Ethiopian Family Business Survey 2025

Note from the CEO

Dear Stakeholders,

I am delighted to announce the release of the 2025 Annual Family Business Survey Report, a critical study that sheds light on the dynamics of growth, innovation, and governance within Ethiopia’s family-owned enterprises.

Family businesses are the backbone of Ethiopia’s private sector, contributing significantly to job creation, innovation, and long-term economic stability. Recognizing their importance, HST launched the Ethiopian Family Business Forum (EFBF) in 2023 as a dedicated platform to support and strengthen family enterprises in Ethiopia. The inaugural forum initiated a national dialogue on the unique challenges and opportunities facing these businesses, followed by the 2024 forum, which introduced the first national family business survey. Building on this momentum, the 2025 forum continues under the theme “Embracing Change for Growth and Innovation,” focusing on governance, innovation, and growth to ensure family businesses remain resilient and future-ready.

Building on our 2024 benchmark survey, this year’s report examines how family businesses are navigating a rapidly evolving market environment. Their strength lies not only in their enduring commitment to values and traditions but also in their growing ability to adapt, innovate, and professionalize their operations. The report draws on insights from Ethiopia’s dynamic family business community, highlighting key themes such as growth trends, innovation practices, investment in research and development, the role of independent governance, and strategic planning for sustained and accelerated growth.

The findings reveal encouraging progress from increased adoption of digital tools and openness to new financing options, such as the Ethiopian Securities Exchange (ESX), to greater next-generation involvement in leadership and innovation. These developments reflect a gradual but meaningful transformation toward stronger governance and sustainable growth.

We hope this report serves as a valuable resource for family enterprises striving to thrive in an evolving business landscape. I extend my sincere gratitude to all participants and partners whose insights continue to shape the future of family businesses in Ethiopia.

Warm regards,

Solomon Gizaw | Chairman and CEO, HST

Introduction

Family businesses play a vital role in economic development, contributing significantly to employment, wealth creation, and local entrepreneurship. Within this context, growth refers to the expansion of financial performance, market reach, innovation, and leadership while sustaining family values and legacy. Innovation involves adopting new ideas, technologies, or processes to drive growth, improve competitiveness, and ensure long-term success. Both growth and innovation are key drivers for long-term sustainability and resilience of family businesses.

This report presents the findings of the second annual survey conducted by HST on Ethiopian family businesses, focusing on growth and innovation. It builds on the first benchmark survey in 2024, which examined governance and succession practices. The commitment to conducting these surveys annually is designed to create a cumulative, time-series resource. By collecting data from the Ethiopian family business landscape each year, we can systematically track the sector’s evolution and emerging trends.

This sustained effort transforms the reports from single snapshots into an invaluable, longitudinal reference point for strategies that address barriers and support the sustainable development of family enterprises in Ethiopia, providing evidence-based insights for both current business leaders and future academic studies.

The Ethiopian Family Business Forum (EFBF) provides the platform through which these insights are shared to deepen understanding of the family business ecosystem and inform both business leaders and policymakers. Through annual surveys and forums, the Forum seeks to highlight practices that enhance the continuity, competitiveness, and long-term sustainability of Ethiopian family businesses.

This second survey examines growth trends, innovation practices, and the role of the next generation in Ethiopian family businesses. Based on responses from 32 businesses, it highlights key strengths, challenges, and areas for improvement to support sustainable growth and continuity across generations.

Methodology

A cross-sectional survey was conducted to gather primary data from Ethiopian family businesses. The questionnaire was distributed online using Microsoft Forms, allowing respondents to complete it at their convenience. A total of 32 family businesses participated, providing a sample sufficient for descriptive analysis and meaningful insights into sector trends.

The survey included Likert-scale, ranking, and multiple-answer questions to capture perspectives on business growth, innovation, governance, and challenges. Data cleaning and coding ensured accuracy, including separating multiple-answer responses and assigning numeric values for analysis.

