Extremophiles dominate the African business landscape

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Often, when I hear people talk about family business or when I tell them I advise family-owned businesses, the first assumption they run to is “Mom and Pop” stores or the small startups run by entrepreneurs. And when asked to share a one-word description of the family business, the most common response is small. People have developed a mindset of believing that family businesses are only small businesses or startup businesses.

Whilst it’s true that many family businesses fit the classic “mom and pop” model, the reality is that they are also mid-size, large, and even huge conglomerates spanning multiple countries and geographic regions. In most countries around the world, family businesses are between 70 and 95 percent of all business entities and often dominate the industry sectors in which they operate. 

Regardless of the size, family businesses have retained what makes them distinctive, which is the family. From startups, where a high percentage of all new business ventures are founded with significant involvement of family in the business, to the more mature and successful, family-controlled firms that make up 19 percent of the companies in the Fortune Global 500, family businesses are dominating a lot of global conversations.

A lot of research has been done with case studies of family businesses in the so-called developed world. This has been essential in building an understanding of the function of family businesses and the growth or lack thereof. However, the larger part of the globe is dominated by the developing world and businesses operating in these unpredictable situations and climates. Africa is such a continent, it is brimming with challenges and volatile environments.

In recent years, a new class of family businesses that fits the description of African Family Firms has gained more attention. Ivan Lansberg and Devin DeCiantis at Lansberg, Gersick & Associates have co-opted a biological term for this type of family business, the “extremophile.” An “extremophile” is defined as an organism that thrives in physically extreme conditions where much of life wouldn’t, and extremophiles exist in the family business world as well.

Lansberg and DeCiantis have defined family business extremophiles as “family businesses that have successfully adapted their internal systems and external activities to the emergence of an ‘extreme’ environment.’” 

These businesses find a way to survive and even thrive amidst the chaos. The question becomes, how and why do these family businesses become identified as natural extremophiles? According to Devin, these families’ investments extend beyond the high-risk episode; they are skilled at tactical triage and strategic planning. (In medical use, triage is the assignment of degrees of urgency to wounds or illnesses to decide the order of treatment of a large number of patients or casualties.)

The families have strong ties to a city, country, or region, which often pre-date the current episode of turbulence in their operating environment, and they possess robust social networks. And, like most successful businesses everywhere, they have found that necessity is the mother of invention. The research identified five recurring archetypes which can be identified in some of the African firms we are familiar with:

Five Recurring Archetypes of Extremophiles

Scavengers Archetype – The characteristics of this archetype are:

1. They enter staple industries with small startup costs. In this area, they focus on the goods or services that consumers always need, like food. They usually start in trading industries with high volume movements and supply essential goods needed by the consumer market. Fast moving consumer goods are usually a high target for these.
2. Their businesses are often forged within the most challenging economic environments. 
3. They are adept at making the best of a hostile situation.
4. Scavengers aren’t looking for disruption, innovation, or transformational growth. They are looking at supplying the basic needs and continue to thrive in this market by being intuitive to customer needs.
5. Their focus is on low-hanging fruit, solving everyday problems in industries with low barriers to entry and minimal required expertise for set-up and operations.

Examples: Food Manufacturers, Traders

Key Risk: Civil War

Artisans Archetype – The characteristics of this archetype are:

1. They survive adversity through focus, persistence, and long term thinking
2. They are some of the oldest family businesses in the world
3. They identify with high-quality craftsmanship in their chosen niche
4. They are resilient when defending their existing markets
5. They tend to focus on one core industry and specialize in that space.
6. They are not easily distracted by opportunities for transformative diversification.
7. They grow by incremental diversification, adapting existing high-quality products to new markets.

