1. Introduction
Small and Medium Scale enterprises (SMEs) that play significant role in national economy are family business. Family business multiplies employment opportunities, which have the capacity to reduce poverty, balance gender and class inequality and control social vices. They act as catalysts for novelty, innovation and ingenuity; they activate local entrepreneurship; which is connected to various sectors of the economy. Family business equally promotes rural-urban migration; drive market competition, contributes majorly in government internally generated revenue through payment of taxes, which is used infrastructural development. All these activities contribute to regional cooperation and nation building. It is pertinent to note that family business will contribute immensely to the aforementioned, if professionally handled and managed in Nigeria.
Zahra
et al | [26] | Young, E. (1991). Revolution of family business. Cambridge University Press. |
[26]
define family business as those businesses, whose management share similar family identity and its management is equally transferrable from generation to generation. Factoring in different variables, Poza
| [22] | Ogundele, O. J. K., Idris, A. A. &Ahmed-Ogundipe, K. A. Entrepreneurial Succession Problems In Nigeria’s Family Businesses: A Threat To Sustainability. European Scientific Journal, 2015. Vol. 8(7), 208-220. |
[22]
define family business as a unique blend of: firstly, sole proprietorship by family members; secondly, management by members of the family through playing proper advisory role, formulation and execution of policies and equally having stakes in the business; thirdly, its continuity is built on family ties and relationship across generations to come
| [23] | Poza, D. 2014. Family business. New York: South-Western: Cengage Learning. |
[23]
. Agbim
view family business as any type of business whether SMEs or multinational corporations, whose, administration, management, coordination, control and regulation is built on family homogeneity and its ascendency in managerial hierarchy is based on family relationship.
The key to the survival of family business is dependent on how well the business is managed professionally. Unfortunately in Nigeria, there are obstacles that hinder family business from achieving its set goals. These include: the inability of the founders to delegate to family members due to lack of trust; phobia of losing control, egocentricity; family conflicts, nepotism, role confusion, paternalistic tendencies, etc, the unwillingness and reluctance of competent and educated family members to work in family enterprises. These and many more are the challenges that hinder the smooth operation and growth of family business in Nigeria. Thus from the foregoing, one can define failure in family business as the inability of family owned business to meet its set goals and objectives due the aforementioned factors. Therefore, this paper will discuss elaborately the causes of this failure in business in details.
1.1. Objective of Study
The main objective of this study is to evaluate the causes of failure among family owned business in South-eastern Nigeria. Other specific objectives that will be taken into account in this study are;
1. Evaluating major family business enterprises that have failed in South-eastern states, Nigeria.
2. Investigate the causes of failure of these family owned business enterprises identified in South-eastern states in Nigeria.
Discover strategies that will help prevent such failures in other family owned business enterprises in Nigeria.
1.2. Research Questions
Thus the following questions will provide empirical directions to the goals of this study. These questions are;
1. Which families owned business have failed in recent time within South-eastern states in Nigeria?
2. What causes failure in family owned business within South-eastern state in Nigeria?
3. What are the possible solutions towards preventing failure among family owned businesses in Nigeria?
2. Literature Review
Family-owned business enterprises are quintessential in a capitalist economy. 80% to 90% of the world businesses are owned and managed by families.
. Half of the employment rate and that of the gross domestic products are produced by family-owned businesses
. These statistics evidenced that family owned business is relevant to modern economy which is embedded on the principles of capitalism.
| [6] | Chakrabarty. S.. The Influence of National Culture and Institutional Voidson Family Ownership of Large Firms: A Country Level Empirical Study. Journal ofInternational Management.. 2009. 1(2), 54-62. https://doi.org/10.1111/j.1741-6248.1998.00019.x |
[6]
affirmed that family businesses are businesses in which family members own greater stake or percentage of ownership
| [20] | Osagie, C. 2012, FG Releases First National Survey on SMEs” Thidsday, July, 20. |
[20]
.
The survey was carried out by the Federal Bureau of Statistics (FBS) across the federation, including the Federal Capital Territory (FCT) revealed that the total number of SMEs in the country is about 17.28 million, out of which 17.26 million are small enterprises, whose net worth are less than N5 million
. SMEs in Nigeria, presently employ over 32.4 million people, and they majorly family-owned businesses. Same with global business trend, thus, making them the biggest employer of labour. They also contribute towards nation building, through;-poverty alleviation, wealth creation, modernization of local entrepreneurship, tax payment, etc
| [27] | Zahra, S. A., Hayton, J. C. &Salvato, C. Entrepreneurship in family vs. non-familyfirms: A resource-based analysis of the effect of organizational culture. EntrepreneurshipTheory& Practice, 2012. 28(4), 363-381. https://doi.org/10.1111/j.1540-6520.2004.00051.x |
[27]
. Unfortunately, most of these businesses are crippled by negating factors that slow down their progress and growth.
