A Family Business at a Crossroads: Scaling and Succession

BRIAN KENNY: Home sweet home, a place to call your own. For most people, purchasing a home is the single largest financial decision they will ever have to make. And yet for most, the benefits of owning a home still outweigh the costs. Over the past two decades, rates of home ownership have increased steadily around the world, fueled in part by a globally networked rising middle-class. People buy homes for all kinds of reasons. Stability for the family, the investment value, control over the space where they live, and it’s fair to say that these days home buyers expect a lot more from this elaborate purchase than just a roof over their head. Today’s case takes us 100 miles southeast of Mumbai, where one construction firm may have landed on a concept that exceeds those expectations. Today on Cold Call, we’ll discuss the case entitled, “Gera Developments: Leadership at a Crossroads,” with professor Christina Wing and guest, Rohit Gera. I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents network.

Christina Wing is a senior lecturer at Harvard Business School and also a graduate. Prior to teaching, she held a variety of roles in finance and general management, including president and CEO of a family office, where she oversaw a variety of investment and philanthropic activities. Rohit Gera is the managing director of Gera Developments Private Limited. He is responsible for the day-to-day functioning of the various departments of the company, as well as for the planning and execution of new projects. And he is actually the protagonist in today’s case. Thank you both for joining me today.

CHRISTINA WING: Thank you.

ROHIT GERA: Thank you very much for having me. It’s my pleasure.

BRIAN KENNY: Rohit you’re joining us from India. So thanks for being on the line today. It’s great when we can have the protagonist join us for the conversation. It just adds so much more color to the discussion. This case works on two dimensions really, because we are talking about Gera Construction and the housing concept that you’ve come up with, but we’re also talking about the sort of the evolution of your business and how it’s unfolding at this current stage and where it’s going. It’s a family-owned and operated business. So, that sets up a very interesting discussion about some key decisions that you have to make coming up. So we’ll get into all of that. Christina, I’d like to ask you to start by telling us, when you step into the classroom, what’s your cold call to start this case?

CHRISTINA WING: So when I walk into the room, I really start with asking the students to put themselves in the shoes of Rohit Gera. What would keep him up at night? Is he most concerned about his management team? Is he most concerned about succession, or is he most concerned about doubling down on this product that he has created: ChildCentric? And then the students go in a variety of directions, but that sets us up to talk about the three different crossroads.

BRIAN KENNY: And ChildCentric is super interesting as a concept. We’re going to talk about that. When you reached out to me about this case, you were excited about it. You thought it would be a great subject for Cold Call. I know you’ve taught it in the classrooms a couple of times. Why were you excited about it? How does it relate to the kinds of things that you look at as a scholar?

CHRISTINA WING: It’s kind of a combination of my interest in ethics and business. And this particular case shows that it’s things that are really hard to do in the business world can be done, and especially in countries where the perception is that things aren’t done legally. This is a family business that for 50 years has run an ethical business and now is doing something that’s not only ethical, but very innovative through their ChildCentric.

BRIAN KENNY: And the fact that it takes place in India, I also was surprised to learn as I did a little of research for the intro on this, that rates of home ownership around the world might be surprising to people. It turns out that Romania is number one in the world with about 98% of people owning homes. India is very close to that with about 87% and they ranked number seven in the world and the United States where home ownership is like part of the American dream, only 65% of people own homes. We’re at like number 40 on the list. So I found that really surprising, and I think there’s a lot of surprises in the case that way.

CHRISTINA WING: Yes, the thing that’s interesting about that, single-family ownership is at an increasing rate in India, but the big difference is many Indians don’t own many homes over their lifetime. And so at the beginning, many live with their parents, even as they get married and have kids. And so the concept of ChildCentric is almost a bridge to enable Indian families to buy a home sooner than they would with greater benefits in proximity to the city, and then possibly end up with a single-family home later.

