A family business is a privately owned business where a member or several members of the family are involved in the running of the business. This doesn’t mean that the business is entirely managed by the family; in fact many of these companies are run like public companies driven by profit and have formal structures such as succession planning to ensure that the businesses live on.
Across the globe, family businesses remain the key drivers of the economy. In the US for instance family businesses contribute 57% to total GDP (FEUSA 2011). In the UK 60% of business are family owned and in UAE family businesses account for 25% of their GDP. Kenya is not any different. Most surveys skew towards public companies since majority of the privately owned business are micro small and medium enterprises (MSME) or medium to large. Most of these businesses are split between formal and informal sector but generally account for over 80% of all employment in Kenya (National Base Survey 1999). Let’s look at some innovation lessons we can learn from our very own family businesses
Innovation must address a need: The case of Equity Bank
The Kenyan banking industry had been dominated by banks that had profiled the ideal consumer that can operate a bank account and borrow money. This profiling was the norm and was acceptable until Equity became a bank. For many years Equity bank existed as a private business. Its ability to challenge the industry practice made Equity a game changer in the financial sector. Equity saw a need of the many unbanked Kenyans. The local mwananchi struggled for many years to have a bank account and access financial facilities such as loans. By staying true to the Kenyan mwananchi and understanding the gap that existed, Equity grew from microfinance to the biggest bank in terms of customer base in Africa (8 million account holders). This was a win-win to both Equity and the Kenyan consumer. Family businesses exploit the advantage of local know how in identifying growth opportunities, a lesson that other non family businesses must look at. New ideas are welcome, but those new ideas must address a need, must be understood and owned by the consumers and ultimately deliver commercial value to the business.
Our resources and assets are an ignored source of innovation: The case of Nakumatt
Many family businesses tend to look at what they have because of the constraints they face especially at start up level. Their limited choices force them to innovate. They adapt and make the best decisions they can as they go along. Established businesses on the other hand focus on what they do or are known for and any new ideas are built on new resources that do not already exist within the business. There is an opportunity for any business to look at its unique capabilities and assets that already exist and leverage on them as a source of innovation. This means that businesses must constantly ask themselves what they can do with what they have. A good example would be Nakumatt Blue label brands. As a retail business, Nakumatt looked within and saw an opportunity to use what they already have (shelf space and the network of stores) to develop a brand that will deliver value to both the customer and the business. Savings made through contract manufacturing and trade margins has helped the retail store price its products cheaper and grow its sales by an additional 5% (Ksh. 2 billion in 2014). It is interesting to note that other retail stores have had and still have their own brands but the impact sales generated from these brands has not been as significant compared to Nakumatt’s. Nakumatt has changed how the Kenyan consumer views dealer’s own brands (DOBs).
Trends cannot be ignored: The case of Nakumatt and Winnie’s Pure health
Trends are key opportunity areas that point towards the general direction in which markets are developing or changing. Focus should not be on fads, inventions or technological changes but on things such as lifestyle changes, regulation among others. By looking at lifestyle changes, a business can establish emerging patterns such as need for convenience & healthy living, patterns usually ignored or underestimated by the competitors. The advantage that family owned businesses have is their ability to ride the emerging or changing trends. According to Atul Shah, the Nakumatt MD, the basket value for shoppers is higher at night than during the day. This is attributed to the convenience of 24 hours shopping by busy customers who can spare time only after work. Other companies such as Winnie’s Pure Health saw an opportunity to introduce naturally manufactured products to take care of the change of lifestyle by Kenyans who were demanding for healthy foods. Although no formal statistics exist to show the growth of this brand, Winnie’s Pure health is available across shelves of major supermarkets and has extended its range to herbal teas, spices, seasoning and organic eggs in additions to flour, rice and honey.
Innovation requires an entrepreneurial mindset: The case of Keroche Breweries
Family owned businesses are established by entrepreneurs. The founders created or innovated something that they later developed to realize commercial value. These entrepreneurs continue to look into the market to see if other new opportunities exist, which they develop for profit. Keroche Breweries is a good example of a family business that was driven by an entrepreneurial mindset. Tabitha Karanja the founder and CEO saw an opportunity in a market dominated by a single player for over 80 years. She also saw the ignored lower end market of consumers who mostly opted for local brew. There was a growing segment of this market that wanted a sugar free and affordable beer. Summit Larger delivered this unique product offering with a promise of 100% natural and sugar free beer. Keroche’s market share is about 5% but forecast to grow to about 20% in less than 5 years. Non family entities especially public companies need to have their own intrapreneurs to help in driving innovative thinking at all levels within the organization. With the resources and capabilities such entities enjoy, more profits can be generated at a bigger scale.
Learning more from success than from failure
With only 20% of all innovation projects resulting to new product introductions, non family businesses remain cautious about disruptive innovation that may be costly with no guaranteed profits. It is true that not everything you try when innovating is going to work, but the probability to fail should not make failure acceptable as good lessons for future. Family businesses have only one option, to succeed. This doesn’t mean that they don’t try many things. They take calculated risks and leave no room for failure. They understand that just because you must fail sometimes, it doesn’t mean that you should accept failure. They prefer to learn from success more than from failure.
This article was featured on http://www.capitalfm.co.ke/business/2015/06/5-innovation-lessons-from-kenyan-family-owned-businesses/
Sources & references: PWC Kenya 2014 private company survey, Business Daily, Bloomberg, Innovation books, Euromonitor