Analysis focused on frequencies, percentages, and descriptive statistics, with additional synthesis examining relationships between key variables, such as generation and innovation, governance and innovation, and governance and family involvement. This approach allowed identification of patterns, strengths, and challenges across respondents, providing a comprehensive overview of Ethiopian family business practices.

Results and Discussions

Overview

The survey included 32 Ethiopian family businesses across diverse sectors. The participants represent a mix of industries, years of operation, business sizes, and generational stages. Understanding this profile provides context for interpreting the growth and innovation findings. Most respondents operate in manufacturing (22%), retail and wholesale (16%), and trading (import and export, 15%). As shown in the figure below, this distribution reflects the diverse nature of the Ethiopian family business landscape.

Sector Distribution

More than half of the surveyed businesses (53%) have been operating for over 20 years, while 28% have been active for 10–20 years. And a majority employ over 100 staff, indicating a relatively mature and structured group of businesses. In terms of generation, the sample is dominated by first and second-generation firms(56.3% and 34.4% respectively), with varying levels of family involvement from full family management to shared leadership with professionals.

Generation

Family involvement in Business management

This profile indicates that the survey captures both long-established and younger family businesses, predominantly in manufacturing, retail, and trading. The mix of employee size and generational stages provides a representative snapshot of Ethiopian family businesses, sufficient for descriptive analysis.

Growth Strategies and Performance

Growth refers to the expansion of a business’s operations, market presence, and revenue over time. The survey examined respondents’ perspectives on factors driving or hindering growth. Most respondents perceived steady business growth and profitability over the past five years. Many noted increased revenues, reinvestment of profits, and growing use of digital tools to enhance operations. Profitability remains a key focus, reflecting the traditional stability-oriented approach of family enterprises.

However, diversification and succession planning received less attention, suggesting that growth strategies remain largely organic and internally driven. While some firms benchmark against competitors, the practice is not yet widespread.

Respondents identified business expansion (30.8%), technology adoption (27.7%), strong governance and leadership (24.6%) and access to external finance (13.8%) as the main factors driving growth. In contrast, investment in R&D was less significant.

Key factors driving business growth

On the other hand, the main challenges limiting growth are largely concentrated in four areas: limited access to finance (21%), high operational costs (19%), regulatory constraints (19%), and talent shortages (19%). Leadership or succession planning issues (12%), competition from non-family businesses, and family conflicts played a smaller role in limiting growth.

The data below is shown in percentage %.

Overall, the findings indicate that surveyed Ethiopian family businesses are progressing in growth and digital adoption but need to strengthen strategic planning, diversification, and succession readiness to sustain long-term expansion. Financial, talent, and policy constraints continue to be key barriers to sustained expansions.

Financing Growth

When asked how they financed growth over the past five years, respondents indicated a strong reliance on retained earnings, reflecting the typical self-financing nature of family businesses. Bank borrowing was also used to a moderate or large extent by many, which suggests a growing but still cautious engagement with external financing.

In contrast, corporate debt, equity financing, and grants or incentives were used to a very limited extent. The minimal use of equity and grants suggests both a preference for control retention and limited awareness or access to alternative funding channels.

Family businesses primarily depend on internal funds and traditional borrowing.

Overall, the findings reveal that the businesses primarily depend on internal funds and traditional borrowing, indicating limited diversification in financing sources. While this approach ensures control and stability, it may ultimately constrain the potential for accelerated growth and innovation in the long term.

To overcome limited access to finance, respondents plan to reinvest profits (23.5%) as their primary strategy. Following closely, they are equally exploring three significant external solutions: seeking private equity with a minority stake (20.6%), considering access to public finance by listing on ESX listing (20.6%), or merging with similar businesses within the sector (20.6%). A smaller portion (14.7%) may use private equity with a majority stake. This data suggests that while family businesses favor internal financing to maintain control, a substantial segment is actively open to external, non-traditional solutions to support accelerated growth.

Finance Plan

Innovation in Family Businesses

Innovation involves the introduction of new products, services, processes, or business models that enhance competitiveness. The survey collected data on the adoption of innovative practices across the participating businesses.