2.1. The Challenges of Family Owned Business
Typically, as the family business transits along generational line, more family members are become actively engaged in the management of the business, which can lead to many potential failure, the causes of this failure are discussed Kaye
as follow;
2.1.1. Access to Funds
Dudaroglu
| [9] | Dudaroglu, M. 2008. Relationship among family influence, top management teamissues, and firm performance: An empirical study of the automotive supplier industry inTurkey using structural equation modelling. Unpublished Ph. D Thesis, Yeditepe University, Turkey. |
[9]
, argued that access to fund is the major determinant of family business failure. In reality in Nigeria, most family business finds it difficult to access loans from commercial banks, when in dire financial hardship. Also, the bank conditions loan grants make it extremely cumbersome to access business loan in Nigeria.
2.1.2. Resistance to Change
With the changing market economy in line with global best practices and modernity, which affect mostly business models, strategy and operations, most family businesses stick to the old-fashioned, traditional business model that have recorded feasible successes in the past. Thus, they find it hard to change their business model not minding its detrimental effect towards the growth of the business.
2.1.3. Increased Complexity
At the beginning of a family business, the management and co-ordination of business operations and activities, are much more easy and simplistic. Family members and the founder find it easy to handle various operations of the business. As the business expands, management of business operations becomes complex, requiring more competent and experienced hands to join in the business. This complexity makes management of family business difficult, as the family members might not be enough to ever expanding business enterprise. Also, recruiting competent personnel to assist in the management of the business firm, equally becomes a problem too, which if not properly handled might affect the success of the business.
2.1.4. Financial Knowledge
Mahenthran,
| [17] | Mahenthoran, S. K. 2009. Advance and trends in business. Boston: McGraw Hill. |
[17]
categorically stated that businesses fail every year, due to financial mismanagement. His assertion was supported by Hall and Young
| [11] | Hall, D., & Young, E. (1991). Revolution of family business. ambridge: Cambridge University Press. |
[11]
. Unfortunately, most recent family business in Nigeria failed because of poor financial knowledge. Financial management is necessary for proper business planning; it facilitates setting of business objectives and equally contributes immensely in the acquiring the required resources for business operations. If the finance is not properly managed, it will lead to grievous loss and inability of the family-owned businesses to achieve their set goals and objective.
2.1.5. Conflicting Goals/Values
Conflict of business goals and objectives across generational lines can result to failure. Especially when the younger generations take up the business and want to rebrand the old system to much better trendy fashion. It often result to clashes between the traditional system and the new system.
2.1.6. Conflicting Personalities
Individual differences can result to sibling rivalry which can summersault into conflict. If this conflict is not properly managed it can lead to destruction of peace, harmony and unity among the siblings, which will automatically destroy the business.
2.1.7. Expectations
Differences in expectation can lead to differences in business objectives and goals as regards to; ownership, management, use of business assets, compensation, training, work assignments, etc. If these differences are not properly managed, it will result business failure, when there is major disagreement on a policy, it will cripple business growth and possibly shut it down.
2.1.8. Poor Work Ethic
Work ethics in family business changes as it transcends from generation to generations. Most times the young generations tend to be uninterested and unprepared in investing in their parents’ family business. This can cause considerable stress and disaccord between the generations and can also unnecessarily delay the transition of both management and ownership.
2.1.9. Reluctance to Plan
Generally, family business founders mostly find it difficult in sharing their business plan, visions and ideals with family members. Also, business planning, succession planning, and financial planning are often not shared with the founders’ offspring.
Viewed as an ineffective use of time instead of a necessary business process. As the founder gets older visions for the business becomes blurred and planning becomes cumbersome, which ultimately will affect negatively the success and growth of the business.
2.1.10. Poor Corporate Governance Structure
Implementation of corporate governance is a big hurdle to family business, due to the informal relationship that binds family members that are stakeholders and key personnel in the business. Enforcing corporate rules and regulation, and equally instituting corporate structure become extremely difficult, thus, creating room for corporate indiscipline, nonchalant attitude and laziness being exhibited by family members that are associates in the business, which advertently cripple business growth.
