‘Over one-third of nearly 40 million MSMEs dissatisfied with performance of family members in business’

Updated: Aug 06, 2020 12:30 PM

Ease of Doing Business for MSMEs: More than 60 per cent of the 65 million MSMEs have some family members working either directly and indirectly and in over one-third of the cases, the owners are dissatisfied with their performance.

business, atma nirbhar bharat, white house, economic advisor, self reliantOwners must be objective in selecting the people and not be blinded by the relations.
  • By Samir Sathe

Ease of Doing Business for MSMEs: Building high-performance culture starts and ends at the top. The virtuous cycle that envelops the entire organization, has faced several challenges for the businesses. A thorny and complicated challenge among them is to deal with a non-performing family member. It remains to be sticky for the owners. In India, our estimates suggest that more than 60 per cent of the 65 million MSMEs have some family members working either directly and indirectly and in over one-third of the cases, the owners are dissatisfied with their performance. Clearly, it is a significant issue to deal with, especially for MSMEs. This is particularly relevant when it comes to SMEs trying to scale up above a $1 million revenue threshold since at the start, often they are the same members who may have helped the owner!

Non-performers may hit small businesses harder since it is the matter of survival in most cases as opposed to the case of big businesses where it is a matter of lost opportunity, lost monetary gains between families or in some cases, scarred reputation. And when they are family members, owners have difficulty in dealing with them. Here are some guidelines, rules for the owners when they deal with non-performing family members while building a high-performance culture.

Do not mix business with relations

As a generally prudent practice, do not mix business with relations. Entrepreneurs would do well to offer roles to ‘competent strangers’ than ‘familiar question marks’. ‘Competent strangers’ are disadvantaged as they are strangers and therein lies the trap. Family-owned enterprises suffer from this bias as the owners would like to surround themselves with faces and names they are familiar with, little realizing that they are question marks with their competencies largely untested or unproven. They do not usually undergo the same rigour in their being hired as the stranger go through. This creates an inherent bias, which is dangerous for the health of the enterprise.

‘Familiar question marks’ almost ambush the owners with their claim of knowing them as the proof of their competencies, while in reality, they have little in common. At best, they lurk around sufficiently enough to be summoned by the owners for help, and more than the intent, it is the lack of competency that puts both owners and enterprises in trouble. Owners must be objective in selecting the people and not be blinded by the relations. Those relatives who succeed in their roles are not because of relations but because of their competencies. My experience suggests that the odds of relatives becoming successful are thin. A safer strategy is to stick to what the role requires whether (s)he is a stranger or otherwise.

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Maintain relations, serve business ties, not the opposite

The decisions on non-performing members begin much before they are hired. Successful entrepreneurs who are able to extract performance from familiar faces follow certain guidelines:

  • Follow the job description and role for identifying talent, not whether recruiting them.
  • Ease them into a non-critical role and then migrate them into a critical role.
  • Communicate expectations of the outcomes and outputs clearly and not leave it to chance or ambiguity, especially with relatives. If ambiguity confuses the talent, it confuses the relatives more. Further, matters get more complicated if performance is dissatisfactory.
  • Be straight in communicating dissatisfaction with the performance, following usual review protocols, do not mince words, or be soft where it is needed to be hard.
  • Render the same treatment to non-performers and make sure you communicate to others that the same treatment is being extended.
  • Asking the non-performing relatives to go would make it easier not worse for the relations, much contrary to the popular belief or estranging the relations. The worse situation of continuing with a non-performing family member or a relative is that it builds passive aggression, risking both business and relations, subsequently.

Simple rules

Successful promoters who happen to have relatives in their businesses, would do better should they follow simple rules:

  • Recognize employees based on the role they play. Not based on relations.
  • Communicate performance expectations early, especially with relatives.
  • Evaluate fairly, neither too hard, nor too soft because they are relatives.
  • Demonstrate and communicate to other employees how you would treat a relative by example, not by being by vague or silent.
  • Set an example by acting on under-performance swiftly, delays in doing so indicate unwillingness, inaction or indecision.

In summary, small business owners would do better If they know whether, when, and how should they involve their family members, without compromising on building a high-performance culture.

Samir Sathe is Executive Vice President, Wadhwani Advantage at Wadhwani Foundation. Views expressed are the author’s own.

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