BRIAN KENNY: We’re going to bring Rohit into the conversation shortly, but before we do that, Christina, can you just give our listeners a sense for what the central questions are in the case? Because I think it’s helpful for them to know that before we dive in.

CHRISTINA WING: The central questions are, should this family business double down and do this ChildCentric concept all over India, or should they consider other products that they’ve also had success in and given that decision who should run the business after Rohit? So should you be finding somebody that believes in ChildCentric to run the business? It’s a family business. Or should you pick a family member to run the business and let them set the strategy? And that is a big crossroads.

BRIAN KENNY: I want to say good morning to Rohit Gera who is joining us from Pune, India, which is about 100 miles southeast of Mumbai. And I think it’s about 9:30 here and about 7:30 there. So, thanks so much for joining us at the end of what I’m sure was a very long workday for you. Let me ease you in here just by asking you to tell us about Gera Developments. Tell us what the company does and what business you’re in?

ROHIT GERA: So we are primarily in the business of real estate development, we’re merchant developers for the most part. We focus primarily even within that in the residential segment. Of late, in the last eight to 10 years, we focused on and created what I believe is a new product line, which we alluded to earlier, called ChildCentric homes, which I’m sure we’ll talk about later, but for the most part, for the last many decades, in fact, ever since we started, when my grandfather and my father started the real estate development business, this is what we’ve been doing, building and selling homes and condos for the most part.

BRIAN KENNY: So tell us about the real estate industry in India. I’m certainly familiar with it here in the US, but is it more complicated there to do the kind of work that you do than it might be in other places?

ROHIT GERA: Well, we’ve also embarked upon some real estate development in San Francisco, which my brother is looking at. And so I have, I have an interesting kind of experience from both ends. I think the complexity in India is it seems to be much more complicated at three different levels.The fir st one being just the contractors and just the laws around that. Enforcing of contracts in the US is far easier. The next one is the entire approval and entitlement process. It’s absolutely… I think I could use the word insane. The kinds of things that can go on and the kind of risks that we have to deal with when it comes to the entitlement process, in the US we’ve experienced it. That is by right. In India too, it’s by right, but it’s very hard to get the bureaucracy to kind of support you if something isn’t exactly on the straight and narrow. And the third one, then this is something which I find as amazing that we have virtually no data available. I’ve looked at some of the kind of data which you have available in the US around… You can tell how many gas stations that are within so many kilometers or so many miles of a housing development that you want to do, right? We don’t have any such data here. We don’t have demographic data. We don’t have bio data. There’s literally nothing. So the risk that that brings to a project is much, much greater because you’re kind of in a way sort of flying blind. But one of the ways where it’s different and in some ways easier is we can go to market as soon as we now have building permits. And unlike in the US where you have to get occupancy certificate, when you can sell. We can actually start selling off of a permitted plan.

BRIAN KENNY: So you have been at the helm at Gera Developments for a long time now. I want to go a little bit further into your past, because the case talks about when you first started there, you were a young man, and actually there’s a line in the case that alludes to the fact that you weren’t the easiest student in high school. So you would seem like an unlikely person perhaps to take the helm of this growing business. Can you tell us a little bit about your past and how you came into this role and how you grew into it?