The results show that 66% of firms reported placing high or moderate emphasis on innovation, signaling an awareness of its importance in sustaining business performance. However, investment in structured R&D remains rare, with 50% of firms not investing and another 25% relying on informal management or outsourced R&D activities.

Over the past five years, businesses pursued a range of innovation types, with product/ service innovation (30%) being the most common, followed by process improvements (23.3%), business model adjustments (20%), and technological innovations (18.3%). Regarding the source for these changes, innovation is primarily driven by senior leadership (31%) and family members (27%), highlighting an internal, top-down approach. Employees at different levels (16%) and customer feedback (14%) play a lesser role, and the involvement of external advisors remains limited.

Types of Innovation implemented in the past five years

When benchmarking their innovation pace against industry players, the majority of family businesses indicated a cautious or slow approach. A combined 71.9% reported their innovation pace as either slow (struggling to innovate compared to industry standards) or unchanged (merely keeping up with industry trends). Conversely, only 15.6% stated they have a fast pace of innovation. The remaning 12.5% were unsure of their comparative pace. This finding suggests a significant challenge in translating family commitment into a competitive, market-leading, innovative edge.

Investment in innovation remains generally limited and highly focused on capacity-building. Only 44% of businesses invest in innovation, primarily through employee training and development and partnering with external experts. Crucially, structured financial support is low, with only 5% allocating a dedicated budget for Research and Development (R&D). This focus indicates that innovation efforts are currently prioritized as a human capital expenditure rather than a dedicated, financially backed strategic commitment, a factor likely contributing to the slow comparative innovation pace observed across the sector.

Innovation culture and barriers in family businesses

Innovation Culture

The survey explored how Ethiopian family businesses perceive and integrate innovation into their organizational culture. A majority of respondents perceived innovation as essential to their business (79%), reflecting strong awareness of its importance. Similarly, most respondents agreed that innovation can build on rather than replace traditional practices (69%), suggesting that many businesses view innovation and tradition as complementary rather than conflicting forces.

However, structured mechanisms to support innovation remain limited. Only 25% reported having measurable indicators, and 31% indicated a structured process for innovation, showing that while innovation is valued, it is not yet institutionalized in most firms.

Collaboration with external experts is also relatively weak, indicating that most family businesses still rely on internal efforts rather than partnerships or external knowledge sources. The involvement of young family members in driving innovation appears moderate, with around one-third recognizing their influence, but half of the firms remain neutral, suggesting that generational transition in innovation leadership is still evolving.

Overall, the findings suggest that the surveyed family businesses embrace the innovation conceptually but lack formal systems to support, measure, or sustain it. The culture is driven largely by leadership enthusiasm rather than structured processes or collaboration, pointing to an opportunity to institutionalize innovation through deliberate governance, measurement, and next-generation engagement.

Family businesses embrace innovation conceptually but lack formal systems to support, measure or sustain it.

Barriers to Innovation

While most Ethiopian family businesses recognize innovation as important for long-term competitiveness, several internal and external barriers continue to hinder progress. The survey explored the extent to which various factors constrain innovation.

The survey revealed that limited financial resources are the most significant barrier to innovation among family businesses. Many firms rely on internal funds and cautious borrowing practices, which restrict their ability to invest in research, technology, or product development.

Regulatory challenges, market competition, and knowledge gaps were also perceived as moderate barriers. Complex compliance requirements and limited innovation management skills hinder experimentation and a structured innovation process. Uncertainty about the financial return on innovation further discourages investment in new initiatives.

In contrast, resistance to change and family conflicts over ideas were seen as relatively minor obstacles. Overall, while the culture around innovation is improving, addressing financial, regulatory, and capability-related constraints remains essential to unlocking the sector’s full innovation potential.

Limited financial resources are the most significant barrier to innovation among family businesses.