2.1.11. Family Involvement
When family owned businesses allow family members to influence the decision-making process without clear-cut boundaries, it will lead to conflict, of which not tackled can affect the smooth business operations and activities of the enterprise.
2.1.12. Lack of Succession Planning
Unpreparedness and unplanned family business succession can fold up the business, especially when the business in question is handed over to an incompetent, nonchalant, extravagant family member as a successor. He or she will mismanage the resources used for business operations.
2.2. Theoretical Review
2.2.1. The Agency Theory
Agency theory is used to explain the relationship that exist between family business founders and managers. It distinguishes between business ownership and management, thus unifying business goals and objectives of that of the managers (agents) with business owners (principal)
. Agency cost refers to all cost of family business operations, which is properly done by the business managers (agents) in order to align with that of the business owner (principal)
| [4] | Aronoff, C. E. & Ward, J. L. 2002. Family meetings: How to build a stronger family and astronger business. Marietta, GA: Family Enterprise. |
[4]
. When family members engage in family business, they influence the increment or decrease of financial performance of the business, which can be attributed to agency cost.
| [7] | Chrisman, J. Important attributes of successors in family businesses: An exploratory study. Family Business Review, 2004. 11(1), 19-34. |
[7]
Thus, the survival of the firm is dependent on agency cost
| [7] | Chrisman, J. Important attributes of successors in family businesses: An exploratory study. Family Business Review, 2004. 11(1), 19-34. |
| [10] | Dyer, G. Culture and continuity in family firms. Family Business Review, 2006. 1(1), 37-50. https://doi.org/10.1111/j.1741-6248.1988.00037.x |
[7, 10]
; less supervision of agents in family business based on trust can stimulate business growth and equally lessen burden of agency cost
.
Family can incurred increased agency cost, if family members that own and manage the business have conflict of interest as relates to distribution of ownership, corporate governance, compensation formula, succession roles, and responsibilities
.
2.2.2. The Resource-Based Theory
Resource-based theory analyzes the relevance of competitive-advantage to family business. Theoretically, resource-based in the sense means the distinctive, unique, inherent aspect of organizational resources, which is mostly denotes as “organizational competencies” well integrated in the company’s internal process, human resources and assets, which aids the family-owned business’ competitive advantage
. Firms have been described as having a rich, integrated and complex internal resources; therefore resource-based view (RBV) gives family business owners and market analysts platform to analyze their competences, differences and limitations
| [12] | Habbershon, T. & Williamson, M. (1999). A research based framework for assessing thestrategic advantages of family firms. Philadelphia: The Wharton School Press. |
[12]
. The theory posits that family businesses are diverse and its inherent resources in the firm that gives the firm the platform for competitive advantage and better performance. RBV examines the links between a firm’s internal characteristics and processes and its performance results
| [12] | Habbershon, T. & Williamson, M. (1999). A research based framework for assessing thestrategic advantages of family firms. Philadelphia: The Wharton School Press. |
| [7] | Chrisman, J. Important attributes of successors in family businesses: An exploratory study. Family Business Review, 2004. 11(1), 19-34. |
[12, 7]
. Sermon and Hitt
posits that the way family owned businesses manage, co-ordinate and utilizes their internal resources differ from non-family businesses. They believe that these differences motivate competitive advantage. Dyer
, stated the variant types of capital, which he termed family factors and equally linked it tothe performance offamily business; these include; social capital, human capital andphysical/financial capital. These assets can contribute significantly to the growth and survival of family business.
2.2.3. Social Capital Theory
This theory is very essential in analyzing family-owned business, because it focuses on the relevance of human relationship, interdependence, engagement, communication and interaction in social network
. Social capital can be defined as the resourcefulness of complex human interactions, relationships and interdependence, which are beneficial to firm’s growth.
. Nahapiet and Ghoshal
| [18] | Nahapiet, V., &Ghoshal, D. Qualitative research on family businesses: The relevanceand usefulness of the interpretive approach: Journal of Management and Organization. 1998. 15(11), 294-308. https://doi.org/10.1017/S183336720000471X |
[18]
discussed the three dimensions of social capital, which include; relational, structural, and cognitive dimensions. The structural dimension describes arrangement and model of connections that exist between people. While are described by the relational dimension refer to the rules, trust, beliefs, and obligations that bind people in a social network. The cognitive dimension relates to shared language, cognition, and systems that exist in social network. In family businesses, each of the dimensions is integrated in two ways, on one hand it exist with the family, then on the hand it lies with external stakeholders. Simon and Hitt
differentiated between family social capital and organizational social capital. They discussed family social capital as the most powerful and enduring aspect of social network. Simon and Hitt
believed that a family represents a distinct social network where members of the family relate with one another, interact with each other with shared language, which in real sense contribute to the growth of the family enterprise. But once, this family social capital is not properly harnessed and managed it might lease to the dearth of the business.
