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A family succession is different from all other exit options in so far as the emphasis is often not on maximising the owner’s exit price, but rather on ensuring that the business continues successfully under the ownership of the successor. Consequently, the tailoring (or grooming) is concentrated on the successor, rather than on the business. This alters the perspective of the business’s suitability for the exit option chosen and the notion of what purchasers are looking for. This will become clearer from what follows below.

Generally speaking, most types of businesses qualify for a family succession. However, if the successor is required to borrow money against the business’s assets to acquire the business, the business will need to be able to support the borrowings and the successor will need to have a professionally produced business plan demonstrating this ability.

As I have said, the emphasis in family successions is usually more on the suitability of the heir than the suitability of the business, so this question has to be changed to: ‘What are we looking for in the successor?’ This will influence the choice of successor and the way he or she should be groomed for the take over.

We will now look at the steps necessary for grooming (or tailoring) the heir for taking over the business.

Today, many organizations disappear from the list of successful business organizations on the popular ranking of some professional bodies (Agrawal, 2006). One of the factors generally reported as its root cause is the failure to manage innovation within the system. A critical psychological analysis of the attitude (statements as refl ected on interviews to
the media or the address of the Annual General Meeting) and behaviour of the respected business leaders and CEOs (as actually perceived by the group within or insiders, who really know the person well) reveals a wide discrepancy. It cannot be objectively established but inferences could be drawn that probably Indian business leaders and successful entrepreneurs possess a common style of managing people. At some stage in every level it is the personal relationship that matters in the fi nal decisionmaking.

This is based on the perceptual response analysis of those who aspire to get a chance to lead the organization. In case my thesis gets empirical support and validity, then the absence of entrepreneurial leadership in India requires further empirical examination. Thus, this leads only to routine success and normal achievement, which could be relatively better in that business environment. Any global business/ entrepreneurial leader of this century has to go beyond personalized relationships and feelings of insecurity (loss/absence of power) in order to compete and keep going. Therefore, societies, where leaders say something and do just the opposite, will have diffi culties in fostering and developing an entrepreneurial existence. The role of the top management in an organization is crucial in making an entrepreneurial initiative, a reality and the process effective. Here, a CEO has to go miles away from the transformational leadership if he/she is willing to take the organization ahead.

One can see clear regional differences in the same society or nation for the desire to establish entrepreneurship and further advance ahead. This however, does not mean that people of some places are made (gifted) for entrepreneurship and others are not. I am of the opinion that any place in this universe is a fi t case for an entrepreneurial activity. Some are able to sense (get insights) while others do not. Even getting insight alone will not be adequate enough for entrepreneurship unless the skills to exploit the market and utilize the resources as well as opportunities are not adequately developed.

An entrepreneur always has to have space for unexpected happenings in the process of any entrepreneurial venture. Market turbulence and unpredictable environment, organizational factors like strategy, structure and leadership, managing people and resources including technology, political stability, and sociocultural factors play a very crucial role in developing entrepreneurial culture in society. Organizations will find it diffi cult to involve a majority of the people if they are unable to create a culture where most are oriented towards innovative activity, leading further towards entrepreneurial outcomes.

There are also evidences to highlight the role that the government policies, and regional and cross-cultural factors play to facilitate entrepreneurial activities. Utilization of available opportunities and creation of market could be positively related to as entrepreneurial success. It is an outcome of making use of the opportunity to come out with a product that will be used in the market by the customers looking for a particular product.

Every individual has some talent or the other while in some this talent can be identifi ed, in others, it remains hidden. Entrepreneurship is not restricted to a specifi c person or group. It is an ability to explore, create and utilize the available explored and unexplored opportunities for novel or unexpected innovations and solutions. Therefore, to facilitate and create business, some competencies could be identifi ed and fostered as per the requirements of the entrepreneurship. It will help to realize where the scope for starting and pursuing entrepreneurial venture exists (sensing market). An entrepreneurial personality ignores the role of individual differences. Rather, it lays emphasis on the role of cognitive factors, and therefore we see substance in terms of entrepreneurial intentions and entrepreneurial
thinking, which occupy significant space in understanding the process of entrepreneurship. Encouraging all individuals towards developing competency that leads to the road of entrepreneurship in any field is the demand of the time and organizations must foster it.

The second kind of models that we want to highlight is “reduced-form models.” Unlike structural models, they are based on information from the credit market, such as asset swap spreads or credit default swap spreads. Thus they are capable of capturing valuable information regarding the probability of default that is contained in bond and credit default swap markets. This is particularly helpful when insufficient or no balance sheet data is available. In the reduced-form framework, default is modeled as a surprise event. Rather than modeling the value of a firm’s assets, here the probability of default is derived directly from market data. The interested reader may note that this approach is similar to the way interest rates are modeled in order to price fixed income derivatives.

In the structural approach, assets and liabilities of a company are modeled simultaneously. Thus, structural models are based on fundamental company data, focusing on its balance sheet and asset value. Default occurs when the value of the firm’s assets falls below its liabilities. Consequently, the required inputs comprise the firm’s liabilities, usually taken from its balance sheet, market value of equity and (implied) equity volatility. Since equities are typically more liquid than corporate bonds, one may argue that equity prices tend to reflect the value of a company’s assets more accurately.

Using information from the equity markets allows fixed income instruments to be priced independently, without requiring credit spread information from related fixed income instruments. However, if equity prices become irrationally inflated or deflated, as we have experienced during the equity hype of the late 1990s, they may be misleading indicators of actual asset values. Generally it is assumed that one can reasonably infer asset values from equity prices. An option pricing model is then used to derive the volatility of the firm’s assets. Although it is generally possible to model financial institutions in the structural framework they should be treated with caution, since it is difficult to assess their assets and liabilities.

Furthermore, since financial institutions are highly regulated, default may not occur even if the value of assets falls below the firm’s liabilities.

The traditional fundamental approach and structural models generally are based on the same set of balance sheet inputs. But while the fundamental approach used by most credit analysts requires thorough company and industry knowledge and is therefore rather costly and time-consuming, equity-based models are an efficient means to screen broad universes of credit issuers. However, structural models allow to incorporate credit analysts’ forecasts to take account of qualitative information that is not yet reflected in the balance sheet. Projections can be used to create more realistic estimates of the default threshold or to generate different scenarios with respect to future liabilities.