ROHIT GERA: Sure. So, I was in boarding school. I wasn’t the greatest student and I think it was probably because I just didn’t apply myself. At least I like to believe that, right? I went to school in the US, I went to the University of Massachusetts, and then I came back to India and I was kind of thrown in at the deep end, because as soon as I came in, about a month or so after that, my grandfather who was also involved in the business with my dad, got diagnosed with cancer and my dad and my mom and my grandparents both flew off to the US for his treatment. And they were gone for, I think the better part of two months. And I had just started. My dad kind of called me in and he said, “Listen, we’re off. Deal with this stuff.” Right? And so I think that was a trial by fire from 91, when I started, until about the year 2000, things kind of continued not in any sort of aggressive growth or anything like that. In the year 2000, I moved out of the real estate development business and set up an internet dotcom. It was about 2004, the interest rates in India started coming down and the real estate boom really started happening in 2004. We had a fair amount of land at the time which the family, which my dad and grandfather had built up and so we went around, went about starting to develop these land parcels. I didn’t have the kind of exposure about management that I should have had. And what I realized later, what I did is I didn’t delegate, but I abdicated. And today I know the difference, the meaning of the two words, but if I look back, I abdicated. And when 2008 hit, we were not equipped and we had issues with delivery. We had issues with construction quality, and I had a bunch of disgruntled customers. So I spent the next sort of two to three to four years in kind of correcting things. I think at about 2010, 2011, that’s about the time when I actually stepped in into the role of the managing director of the company. We slowly started rebuilding and consumers started believing again and somewhere around that time is when we came up with the concept of the first version of ChildCentric homes, and that did well.

BRIAN KENNY: All right. Let me interrupt you there for a second and bring it back to Christina. You’ve looked at lots of family businesses. This is one of the things that you have studied both inside and out, because you’ve worked for them too. Tell us a little bit about the Gera family dynamic and this is a two-part question. And what’s it like being like someone in Rohit’s shoes, where you’re sort of following the founders and the founders are your father and your grandfather? Those are big shoes to fill. What’s the dynamic in a situation like that?

CHRISTINA WING: So, family business is complicated for so many reasons. And exactly what Rohit pointed out in his early twenties being left in charge is really not the perfect scenario, but in a family business, especially in India, that’s what happens. Family for the most part back then thought, “Well, the family member runs it.” What has been interesting about this family and this story is Rohit’s father, Kumar, didn’t want to work in this industry, but it wasn’t really a choice at his time period. And so what he did, which many other Indian families don’t do well is he really gave his three children the choice of whether they wanted to work in this business or not. He has a daughter now working in Paris in film. His other son is back in the business after about 20 years outside the business, but is doing it from San Francisco. So he’s really giving choice. What’s complicated here is he had three to choose from and one wanted to be there and that’s Rohit. Rohit has the oldest of the third generation, or we would really call it fourth generation in this case, and he just has one child. And so Diya who’s 26, it kind of falls more to her than his siblings’ kids who are 15 and younger.

BRIAN KENNY: Yeah.

CHRISTINA WING: So it’ll be interesting to see if Rohit continues the family tradition of you should pick what you want. So, that’s one big difference. The other big difference of this family in comparison to others is they have been much less focused on wealth accumulation and more focused on quality and brand. And you don’t see that a lot in any businesses, but you don’t really see that a lot outside of the United States.

BRIAN KENNY: Yeah. And I guess when you put your name literally on the product, the brand sort of takes on a new importance. Is that fair to say, Rohit?

ROHIT GERA: Oh, absolutely. eventually wherever you go and you see your name on the building and I actually face challenging moments right now. We have buildings which were done 50 years ago and some of them are not in the greatest shape. And the architecture it’s very basic from those days.

BRIAN KENNY: Yeah.

ROHIT GERA: It still has the name of the building on it. The name on the building. So it’s difficult sometimes with that when you look at it with that in mind, but it also motivates you to do that much better. And I think in that sense, that’s a great thing because it drives us all to focus on delivering, to focus on the product, to focus on the customer, because at the end of the day it’s our name.

BRIAN KENNY: Right, right.

CHRISTINA WING: But Brian, if I can interrupt here… what happens suddenly is as families see greater financial success, which now this family is coming into, then it becomes the question of, do people want money out of the company? These are private companies and in India, the most successful businesses are family-owned. So if you want to maintain ownership, but you also want money out, how does that happen? How does that work? Who’s in charge of that? So there’ll become a lot of other complications that are coming down the road to the Gera family.

