I see a surge in midsized 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 geographic expansion and deep pockets, those like Chemmanur or Alukkas can aim for niches like design, heritage or customisation. 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.
But what’s the point of professionalising if it means disturbing the loyalty and network that has been created over decades by their families? What’s in the DNA cannot be transformed so easily.
Companies like Paras Pharma, Symphony Coolers, Tally Solutions, and Balsara Hygiene, now national brands made it big using a judicious mix of tradition and modern management thinking. I have a few reasons to believe why companies like these succeed:
They concentrate on core competencies that a large, professionally managed organisation 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 Cooler in its formative days. It thrived on its design capabilities. The founder, Achal Bakeri, not only understood the existing cooler market, but could visualise emerging trends he wanted to capitalise on. He put in extensive research and hard work to establish Symphony in a highly fragmented and unorganised market as the only organised player differentiated by design.
But when he veered away from the core in the mid-90s into other areas in search of growth, the market was not as accommodating. Stay focussed and away from unknown 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 unique resources. While Ramoji Rao never stops thinking of the immense possibilities of growth, it is within his core business which he fondly calls the "The magic of Indian Cinema".
An important part of this organisational focus is to work with specialists. Big guys have a tendency to do everything by themselves. They have the money. But even for them it does not work many times. Symphony, Paras and the Ramoji Film City have been quick to get professional help when need.
Trying to do everything in-house and not recognising the value of specialist skills can be debilitating. A very large retailer in mid-2000s ran a fairly successful customer management programs with the help of his direct marketing agency. Two years later, they tried developing that competency in-house and were not successful. The reason? The agency used fairly sophisticated analytics methods to understand loyal customer behaviour and this competency just could not be replicated by their in-house IT team.
Smart entrepreneurs in this age of modularity should be ready to partner on many fronts. This not only brings down the costs but also gives them access to great expertise. Partnerships, alliances, networks and complements are necessary to build growth at a lower cost.
For instance, logistics has become pretty sophisticated in our country thanks to great strides made in supply chain management. These entrepreneurs must take advantage of such logistics firms to scale up. They can be their extended enterprise. You don’t have to have your own distribution anymore.
Cost is on the side of Indian entrepreneurs. Symphony, Paras Pharma and Ramoji Film City know that. Paras knew if they had to compete with Iodex, it would have to be a cost effective organisation. How they 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 who was busy doing the predictable. Making Moov available at points of action not only proved effective, but also less expensive.
Again, like Achal Bakeri of Symphony, they were very 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 70s, they did things different, smart and cheap. Direct Marketing, catalogue marketing, telemarketing, networking, low cost differentiation have all had their roots in bright family entrepreneurs.
Technology can play an important role in containing costs. I find it amazing that several entrepreneurs are actually using them much more effectively than the large organisations who have put big monies, but yet to get any meaningful payoffs. The reason is that these entrepreneurs are bound by their traditional business sense to look at any new initiative with a view on return of investment (ROI). Every Marwari puts his money where his mouth is. So should it be any different when it comes to new technologies?
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.
eCommerce 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 market places 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 70s, 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. In as early as 2003 while still young, Arvind Brands used customer data very effectively to build fairly strong repeat sales of its brands and improve its conversion rates significantly from the campaigns. Each of their franchisee store saw this as a great opportunity to lock in their local customers by meaningful dialogue and engagement. 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 geographic 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 very prominent jeweller known for fine designs burnt its finger by starting an upmarket store in another city. Retailing was perhaps not its forte. Creating upmarket design is. Tanishq, on the other hand, is a master at retailing. Design with mass appeal is its strength which allows them to retail across cities.
Ramoji Film City is another good example how to diversify effectively while maintaining the core. Their passion for films and building key resources and capabilities in that field presented them 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 in about 7-8 years and need to think of a breakout strategy. While they have surely grown and created significant value for the shareholders, Rs 500 crore of business during the 25 years of their existence, they need a renewed push.
Family managed businesses that stay the course do deliver results. Symphony has been one of the strongest value creators over a ten year period. Paras sold Moov in 2012 for close to a billion dollars to Reckitt Benckiser. Both family businesses; both professional in their own ways. Achal Bakeri and Darshan Patel had the courage to accept professional advice, without disturbing their traditional value system.
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 condensed version of this article was first published in Mint on March 24, 2015