India is presently one of the fastest-growing economies, with the government aiming to transform it into a USD 5 trillion economy by 2025 and the third-largest economy by 2030. The country is on an unprecedented path to unlock its economic potential, with a strong focus on embracing technology, innovation, boosting the manufacturing sector, and consistently reviving small and medium-sized enterprises. Government initiatives such as ‘Make in India,’ ‘Digital India,’ ‘Start-up India,’ ‘Ease of Doing Business,’ GIFT City, Atmanirbhar Bharat, etc., constitute key growth strategies aimed at fostering the MSME sector, which contributes approximately one-third to India’s GDP.
Family businesses in India play a significant role in the growth sector, contributing substantially to the country’s economic landscape. Globally, India ranks 3rd in terms of family businesses, with 111 publicly listed family-owned enterprises in 2018 that has market capitalization of USD 839 billion. Notably, 50 percent of the top 30 family-owned companies in Asia are from India.
These businesses have been steadfast in delivering sustainability, growth, and employment opportunities over decades. On the other hand, emerging success story of ‘Start-up Programme’ in India has caught attention of the world and has brought an innovation wave in the country that has revolutionised the way modern businesses are operating (including huge funding in such startups by various investors). With 116,080 recognised start-ups till date, India has emerged as the 3rd largest ecosystem for start-ups spread across 763 districts of the country and has contributed in providing solutions across 56 sectors which includes 13 percent in IT, nine percent in health care and life sciences, seven percent in education, five percent in agriculture and five percentg in food & beverages.
E-commerce sector, digital payments, NBFCs, cryptocurrency exchanges, D2C, etc. are some of the key sectors which have witnessed the rise of Unicorns in India, backed by innovative start-up ideas. The revenue of e-commerce companies is expected to triple over the next three years to 504 billion rupees (USD 8.13 billion) . Further, India’s e-commerce penetration is expected to double to 11% by 2024 .
In this era of new ways of doing business, the collaboration between startups and family businesses can become a dynamic and mutually beneficial alliance, fostering innovation and growth. This unparallel partnership can bring together the agility and tech-savviness of startups and experience of family businesses which can act as a catalyst in accelerated growth of large economies like India.
Here we delve into the synergies of such collaborations for startups and family businesses.
How do startups and family businesses create a Win-Win?
Family businesses have generations of entrepreneurial experience/ stability and can guide startups with tried and tested methods in business ecosystem.
Unlike other business models, family businesses operate with long-term perception to create wealth and pass it to future generations which can help startups achieve sustainable business model.
Startups can leverage strong network and established goodwill of family businesses and can have easier access to various stakeholders and loyal customer base. Family businesses, on the other hand, can benefit from tech enabled supply chains developed by start-ups which increases the market reach and visibility for small businesses across the globe.
Most of the family businesses fall out due to a generation gap, a lack of new ideas, and innovation. A startup can revamp traditional business practices with use of AI or technology and help family business to adapt to changing ecosystem by introducing smarter ways of doing business. This can act as an incentive for second generations to continue family businesses which are considered to be the backbone of developing economies like India.
With recent changes in the services sector where most jobs are becoming redundant due to technology advancement, it is imperative to focus on business collaboration and entrepreneurship. Some of the government policies enacted in recent finance budget aims at incentivising start-ups and MSME sector such as tax holidays, concessional tax regime, e-mudra loans, angel tax benefits, lesser compliances, etc. With Government’s focus on providing India a competitive edge in global platform, it is likely that future government strategies and policies will be aimed at nurturing entrepreneurial skills in India.
It cannot be denied that the collaboration between startups and family businesses is emerging as a symbiotic relationship that capitalises on each party’s strengths and overcome pain areas. Whether it’s the infusion of innovation and fresh ideas into established tradition or the stability offered to ambitious startups, these partnerships have the potential to redefine industries and drive economic growth.
Rashmi Maskara and Rohit Saboo are subject matter experts, at Deloitte Haskins & Sells India LLP.