BRIAN KENNY: Rohit let me come back to you because we’ve talked a lot about ChildCentric. Can you explain to us what it is? I love the concept by the way. And some of the exhibits in the case were great, with the photos and the email correspondence between the families that live in those developments. Tell us what is it? How did you come up with it and how is it going?

ROHIT GERA: Okay. So, I’ll answer the last bit first. It’s going fabulously well. The response we’re getting is just outstanding. So let me then cut to the beginning. I was reading a book about creating blockbuster products, and one of the things that I picked up, and that was, every product goes through a specialization. So somebody finds a niche and then comes and delivers a product for that niche. And then between two niches, you find a new niche, right? When I started thinking about real estate, there was socio-economic differentiation. So from affordable homes to luxury homes, right? single-family luxury homes. So there was socio-economic segmentation certainly. But in terms of any other sort of segmentation, the only specialization in product that was there, and that too was very nascent, was senior citizen housing. Now at about this time, with the Indian middle class doing really well, the young IT professionals looking at buying homes, people who are buying homes earlier, they were getting married later. And the home buying and the intersection of their families being formed, it was all happening at about the same time. So I started thinking, “Why can’t we create a product for this young, highly aspirational Indian family?” A lot of the people working in the information technology sector came from tier two, tier three towns and cities. And were moving in into the bigger cities in search of a better future for themselves. And therefore, they wanted a better future for their kids as well. That’s where the concept of ChildCentric homes really came about, right? And then we did some focus group discussions. I did version one of ChildCentric homes, actually. And it worked really well from a marketing point of view. But when I went back a few years later into those developments, we found that they weren’t working. And I’ll tell you what happened there. The product pillars that we decided to build ChildCentric homes on was safety. So you have to have a lot of safety features for the kids. Fun for the kids. So the playgrounds and all of that, right? Convenience for the parents and the fourth leg, which was the most important was development of the kids. So how can we provide development opportunities for the children in the housing development? So for that, in version one, we provided like the tennis courts and we provided the telescope on the terrace and the music room full of instruments. And that was all the hardware. When I went back to look at version one, we found that it wasn’t really working as we had emphasized because people just couldn’t find the coaches to run the music classes. And there were just disputes between people around organizing that and it wasn’t working. So when we went back and we did the research with the parents and with the customers, we realized that what they really need is not just the hardware, but also the software, which was the coaching academies to give their kids those opportunities. And through some of the focus group discussions, what we realized is parents were saying, “Listen, we send our kids far away. We hired a chauffeur just for sending the kids to these classes.” Right? One of the parents actually said, “My wife and I… Our elder son likes to play tennis. The younger one just got enrolled in tennis, even though he doesn’t like it. It’s just too much of a pain for us to actually figure out something else for the younger kid.” Right? Now, this was the situation. And we said, “So why can’t we provide the coaching academies on campus?” And they said, “Yeah, that’s great, but we don’t trust you as a developer because you’ll promise something. And we’ll get some B grade or C grade coaches. And we want to send our kids to the good quality coaching academy.”

BRIAN KENNY: Yeah.

ROHIT GERA: So the learning from that was, and what we went and did is we tied up with the best coaching academies in the country, which was set up by nationally-renowned people in their own field. So, our chess academy, for example, is run by an international Grandmaster. We have a cricketer who is the number one cricketer in the country. We have a musician, a singer who’s still at the top of his game. So, we have a tennis star who’s won in the doubles. He won a number of Wimbledon titles.

BRIAN KENNY: So you’re not just selling a home here, you’re selling a lifestyle experience.

ROHIT GERA: It’s an experience, exactly. So the whole differentiator, which you lead me to really well, is the differentiated isn’t just a product, but it’s a product with a service delivering a completely different experience.

CHRISTINA WING: If I can interrupt for a minute because I’m afraid our listeners might not understand this. It is really hard to move around Pune and the other cities that you’ve done this in. And so what you’ve done is giving back families time, where they can actually do a multiple of things. So sorry to interrupt, but I just wanted to give that context.