Examples: Car Manufacturers, Telecom

Key Risk: Economic turbulence

Chameleons Archetype – The characteristics of this archetype are:

1. They adapt to adversity by blending into the new competitive environment.
2. Their adaptation is a defining characteristic of the Family Business Enterprise. Chameleons are particularly agile in their adaptation.
3. They constantly evolve, using existing assets and expertise as a platform for entering new markets.
4. They try to stay one step ahead of a rapidly shifting competitive landscape by constantly experimenting, pivoting, diversifying, etc.

Examples: Service providers, Highly diversified companies

Key Risk: Geopolitical Public Policy

Ambassadors Archetype – The characteristics of this archetype are:

1. They partner with multinational investors who want access to domestic markets.
2. They secure distribution rights for large global brands.
3. They help multinational partners adapt to domestic social, economic, and political realities.
4. They learn to share best practices from a variety of top multinationals.
5. They accumulate their portfolio based on their reputation for successful collaboration with foreign investors.

Examples: Mansour Group in Egypt

Key Risk: Geopolitical Public Policy 

Started in 1952, during a time that Egypt was centrally planned (from 1950-to 1990). The founder made his mark as a GM dealer in the 1960s; they went on to sign deals with Caterpillar in 1977 and Phillip Morris and McDonald’s in the 1990s, thus cementing the group’s international credentials. They now work with Asian exporters like Samsung to sell AV equipment and appliances. The founder’s three sons staff the current board. A famous quote by the founder of the Mansour Group is:

“It’s incredibly hard to move in Egypt without being influenced by the Mansour Group – although most consumers wouldn’t know it. Whether you’re buying a phone, servicing your car, doing the week’s shopping, or eating at McDonald’s, the Mansour Group is probably involved in the background.”

Titans Archetype – The characteristics of this archetype are:

1. They develop close political ties to secure privileged access to domestic markets.
2. Political patronage is the source of their success, so they owe a large share of their success to political patronage.
3. They rapidly acquire vast wealth in the wake of privatization campaigns, targeted protectionist policies, and access to lucrative domestic contracts.
4. They are able to control monopolistic industries.
5. They have high levels of influence and power economically and politically.
6. There are two principal types of this archetype: The Inclusive and The Extractive. The inclusive titans tend to be the result of a deliberate public policy to support economic development, and the extractive group tends to be in it for themselves.

Examples: Big conglomerates with multiple companies across diverse industries, but mostly those with state or government influence and control for entry and operations.

Key Risk: Economic Public Policy, Change of the political climate in zones of operations.

Business families operating in these difficult, ever-changing environments need to simultaneously manage extreme pressures in all three circles of the three-circle model: Ownership, Family, and Business, as they merge. They have the same risks as normal family businesses, but there is an extra veneer of environmental risk that threatens these families. For the extremophile families, the particularly extreme pressures in the business circle then include:

1. Political, economic, and environmental uncertainty is higher for these types of families compared to others.
2. Limited access to financial, physical, and human capital drives the prices up for these critical resources for operational output. Retaining top executives under the conditions, in which they operate can be extremely difficult. The Expats who sometimes get hired face the difficult decision of relocating their family and themselves into what can become volatile situations that they may not be familiar with.
3. Limited public infrastructure like electricity is unreliable or inconsistent, roads are not durable, bridges will break down and mess with logistics and supply chains, broadband internet isn’t available, and communications structure is not available. These are key issues, and sometimes these businesses have to build these structures for themselves.

Understanding these businesses also helps to understand why some companies shy away from the limelight and focus on maintaining ownership, family safety, and growth. Although we focused on the veneer that affects the business circle, we have to maintain awareness that the same environmental issues are veneers that then impact the decisions made in the family and the ownership structure of the businesses.

Needless to say, on a daily basis, we have seen and heard through various media the struggles that sometimes impact these unique families. And it is crucial for us as Africans to be aware of the challenges faced within the complexity of wealth building. And it is more so important for these families to look at building strong governance structures within the family and clarity on ownership. As much as they have the extremophile profiles, the families tend to see their fortunes dissipated by the family’s inability to create a fortified governance and succession plan.