Keeping Your Family Business Entrepreneurial
18th May 2015
As well-established family companies become more distanced from their founding generation they sometimes struggle to maintain an entrepreneurial culture. Juliette Johnson discusses how and why this happens, and suggests strategies to encourage entrepreneurship and innovation in future generations.
Every family business starts with a great innovation, or a great entrepreneur - or both - but as these companies move away from their founding generation, keeping the entrepreneurial spirit alive can be a challenge. As time passes, the excitement and creative momentum built up in the early years can give way to mindsets more preoccupied with safeguarding what's been achieved rather than exploring new risk-taking opportunities.
This cycle is not inevitable - and indeed I know many family businesses that are more entrepreneurial in later generations than in their first - but what is clearly true is that, as time goes by, families need to work harder in order to keep their entrepreneurial culture alive and to make sure an enterprising business philosophy stays near the top of the family's agenda.
Entrepreneurial culture - the challenges
As with many family business issues, understanding what's happening and why is often the first step to thinking about solutions. A variety of factors can weaken entrepreneurial culture over time:
- Comfort with the status quo. Some well-established family companies can become introverted and resistant to change. A good idea may well sustain a family business for many years, but at some point circumstances will change, threatening the survival of inflexible, unresponsive firms.
- Risk aversion. Some families with successful businesses avoid risk because they feel they have more to lose - both financially and emotionally. They become overly focused on the role of commercial caretaker, acting as a steward to protect the business for future generations.
- Fear of failure.Growing up in the shadow of strong, driven personalities (especially business founders) can be a turn-off for young people. They shy away from developing ideas and taking risks for fear of not living up to the enormous success of previous generations.
- Too little hunger for success. Younger family members, brought up in a world of wealth and privilege, may lack the incentives that galvanised earlier generations.
- Protecting the brand. The next generation can be discouraged from using the business as a springboard for new entrepreneurial ventures because it might risk impacting the family business brand.
- Too much bureaucracy. In some older businesses, family governance - the rules and structures required to regulate the family's relationship with their business - can become cumbersome and top-heavy, stifling individuality and creativity, and raising the bar impossibly high.
Successful business families recognise and anticipate these challenges, and take timely steps to address them.
Sustaining an enterprising culture
Many families invest time and resources preparing their next generation for responsible ownership of the family business - yet, surprisingly, supporting entrepreneurship rarely features in this thinking. It's important to provide the tools for younger family to learn about business and finance in a practical way, and to be given opportunities to develop new ideas. Regular family discussion about prudent risk-taking should be part of a programme designed to keep entrepreneurship and innovation at front of mind.
The last challenge in our list above - making sure family governance doesn't stifle creativity - raises important issues. Rules governing the family's interactions with their company are of course vital in reducing the chances of inappropriate family behaviour and emotions being played out in the business. But while sound governance is important, families must avoid rules that start to inhibit individuality or hinder the development of family talent.
There are no hard and fast rules here, and every family must work out their personal solution to ensuring that governance helps to support measured risk-taking in the next generation. Ideas include defining in your family constitution how entrepreneurship relates to your family's vision and values, and making sure your governance rules treat young family members as individuals by catering for their different interests and abilities. Seek out ways to support their aspirations and entrepreneurial potential, both within the family business and through diversification outside it, keeping them interested and engaged, and offering opportunities for family members to stretch themselves.
Strategies to foster family business entrepreneurship
Growing up in a family business environment should help to put entrepreneurship in the blood of the next generation. Start from a young age, talking regularly around the dinner table about family business ventures and risk-taking. Some families shy away from this, fearing accusations of undue influence or worried they will mismanage expectations. But thoughtful, age-appropriate discussions about real risk-taking experiences, successes and failures, both from your own family business and examples from the outside world, can be effective in getting the next generation thinking about entrepreneurship.
And as the children get older, be sure to make the most of family business resources - not just access to finance, but also to HR and financial expertise both within the company and outside. Invest in educating the next generation, teaching them to evaluate opportunities and to develop business plans for potential new ventures. Many successful families focus on providing opportunities for calculated risk-taking, setting up ring-fenced venture capital or private equity vehicles as a training ground for future owners.
There are many ways for families to encourage entrepreneurship and develop the skills of the next generation. But a word of warning about the balancing act here - too much support and the younger generation won't feel pride in what they've achieved, but too little and you risk them becoming discouraged or unable to take advantage of the family business springboard. Family support is especially important when projects fail, as sometimes they surely will - setbacks are learning opportunities,neverthe justification for blame.
Family businesses can take advantage of their flexibility and long-range thinking. They can maximise the opportunities for the younger generation to be creative and to contribute to family wealth both inside and outside the business. Not only can this lead to success for the family as a whole but can also provide personal fulfilment and challenge for individual family members who may not fit the traditional model of entering the family business and working their way up.
The families who are most successful at sustaining an enterprising culture bring this subject to the top of the agenda and engage in a restless search for new ways to encourage next generation business dynamism. What are you doing to encourage entrepreneurship in your next-generation?
Juliette Johnson is the Founder of Juliette Johnson Consultancy, and a Member of the IFB Advisory Council.