BRIAN KENNY: That’s important.

ROHIT GERA: Thank you. Yeah, that’s really important. And so, one of the focus group conversations that I was having… So we were trying to figure out when that was all fully baked and we said, “Okay, the final conversation with a group of parents is let’s try and figure out what we can charge for this new product.” And I got an interesting level of feedback from different people, 8%, 10% premium. And somebody came back and said 25%. So obviously you want to go to the outlier first, right? So, we asked him and he said, “Listen, all you guys are talking about saving money on gas. My chauffeur’s costs will be saved. It’s safe in the environment.” He says, “What you’re giving me the opportunity and what I’ll pay 25% for is the opportunity to participate in my child’s development. So I can go downstairs on a Saturday morning, watch my kid play tennis. And when he turns around and says, ‘Dad, did you watch that?’ And I say yes.” He said, “That is what you’re actually selling.” “The opportunity to engage in my child’s development.” And that’s priceless.

BRIAN KENNY: All right. So Christina, let me come back to you and just talk about… Here we are now, the business has landed on a great idea. Things are about to take off for them. This is about the time that the case sort of kicks in. What’s the dynamic here? And what are some of the things that Rohit has to start thinking about?

CHRISTINA WING: So Rohit really needs to be thinking about, is he going to double down in ChildCentric, and obviously India is quite large and this could be done in a lot of cities. And this could be what Gera becomes. If that’s the case, then are we both a development company and a service business, which is a differentiator right there? And the next question is kind of, are there barriers to entry of other people getting in? There are in the sense that you have to do this well. And so it’s going to become about a brand. So suddenly if he doubles down on ChildCentric, the brand of Gera will become synonymous with ChildCentric. And it probably could be exported to other countries and become global.

BRIAN KENNY: Yeah, that’s what I was thinking. I want one. I want to move into one.

CHRISTINA WING: Right. Trust me, and then you can capture the value of these customers in the next stage of their life. But the family has to decide, this is a family business. Do we want to be this big? Do we have that aspiration? And if we don’t, do we still have a great product and should have professionals come in outside of Rohit and the family and run it? And that’s a big decision and it’s hard to give up your baby.

BRIAN KENNY: Yeah. And tell me… Well, I could ask Rohit this, but I’m going to ask you since you’ve been sort of an impartial third-party observer. What’s the culture like at Gera and what would the team at Gera say about Rohit’s leadership style?

CHRISTINA WING: The team at Gera would say he holds on a little too tight, and he’s trying to get better at that. I think part of that is being in this role for 30 years. When you start at 22, it’s like starting on the floor of a factory, you can do everybody’s job. And so you actually know how to do things. I think what Rohit is getting better at doing is teaching his employees instead of just delegating. This is a tough business to be in for 30 years. You can almost go bankrupt at many different times and when you’re running it, and that’s where all the family’s money comes from, you’ve got to worry about your customers. You have to worry about your employees. You have to worry about the society. You also have to worry about your family shareholders. And that’s a lot of stress. So, to answer, I don’t want to use the big micromanager word because it drives Rohit crazy. I think he’s moving out of that, but not fully there yet.

BRIAN KENNY: Rohit you got a lot on your plate, it sounds like. I’m wondering, did you realize at the time that the case was written, would you have said, “Hey, we’re a business at the crossroads, we’ve got big decisions to make.” How are you thinking about this?

