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Family business is the oldest and most common model of economic organization. The vast majority of businesses throughout the world, from corner shops to multinational publicly listed organizations with hundreds of thousands of employees, can be considered family businesses.
Kenya has had a fair share of successful family businesses that continue to thrive through the ages. However, the last decades have witnessed the demise of vibrant family businesses when it was least expected. The change in fortunes has visited these businesses after the demise of the founders or key family members.
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Studies show that 70 per cent of family-owned businesses collapse or are sold before they are passed to the second generation, with about 90 per cent going belly up before being passed to the third generation. Most of these businesses are said to suffer from internal factors than external factors.
A 2019 Global Family Business Survey by audit firm Deloitte, established that in Kenya, only 17 per cent of family businesses survive past the third generation. Poor succession planning, family conflicts, lack of trusted advisers, varying visions between generations, lack of financial education for children, exclusion of family members outside the business, poor strategic planning, and governance challenges, are some of the things blamed for the fallout of these businesses.
According to the survey, 24 per cent of family businesses in Kenya lack good succession plans leading to fallout after the death of founders.
Here are some of the big family-owned companies that have collapsed in Kenya in the recent past.
Nakumatt
Nakumatt was founded in 1987 by the Atul Shah Family. Nakumatt grew as one of the most profitable supermarkets in Kenya. As of December 2015, Nakumatt had 65 stores in Kenya, Uganda, Rwanda, and Tanzania employing over 5,500 people. During that time, it had gross annual revenue of over US$450 million.
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The company started experiencing cash flow issues in 2016 leading to the closure of 60 stores. In December 2019 the retail chain sold the last six branches to Naivas Supermarkets in a deal that saw Nakumatt completely disappear.
Tuskys
Founded in 1990 by the late Joram Kamau, Tuskys was one of the largest supermarkets in Kenya, creating employment for about 6,000 people. It also operated in Uganda employing around 150 people.
Once, a retail giant, Tuskys crumbled as debt expansions, sibling rivalry, and poor management took a toll on the business. It has fallen from 64 stores to 4 open stores. The remaining stores are a shell of the retail gem with their sales yielding lower due to stock-outs as suppliers keep off.
Akamba bus
It was founded by the late Sherali Hassan Nathoo. This bus company thrived in the East African region with headquarters in Nairobi and Kigali. It had a fleet of over 100 buses, raking in millions of shillings daily. Family conflicts, debt, and mismanagement drove the company into trouble. In 2011, the company’s properties, including buses, were auctioned to pay debts.
ARM Cement
The company was founded in 1974 by the late Harjivandas J. PaunranaIt. It grew to be one of the largest cement producers in East and Central Africa with operations in Kenya, Tanzania, Rwanda, and South Africa. Debt and mismanagement drove the company down in August 2018.
Spencon
It was a giant construction company founded in 1979 by Jitendra Patel. In the 1980s and 1990s, it had operations in Kenya, Tanzania and Uganda, India, Zambia, Malawi, Mozambique, and Southern Sudan employing about 5,000 people. In 2014, the company started experiencing a serious financial crisis leading to its collapse in 2016.
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Bonus…
Njenga Karume Empire
James Njenga Karume was a Kenyan tycoon who served as a cabinet secretary in the late Kibaki’s administration with a net worth of 40 billion at the time of his death.
He owned 25 multi-million businesses that spanned real estate, agriculture, transport, and hospitality sectors. Karume was reported to hold stakes in 46 companies including The Standard Chartered Bank (K), Kenya Wine Agencies Limited (KWAL) and New Kenya Co-operative Creameries (KCC)
Long before his death on February 24, 2012, at the Karen Hospital, Njenga Karume wrote his will and delegated the running of his enterprises to the Njenga Karume Trust. The trust was the instrument of choice to guarantee a lasting legacy beyond expectations (to borrow from his autobiography BEYOND EXPECTATIONS: From Charcoal To Gold) in the management of the multi-billion-shilling estate.
Karume’s children challenged the validity of the trust in court claiming that the trustees had mismanaged and were systematically wasting the trust assets by disposing of them without accounting to the beneficiaries for the proceeds. The beneficiaries lost as the courts validated the Njenga Karume Trust.
Regrettably, his empire started shaking immediately after his death with his children, Lucy, Albert and Samuel claiming that the trustees their father appointed had mismanaged the properties.
Alledged mismanagement of the Trust lead to losses, loan defaults and tax arrears quickly dimishing the huge empire to a struggling and heavily indebted business. Village Inn Hotel, 25 acres of Land in Elementaita and Kacheliba Tea Estate were some of his businesses that were disposed of to pay debts.
Kenya Revenue Authority and The Guaranty Trust Bank have made spirited attempts to auction Jacaranda Hotel in Westlands (the crown jewel of the Karume empire) to recover loans, Value Added Tax (VAT), Pay As You Earn (PAYE) and loans owed to them.
Which family businesses collapse shocked you? Share your answer in the comments section.
Email your questions to [email protected] or WhatsApp +254738198620 or +254722529685 and get advise from Bizna Club members and the wider Bizna audience.