Entrepreneurship

4 Lessons Your Family Business Can Learn From Startups

With the right mindset and approach to common challenges, a business of any size can operate like a nimble startup. Here’s how.

Startups typically have specific goals as a business: the idea is to prove the viability of a product, service, or productized service quickly, then bring it to market and scale by acquiring the largest number of new customers in the shortest amount of time. Profit matters to a startup, but it’s likely not the most critical metric by which company leadership measures success.

On the other hand, a family-owned small business may be in completely the opposite scenario. These organizations tend to be limited in both capital resources and available staff. And unlike startups, many small businesses exist solely to make a profit that owners can live on.

On the surface, the free-spending startup looking to scale and the small business trying to maximize the bottom line may seem completely different. And while their goals may indeed be different, both types of organizations can benefit from adopting business traits typically associated with startups.

Applying startup lessons to family businesses

There are four major areas in which small businesses would do well to emulate the practices of a startup:

1. Have a clear leadership and succession structure

It’s a common scenario in lots of different small family businesses: the older generation, which often founded and/or grew the business to its current level, wants to eventually hand off the business to be operated by the next generation. However, there is tension in the succession plan itself or the different ways that the younger generation wants to operate the business. This tension often spills out into the broader business itself, causing problems in several different areas. Depending on the nature of the business, this situation can even affect customers.

Startups are structured a bit differently. Typically, there is a founder or investor-appointed CEO who is the ultimate decision maker. Aside from that, startups have a flatter organizational structure than most small businesses (we’ll elaborate on this in an upcoming section). People working at startups might have more freedom than those in a small business, but startups still have defined goals typically related to growth or revenue. There is typically a single chief executive who makes final decisions, working with a team of executives responsible for a few large departments within the company. Depending on the company’s size, there may also be managers working on specific projects within departments.

Small businesses – especially family-owned businesses where structure may be a bit more relaxed – would benefit from adopting the kind of more straightforward organizational charts that are common at startups. It’s easier for a company to run smoothly when it’s clear who is in charge of which tasks.

2. Define job roles and training clearly

In an informal family business environment, it’s not uncommon for one employee to wear many hats, especially if they have been working there for many years. These kinds of companies often have an unspoken agreement about how work is to be divided up and completed, based on years of working together. While this type of arrangement can be useful for a period of time, it presents challenges when the company needs to bring on new team members or change its existing structure.

On the other hand, startups usually have a good sense of what specific kind of skills they need to grow the business to the next level. While it’s true that employees at startups can sometimes wear multiple hats  – particularly in the early days, when there’s only a few other employees besides the founder – they are typically onboarded initially for a particular thing they do well. Even if they end up handling several different kinds of work, a startup employee is usually recruited for a specific skill or group of skills.

In a family business, employees that have been around for a long time may be used to doing tasks outside of their department. This also presents a challenge when it comes to training new team members. Conventional small businesses often don’t have clearly-defined onboarding tasks, which can make the process challenging and unclear for new hires. In the long run, this can increase turnover and make it more difficult for a small business to find the right people.

Small, family-owned businesses should adhere more closely to the startup method of hiring and defining skills at each position. It’s fine to have someone in one role help out with tasks typically assigned to another position the way startups often do, but those tasks should be identified first before they can be handed off.

3. Listen to the market

One of the most defining characteristics of startups is their ability to pivot, or change direction slightly in response to feedback they’ve received from the market. In fact, a strong ability to listen to feedback from customers and prospects and then quickly incorporate those changes is one of the main indicators that a startup will be successful. Zomato, a food delivery startup which recently became India’s most valuable tech IPO, has pivoted several times since its beginnings as a menu aggregation service, even changing its company name.

Family businesses are sometimes run the opposite way. In fact, a common reason small businesses end up having to shut down is because of a failure to adjust their practices to changing industries. However, with a bit of effort and intention, it’s possible to respond to market trends more quickly.

One easy way to start is to begin actively studying the industry. Think about publications, online communities, or other places you can go to learn about what’s happening in your field. Scouting your competitors is a great way to gain a better sense of your industry. What are other successful businesses in your field doing that’s working well for them? What are struggling competitors doing wrong? These questions should give you a starting point from which you can begin to adopt the mentality of a startup, which is constantly listening and responding to their group of ideal customers.

Startup communities with budding founders can help family business owners access tools and resources to improve their research abilities. For example, they might learn how to run a successful A/B test, automate parts of their business, and build intelligence into how they make business decisions. A startup community can even help family business owners with non-research tasks like connecting them with investors willing to provide loans or capital in exchange for equity.

4.Encourage next generation owners to create community

Second-generation owners who are taking over for a retiring parent or relative are in a great opportunity to modernize their family businesses. But this must be done with intention and requires active learning and participation in a startup community.

Resources like the Y Combinator’s Startup School and Twitter communities can be excellent to help you consume new information and apply it to a more traditional business. However, it’s also important to have a group of likeminded people around to discuss ideas, solicit feedback and find advice to overcome obstacles. A strong community can help the next generation of a family business to think more like a startup, which is critical for applying these lessons in the real world. Communities are also a great resource for scouting talent and connecting with mentors and investors.

Final thoughts on running your small business like a startup

Small, traditional businesses run by families are often slow to change both their marketing and sales processes as well as the internal structure and management of the organization. One of the easiest ways to do this is by adopting common practices and methodologies employed by startups, which are driving innovation and technological development in India.

Consider this guide a starting point – change in any business takes time, and you probably don’t need to completely overhaul the organization overnight. With the right mindset and a constant desire to learn and improve, you can change the structure of a small family business to make it more similar to a cutting-edge startup that meets the changing demands of its customer base.

By 
Raj Kunkolienkar
December 7, 2021

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