2.3. Empirical Review
Justino
| [14] | Justino, M. V. 2015. Factors Influencing the Failure Of Small Enterprises In A Selected Municipality In Luanda, Angola. Published Thesis. Cape Peninsula University of Technology. |
[14]
study centered on factors influencing the failure of small enterprises in a selected municipality in Luanda, Angola. Positivistic theoretical approach was adopted in his study, he equally adopted qualitative method in the study. Questionnaires were used as instrument of data collection and was shared to130 small business owners and managers who had experienced business failures and 108 questionnaires were duly completed and returned. Statistical Package for the Social Sciences (SPSS) software was used in analyzing the data generated from the study. Results were presented in tables, pie charts, and bar charts. The results revealed the following as critical factors that influence family-owned business in Angola: lack of knowledge of business systems; lack of financial skills, competence and discipline; and negligence in planning and controlling business resources. These factors denote that organizations do not value entrepreneurial knowledge skills development and competence. Also, most of family-owned business owners and managers do not have entrepreneurship role model and business coach that would have facilitated entrepreneurship development.
Onuoha
| [21] | Onuoha, C. B. Challenges and Problems of Professionalizing Family Businesses in South-East, Nigeria. American International Journal of Contemporary Research. Vol. 3(4), 2013. 130-138. |
[21]
study focused on the challenges and problems of professionalizing family businesses in South-East, Nigeria. The survey was carried out in commercial cities within Southeastern region. The study evinced that family businesses do not carry their operations and activities professionally because of the following challenges and problems-unincorporated business enterprises, lack of proper succession plan, negligence of government policies on entrepreneurship development, financial constraints, high operational costs, multiple taxes, poor infrastructures, and unhealthy competition.
Ogundele and Ahmed-Ogundipe
| [22] | Ogundele, O. J. K., Idris, A. A. &Ahmed-Ogundipe, K. A. Entrepreneurial Succession Problems In Nigeria’s Family Businesses: A Threat To Sustainability. European Scientific Journal, 2015. Vol. 8(7), 208-220. |
[22]
study analyzedthe issues involved insuccession problems, their sources and how they threatened the perpetuity principle in companies with respect to family businesses in Nigeria. Their study discovered that the succession laws of Nigeria (which incorporates both the native laws and customs)and the diversity of culture in Nigeria, constitute a numerous succession problems for most family-owned businesses in Nigeria. Based on its findings, the study recommended that indigenous entrepreneurs in Nigeria, should craft comprehensive, articulate, market-centered and people-oriented entrepreneurial succession planning at the start of the business.
Agbim
study examined the effect of intra-firm network on family business succession. He adopted survey design for the study, proportionate stratified random sampling and simple random sampling techniques were equally integrated in the study to generate data. It was found from the data analysis that intra-firm network significantly and positively influences family business succession. He suggests that to achieve successful succession, family business owners need to be actively engage in the intra-firm network within the business enterprise. This network relationship is significant because it promotes a cordial working relationship between the family and the business. This network eases successful family business succession through proper management of the sources pre- and post- succession conflicts. Furthermore, the network affirms the emergence of a business successor based on entrepreneurial knowledge, managerial competence and business experience rather than first issue transition format and gender
| [2] | Agbim, K. C. Business network effect on the institutionalization of family businesses inSouth Eastern Nigeria. Open Journal of Economics and Commerce. 2018b. 1(1), 1-10. |
[2]
.
Sajuyigbe, Oyedele and Unachukwu
study investigated the factors that responsible for failure of Nigerian family business succession and how these challenges can be managed. The population of the study includes all established family –owned businesses managed by family members in Ibadan metropolis, Oyo State, Nigeria. The sample consists of two hundred and eighty four (284) respondents who were selected through judgmental sampling. Mean statistical technique adopted for data analysis and criterion mean of 3 was used for result interpretation. The findings discussed key factors influencing the failure of family business succession. The study concluded that engagement of successors in the management of the business, proper entrepreneurial training of family business successors, cordial and peaceful relationship among family members and the wiliness to learn from one other will significantly influence the growth and survival of family-owned businesses after exit of the generation of the family business owners.