Next generation involvement in innovation

The involvement of the next generation in driving innovation shows a clear divide. A significant portion of firms (47%) reported that the next generation’s role in innovation is ‘not yet determined,’ reflecting the prevalence of first-generation businesses still defining their succession and engagement structures. Nevertheless, a promising one-third (31%) indicated moderate to high engagement, showing early signs of intergenerational collaboration and shared leadership in the innovation process. This indicates intergenerational collaboration and shared leadership in innovation.

According to the Global Family Business Report 2025, firms with strong next-generation involvement outperform their peers by up to 43%, underscoring the potential benefits of this trend.1

Within the surveyed group, second-generation firms display higher levels of innovation, with 64% adopting moderate innovation practices. First-generation businesses are more evenly distributed between limited and moderate innovation, suggesting successors tend to be more open to new ideas, even though later-generation examples remain limited in number.

64% of second-generation family businesses adopt moderate innovation practices.

Governance and Risk Management Practices

Governance

Governance plays a crucial role in ensuring accountability, transparency, and long-term continuity in family businesses. While the survey reveals positive steps toward managerial professionalism—with most businesses employing CEOs and CFOs—a significant structural deficit in governance persists. This suggests an imbalance where operational management is strengthening, but broader oversight remains underdeveloped. This imbalance is reflected in the finding that only 28% of respondents reported having an independent governance structure, leaving 72% lacking a formalized oversight framework.

Governance practices remain underdeveloped, and risk management is largely informal.

This structural gap is deeply rooted, aligning closely with the HST 2024 survey findings which established major deficiencies, including that 85% of businesses lacked a family council and 81% had no formal succession plans.2 This sector-wide and persistent gap underscores that while family businesses are hiring professional managers for daily operations, the formalization of independent governance is the area requiring urgent attention to ensure accountability, transparency, and long-term continuity.

72% of respondents lack a governance structure.

The cross-sectional analysis strongly indicates that independent governance structures are a catalyst for higher-level innovation within Ethiopian family businesses. The data reveal that firms with an Independent Governance structure are significantly more likely to be highly innovative (33.33%) compared to those without (21.74%).

The data demonstrates that formal governance not only supports continuity (as found in the 2024 survey) but is also a structural prerequisite that moves family enterprises beyond traditional practices toward a strategic, market-leading approach to growth and innovation. Global evidence reinforces this link: the KPMG 2025 Global Family Business Report found that 67% of high-performing family businesses had formal board structures.

Another cross-sectional analysis between governance and family involvement in management indicates that the presence of an independent governance structure strongly correlates with a more professional and balanced management model. In businesses lacking independent governance, management is almost entirely family-driven, with 52.17% being fully family-run and 43.48% partially involved.

Crucially, the establishment of independent governance appears to introduce balance, resulting in a near-perfect split across management styles: 33.33% Full, 33.33% Partial, and 33.33% Limited involvement (mainly non-family management). This demonstrates that formal governance does not displace family leadership but rather acts as a mechanism to professionalize the firm by integrating and accommodating a more diverse range of non-family executive expertise.

Risk Management in the Family Business

Effective risk management is essential for ensuring the resilience and continuity of family businesses. The survey shows that most respondents have a moderate (44%) or low (28%) risk appetite, with only 28% demonstrating a high tolerance for risk. This balanced approach reflects the cautious nature of family enterprises, prioritizing business stability over aggressive expansion.

Family Businesses’ Risk Appetite

When asked about the key risks threatening growth and innovation, respondents ranked economic downturns, regulatory changes, and market competition and disruption risk among the top three concerns, followed by challenges related to capital or investment, talent retention and succession challenges, and family conflicts. These results suggest that both external market pressures and internal structural issues influence business sustainability.

In terms of preparedness, 56% of firms manage risks on an ad-hoc basis, while 19% have no strategy in place. Another 19% reported having a risk management strategy but managing it informally, and only 6% have a clear, structured framework. To address risks, most firms rely on diversification (37%) and crisis response and business continuity planning (37%), while fewer conduct regular risk assessments and audits or apply family governance measures.

Risk Management Strategy

The data below is shown in percentage %