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Why most indigenous businesses are unable to survive beyond the second generation

Business failure refers to a company ceasing operations following its inability to make profit or bringing in enough revenue to cover its expenses. It is a known fact that most Ghanaian businesses are unable to survive beyond the second generation, especially with the demise of the founder. People mostly attribute this to lack of succession plan. It is a known fact that it takes several years for a succession to take place with a different family-member taking on the leadership role; but it does not always work that way. The reason may be that the new leader does not have support from the family, or the business is already performing poorly. Below are some notable factors that have accounted for the inability for Ghanaian Business to survive beyond the second generation.

Firstly, most Ghanaian businesses fail to make it to the second generation because most business-owners fail to plan seriously for their own succession. Succession in the ownership of the business happens when the owner finds a way of exiting from the business by either selling or transferring the business to a new owner.

It is known that only one-third of family businesses are passed on to the second generation, and only 16 percent make it to the third generation. Succession-failure is when a business has to be closed or broken-up because of unsuccessful attempts to sell or hand on a business. Several reasons may account for this pathetic situation. Aside from the absence of properly documented business plans, most indigenous companies fail to train employees who may have passion for their businesses -- hence the founders’ demise results in the death of their businesses.

Smooth succession-planning is something that takes time. A smart businessman will make sure his company is listed on the stock exchange so that it changes from being a private company to being a public company. With this system, the death of an owner may not necessarily result in demise of the business.

Strangely, Ghanaian businessmen are not interested in sharing ownership of their businesses, hence this sad state of affairs. This explains why we still have companies like EIC, Guinness etc, but companies like Bikkai and Poku Transport Ltd. are nowhere to be found.

Secondly, most Ghanaian companies are unable to make it to the second generation because of politics. This is true especially for politically-exposed entrepreneurs; their businesses collapse because of frustrations from their political opponents. Such things are done to prevent them from funding their political parties. Politicians may manipulate the system to frustrate businesses for political expediency. One political party may help one business to climb up, only for another political party to bring it down. Unfortunately, they play such games with indigenous Ghanaian companies.

Thirdly, most Ghanaian businesses are unable to make it to the second generation as opposed to their foreign counterparts because of financial hiccups. Unlike their foreign parties who can secure cheaper sources of funds from their home country to revive their businesses in times of turbulence, the indigenous Ghanaian businesses are unable to meet the various requirements of the financial institutions in Ghana. Aside from the above, where they are able to access funds from these institutions, the high borrowing costs eventually result in the collapse of these businesses.

Thirdly, most Ghanaian businesses are unable to make it to the second generation due to lack of investment in technology. Most indigenous companies fail to keep pace with technological advancements. Thus, they continue to employ old technologies which may not just be costly -- especially for production firms, but limited in terms of options. Whilst an indigenous company may not see the need for IT infrastructure, it may see the wisdom in buying a 4-wheel drive car for leisure.

Moreover, most Ghanaian businesses are unable to make it to the second generation because of lack of interest in networking. Business networking refers to situations in which people use their personal contacts for business-related goals. In fact, networking provides businessmen with stable sources of accurate information pertaining to competitors, industry events etc. Members of an entrepreneur’s network will recommend the entrepreneur to other members of their network, and lastly, during crisis, contacts can be relied upon to lend a helping hand. Most foreign businesses are generally engaged in business networking.

They attend conferences, trade-meets, and social events and even establish relationships with people much before they need them. The business founder knows all the customers, the employees, the businesses in the neighborhood, the mayor, the chief of police, and the owner of the restaurant down the street.

With a passion for the business, he/she wants to meet everyone because one never knows where business may come from. Over time, it becomes quite a wonderful network. This situation is non-existent with Ghanaian businesses. Most of them prefer to discuss the lifestyle of minister A, ex-gratia, coup d’états, and other non-productive issues.

Furthermore, most Ghanaian businesses are unable to make it to the second generation because of lack of discipline. Most of the owners just spend on unnecessary things and also lead flashy lifestyles. Most Ghanaian business-owners proceed to lead a life of fancy cars, vacation homes while the employees don’t see bonuses or raises. Some Ghanaian business-owners just can’t see that their desire to never make a tough decision with regard to hiring, or changing suppliers, or firing is ultimately leading them down the road to failure. Deep down, they believe they are serving the greater good by keeping everyone employed -- even if the business is coming to a grinding halt.

Lastly, most Ghanaian businesses are unable to make to the second generation because they fail to set up research and development department. Research and Development (R&D) is an activity that a business chooses to conduct with the intention of making a discovery that can lead to development of new products or procedures, or improvement of existing products and procedures. In other words, R&D is an investment in the company’s future. Now, the question is how many Ghanaian businesses have any idea about R&D, and how much do they spend on it. If they do not spend on R&D, then technically they are not investing in the future; and very soon their products and services will be obsolete and they will be out of business. To the contrary, most foreign companies spend between 5% and 15% on R&D. Most of the foreign companies have R&D departments that scan the environment constantly for them, hence their ability to move to the second and even the third generation.