4. Findings
To empirically investigate the goals and objective of this study, ten family-owned businesses that were once in existence within Southeastern region, were historically analyzed to discover the root causes of their failures. From the table, it is evident actively operated over a decade, majorly in the last quarter of the 20th century. This brings to mind the effect of market dynamics, and the fluidity of business trends, which brings complexity to business operation. In other words, the change in economic trend at the dawn of 21st century, which includes the global economic recession and advent of globalization, negatively influenced the growth of some indigenous family owned businesses in Southeastern Nigeria.
Also, result from the historical analysis evinced that most the family business incorporated in the study specialized in; building paint production, transportation, oil and gas, while others specialize in education, hospitality management, bakery and trade.
Furthermore, most of the reasons that led to the extinct of these businesses revolved around; death of founder, financial constraint, poor management, market complexity and competitions. Amongst all these causes, death of founder was a common factor. Thus, one can indirectly link this factor-death of founder to poor succession planning, because if the transition plan is successfully put in place, the exit or death of the founder would not have affected the viability of these businesses.
The outcome of this study correlates with the findings of Justino
| [14] | Justino, M. V. 2015. Factors Influencing the Failure Of Small Enterprises In A Selected Municipality In Luanda, Angola. Published Thesis. Cape Peninsula University of Technology. |
[14]
, Onuoha
| [21] | Onuoha, C. B. Challenges and Problems of Professionalizing Family Businesses in South-East, Nigeria. American International Journal of Contemporary Research. Vol. 3(4), 2013. 130-138. |
[21]
, Ogundele and Ahmed-Ogundipe
| [22] | Ogundele, O. J. K., Idris, A. A. &Ahmed-Ogundipe, K. A. Entrepreneurial Succession Problems In Nigeria’s Family Businesses: A Threat To Sustainability. European Scientific Journal, 2015. Vol. 8(7), 208-220. |
[22]
Agbim
| [1] | Agbim, K. C. Enhancing family business succession through intra-firm Network: A survey of family businesses in South Eastern Nigeria. Research Gate. 2018a. https://www.researchgate.net/publication/358140229 |
| [2] | Agbim, K. C. Business network effect on the institutionalization of family businesses inSouth Eastern Nigeria. Open Journal of Economics and Commerce. 2018b. 1(1), 1-10. |
[1, 2]
Sajuyigbe, Oyedele and Unachukwu
, their findings suggest most of the factors such as financial constraints, poor management due to lack of entrepreneurial skill and competence, poor succession plan and market complexity affects the viability and growth of family owned business.
5. Conclusion/Recommendation
The result gotten from this study suggests that family-owned business founders need to make proper planning for business transition. It takes deep foresight to determine a competent family member or manager that will take over the business once the founder exits. This brings to light the essence of business coaching and mentorship, this ideal will enable founders to pass down their business strategy and formula to the next generation. According to this study, decision-making process and adequate harnessing of human capital through proficient management will be of great value to the sustainability of family owned business. This study then concludes that incorporating efficient, proficient and dedicated members and business associates; and also indoctrinating them with the business model, ideal and strategy, will definitely ensure efficient management of the business which will positively influence its longevity and fecundity. Family-owned business itself plays a significant role in national development as an integral part of the corporate sector. Thus, there is need for adequate corporate legislation that will guide the smooth operation of family owned businesses in Nigeria. Most importantly emphasis should be on remodeling the banking sector, to make accessibility of loan much easier. Other necessary steps to be taken by family business owners and managers, include;
1. Family owned business adopt a suitable management model, with well defined organizational hierarchy and chain of command that will facilitate the smooth running of their business.
2. Roles and the responsibilities should be properly delegated among key family members that are competent with the business, so that they will gather relevant experience over the years that will aid their ascendency, when the founder exits.
3. Conflicts among family regarding business should be resolved or better still managed efficiently to avoid truncating the hard work of the founder.
4. To ensure fairness, equity and fairness among family members and business owners, there should be a defined framework for ownership shares, duties, compensation and other relevant issues concerning the business.
5. Improper succession plan cripples the growth of family business, therefore, business owners should endeavor to incorporate professional and experienced business consultants and advisors that will facilitate the smooth transition and ascendency in the business.
In summary, family owned business owners should learn to delegate duties to their members that will continue with the business once you exit from the business. Founders should engage their family members in the business actively and reveal to them the relevant information that will sustain and propel the business to greater height when they are still alive. Also, there is need for grooming protégés that will take over the business on time before founders’ exit. Capable and competent hands should be employed to help in proper business management, administration and control in order to derive maximum productivity and profitability.
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