision?? Consider disinvestment or strategic partnerships.
• Process Optimization:? Identify and streamline inefficient business processes across all verticals. This could involve automation, technology upgrades, or workflow redesign.
• Talent Management: Ensure that the company has the right talent in place to execute the new strategy.? This might involve training, hiring, or even restructuring teams within verticals.

?Financial:

• Cost Reduction: Identify areas where the company can reduce unnecessary expenses.? Streamlining the organization and optimizing business processes will contribute to this.
• Financial Modeling: Develop financial models to assess the impact of potential restructuring decisions and ensure long-term financial stability.
• Investment Planning: Allocate resources effectively to support the new business strategy and future growth initiatives.

By integrating these three areas, our company can emerge from this restructuring stronger, more efficient, and better positioned for continued success, even amidst the family dispute.? It's a complex undertaking, but with careful planning and professional guidance, we will achieve it. ?

Are you considering M&A; Disinvestment as part of the restructuring strategy? Considering that family business owners are often reluctant to employ these strategies, what are the challenges a business owner faces; and how they can be overcome?

You're absolutely right, M&A (Mergers and Acquisitions) and divesting should definitely be considered as part of the restructuring strategy.? And yes, you hit the nail on the head - family business owners often have a sentimental attachment to their ventures, making divestitures a difficult pill to swallow. Here's how I see it playing out for our company:

M&A:

• Strategic Acquisitions:? Acquisitions could be an option for our company if that complements our existing verticals or helps us enter a new, high-growth market.? However, given the current family tension, it might be best to postpone major acquisitions until things settle down. Integrating a new company into the existing complex structure could be a recipe for disaster.

Disinvestment:

• Identify Underperformers: ?This is a real challenge for us.? There's a good chance some of our company’s verticals are dragging down the overall performance.? Divesting these businesses could free up resources, simplify the structure, and improve our company’s financial health.? Here's how I'd approach this sensitive topic within my family:
• Data-Driven Discussion: Present family with clear data on the performance of each vertical.? Highlight the ones that are consistently underperforming or no longer align with our strategic goals.
• Focus on Long-Term Benefits: Explain how divestitures can create a leaner, more efficient company, ultimately benefiting the entire family's long-term financial security.
• Consider Alternatives: Explore options like selling the underperforming verticals to existing competitors or even spinning them off into separate companies where family members could retain some ownership, if desired.

Overcoming the Challenges:

The biggest challenge in this situation is overcoming emotional resistance.? Here's what I've learned from dealing with similar situations in the past:

• Open Communication: Maintain open and honest communication within family.? Explain the logic behind divestitures and emphasize that these decisions are not a reflection on past contributions of family members.
• Focus on the Future: Reframe the discussion to focus on building stronger company/businesses for future generations.? Divestiture can be seen as a strategic move to ensure the company's continued success.
• Seek Professional Help: A restructuring expert can facilitate these discussions and provide objective analysis of the divestiture options.? Their expertise can help overcome emotional hurdles and ensure a fair and transparent process.

Restructuring our company won't be easy, but by considering M&A and disinvestment as strategic tools, and by addressing the emotional attachment to underperforming businesses, we are creating a future-proof company that benefits the entire family.

Your company has long term customers; and other stakeholders; and these relationships might get impacted because of the family dispute. Have you communicated with them; or do you think communicating with them is not prudent?

You're absolutely right, our company’s long-term customers and stakeholders are a major concern during this family dispute.? Letting them know what's happening could potentially damage trust and impact our relationships.? Here's how I'm approaching this communication challenge:

Transparency vs. Panic:

While complete transparency is ideal, announcing a full-blown family feud within our company would create unnecessary panic among our stakeholders.? They might worry about instability, disrupted operations, or even a potential change in ownership.

Strategic Communication:

Instead, I'm considering a more strategic communication approach:

• Internal Focus: For now, the focus is on keeping things calm internally. We're working on resolving the dispute within family before it spills over into the public domain.
• Targeted Messaging: If any communication with stakeholders becomes necessary, it will be targeted and controlled.? We might issue a brief statement acknowledging that our company is undergoing some internal restructuring, but emphasizing our commitment to customer satisfaction and business continuity.
• Focus on the Future: The message will focus on our long-term vision and the positive outcomes of the restructuring, such as improved efficiency and a stronger leadership structure.

Maintaining Relationships

• Customer Service: We'll double down on our commitment to excellent customer service.? This will demonstrate that our company remains focused on its core mission, regardless of the internal situation.
• Stakeholder Engagement: We might consider targeted communication with key stakeholders, reassuring them of our company’s stability and commitment to fulfilling its obligations.

By taking a measured approach to communication, we are minimizing the potential impact of the family dispute on our relationships with customers and stakeholders.? The goal is to emerge from this restructuring stronger and more reliable than ever before.

Mr. Singhal, I really admire your succinct; practical, doable approach; which leads me to wonder that whether you have engaged a consulting firm; or given that AI is slowly become mainstream, you have sought the help of AI in developing the restructuring approach for your company?

Thank you!? Look, the situation with our company is complex, and there's no magic bullet.? But I do believe in a well-rounded approach that considers all the angles.? As for your question about getting help:

Actually, it's a combination of both.? We haven't officially hired a consulting firm yet, and are in conversation with your firm. But I have been doing some research on restructuring best practices, and that's where AI has come in handy.

There are a couple of ways:

• Data Analysis: AI tools can analyze vast amounts of data about a company's performance, operations, and financial health. This can help identify areas for improvement and inform restructuring decisions.? For example, I've been using AI to analyze the performance of each of our company’s verticals.? This data is helping me build a case for divestitures with my family.
• Scenario Planning: Some AI tools can be used to model different restructuring scenarios and predict their potential outcomes.? This allows businesses to make more informed decisions about the best course of action.? I haven't used this yet for our company, but it's something I'm considering discussing with a potential restructuring expert.

However, while AI is a powerful tool, it can't replace human expertise and judgment.? Restructuring a complex family business like ours requires a nuanced understanding of the company's history, culture, and the family dynamics involved.? That's why I believe a combination of AI-powered data analysis and the guidance of a seasoned restructuring professional is the best approach for our company.

So, the answer is yes, I'm using AI to gather information and explore options, but I'm also keeping a human touch at the center of the restructuring process.??

Mr. Singhal - would you be open to including your and your company's identity in this interview when it is published on LinkedIn; otherwise, I would keep it confidential, if you so desire?

That's a very kind offer, and I appreciate your willingness to respect my wishes. I would prefer to keep the identities fictional.

Please feel free to publish this interview on LinkedIn!? By keeping the identities fictional, we can ensure the information remains valuable and applicable to a broad audience of family business owners facing similar challenges.

Thank you, Mr. Singhal -- you have been very helpful; and I am sure this would benefit a lot of family business owners...I wish you the best in your endeavors

You're most welcome!? I hope they find it helpful in navigating challenges and achieving long-term success

And thank you for the well wishes.? Best of luck with your article!