x Abu Dhabi, UAEWednesday 26 July 2017

The View from Here: Family businesses are risky but rewarding

The choice for many middle-class earners in their golden years will come down to this: work for yourself, or work for someone else.

Family, like the flu, is something that can't be avoided, especially as the holidays approach. Soon, stray uncles, aunts and the cousin nobody likes to talk about will be in town.

You have to admire, then, people who go into business with relatives. The Medici family, who ran Florence for 300 years as if it was their own corner grocery store, grew fabulously wealthy from their efforts. Then they went extinct.

A single generation of bad decisions and a dynasty that had survived war, assassins, the plague and the church was extinguished in the 1700s. The clan who gave us Lorenzo the Magnificent, and bankrolled some of the greatest artists who ever lived, like Donatello, Michelangelo and Leonardo, fizzled from the stage.

At least they beat the odds and survived longer than most. According to the Family Firm Institute, a research group in Boston, only 30 per cent of family-owned businesses make it to the second generation, 10 per cent to the third, and 3 per cent to the fourth generation.

In the Middle East, and the UAE in particular, family businesses are the norm. They spring up because relatives can pool capital and employ people they trust. It also creates a legacy that can be passed from one generation to the next.

Anyone who starts a business becomes, by default, a family business. It's impossible not to involve your children, parents and anyone who has no excuse to avoid your phone calls. Small entrepreneurs often get their initial capital from family.

It has become pretty clear that many of us won't be able to retire at 65. The rate of pension investment is at historic lows. The UK's Office for National Statistics said recently that it has recorded the lowest pension investment since it began keeping track in 1956, half a century ago.

Retirement investments are of course a good thing - the more you can put away the better. But passive investments have a way of going bad without you having any control over them. This is something the life and pension industry never tells you.

The Greeks are probably starting to realise this. The generous pensions they have come to expect via European Union largesse will soon be a thing of the past. The many well-heeled investors in Bernie Madoff's fund thought they had their retirement aced.

Australia, as part of proposed pension reforms, is looking at forcing old people to sell their homes, so that part of the proceeds can fund aged care. The UK is also reportedly considering the same thing.

The choice for many middle-class earners in their golden years will come down to this: work for yourself, or work for someone else. So while starting a business is a high-risk enterprise, it does at least offer the hope of a steady, productive old-age.

I also kind of like the idea that it will involve my kids some day. The western way is to educate our children then get them out of the house as soon as possible. And eventually, we grow to become the elderly relatives they forget to call on a regular basis.

But a family enterprise, even a small cottage industry, provides a sort of glue that integrates people who like each other, but often have little in common.

Of course, families can, and do, fall out. India's billionaire Ambani brothers turned on each other almost as soon as their father died. The only way to resolve the conflict was for them to split the industrial giant they had inherited. But although they can't stand to be in the same room together, both Mukesh and Anil Ambani have gone on to make billions more, which shows their father left them a legacy of good business sense, if not a formula of how to get on together.

Probably the biggest risk of a family business is that when it fails, it can ruin a name forever. The Madoff brothers both worked in their fathers' firm, and never really recovered from their association with their fathers' business. The results were particularly tragic for Mark Madoff, who killed himself last year.

And consider how embarrassing it must have been to be the last chief executive of the Japanese temple builder Kongo Gumi, in operation under the founders' descendants since 578. After more than 1,400 years in business, it went bust in 2006.

To be the boss that took down an enterprise that spanned a large portion of recorded history is something that will pass down in family lore for another 1,400 years. I guess family get-togethers at the holidays must be rather fraught.

Gavin du Venage is a business writer and entrepreneur based in South Africa.

pf@thenational.ae