ROHIT GERA: So yes and no. I know that there’s big decisions, which we need to take, but fortunately I think some of the conversations are already going on in terms of how does wealth sort of move to the individuals in a much more meaningful way? The big decision I think is not so much from a succession point of view, but I think the big decision is the scaling up decision, because if we decide and if the family together, if we decide that we want to really ramp this up, then I think it’s only going to happen with bringing in a professional CEO on board very soon. I might do a few things to kind of get the growth momentum rolling, and then we bring a professional in, because certainly I think my daughter’s too young to step in and take things over. So I think that’s the big decision. It’s where do we go in terms of… Do we scale up? Is it in ChildCentric? It’s not so much the succession bit. If we are to stay at similar size, stay in one or two cities entirely managed by me, and I’m not motivated or driven to do that. I’m just excited about the future and what kind of opportunities we have before us to exploit, just given the kind of response that we’re getting from customers around ChildCentric.

BRIAN KENNY: So, Christina, let me come back to you. How difficult is it for somebody to be able to step into a situation like this and be an effective leader? Is it like organ rejection coming into a family business and trying to take over that role?

CHRISTINA WING: Yes. And I actually use the organ rejection phrase a lot. It’s really hard because even with the best intentions and if Rohit were to move out of the managing director seat and move into a board position, he’s still there and very present. And like he said, his name is on the buildings. His family has been in it for 50 years and he’s attached to the concept and the customers, I would say, not his seat, but still the delivery. And so it’s very hard. And in US companies, you find that 80% of succession in family business to an outside family member works if that person was sitting on the board before, so the family kind of got to know them. They knew the family and then the person moved in. It rarely is somebody from the management team moving up, it’s more of a lateral. In India, they don’t have boards with as many outside directors. And so that could be an avenue to pursue. Rohit is 52. So it’s not like this has to happen tomorrow, it’s more, does he have the energy and desire? It’s not an age thing.

BRIAN KENNY: Yeah. Yeah. Is this fairly common too? As you see in family businesses, they get to a certain point where the decision really becomes, if we want to scale, if we want to continue to grow, we have to look outside?

CHRISTINA WING: What happens in family businesses, we talk about it. I talk about it in three circles. There are the family dynamics, the family business if they own one, and then there’s the family office. If a family business does a good job of pulling some money out into a family office structure, that takes away the family pressure of every single thing has to come from the operating company. If those three circles are kind of all being watched and all have good governance, then the family business can move to professionals in a way that feels less threatening, because the family has a handle on the other things. If they don’t have those circles in place, it typically doesn’t work. And families end up selling the business instead of owning it, but not operating it.

BRIAN KENNY: Yeah. And we’ve seen lots of movies where that plays out and it’s usually pretty ugly, so.

CHRISTINA WING: It’s pretty ugly and the TV show “Succession”, I seem to be promoting it. But yes, it’s ugly.

BRIAN KENNY: This has been a great conversation. I have one more question for each of you before we let you go. And I’ll start with you, Rohit. You said you’re optimistic about the future. You certainly sound like you’ve got a lot of energy and passion for this still. What do you see as the biggest challenge going forward for Gera Developments?

ROHIT GERA: So I think the biggest challenge would actually come up if we decided to really scale this ChildCentric model up. I don’t believe that the sales and the marketing is going to be hard because I think the customers just love the concept. So I think it’s going to be the actual operational delivery, which is going to be my biggest challenge if we embark upon this ramp-up at the pace that I think the market will support.

BRIAN KENNY: And Christina, let me turn to you then and say if there’s one thing you want people to take away from this case to remember about it, what’s the big message?

CHRISTINA WING: So, the big message for me is that you can have excellent social productivity and make a lot of money. It’s a combination of development and services, and a lot of people don’t want to take that challenge on. And so what I want people to realize is if you take on the hard thing, you’re going to win, and you’re going to build trust with your customers.

BRIAN KENNY: I want to thank you both for joining me today for a great conversation.

CHRISTINA WING: Thank you.

ROHIT GERA: Thank you very much.

BRIAN KENNY: If you enjoy Cold Call, you should check out our other podcasts from Harvard Business School, including After Hours, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Thanks again for joining us. I’m your host Brian Kenny and you’ve been listening to Cold Call, an official podcast of Harvard Business School brought to you by the HBR Presents Network.

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