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Intergenerational Entrepreneurship: Rejuvenating Family Business

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The new generations tasked with leading family businesses must surpass a major hurdle: coming up with innovative processes to make their organizations competitive. It is a matter of life or death for these companies, which play a vital role in the economy due to the value they bring.

As the younger generations start taking over family businesses, new strategic decisions can be made to address a common challenge facing this sector: preserving the entrepreneurial spirit of the founder while updating the company’s processes, partners, technologies and products. These types of decisions can rejuvenate an organization so it can adapt to the business needs of today and compete head-on with its market rivals.

The evolution of family-owned businesses at the global level shows their importance in terms of creating jobs and wealth in the areas where they operate. They have contributed to local development, despite having to get past their fair share of obstacles. For the most part, they all run into the inevitable challenges that come with the generational changing of the guard—challenges that other types of organizations don’t have to face and are handled differently, based on the profile of each incoming generation.

 

New actors, new ventures

Defined by the founders’ legacy, family-owned businesses are passed on to a new type of leaders, who often have a different vision from that of their forebears. These younger entrepreneurs are known for their strong desire to achieve, their ability innovate to improve the current state, and their aspirations for major growth. They are also somewhat expected to bring a kind of “creative destruction” aimed at overhauling production processes to increase competitiveness.

With their mindset, it’s all about the short term. But they also have a clear long-term vision when focusing on ambitious goals. If there is one trait that defines successful entrepreneurs, it is their obsession with results and the feeling that there is always a new challenge to overcome. In this highly demanding atmosphere, outside administrators could be brought in by the company. In many cases, the wise option is to delegate to professionals outside of the family.

 

Family values, an important asset (for better or worse)

One of the means of survival in the market is innovation. However, family-owned business has a real purpose that serves as the foundation for most of its endeavors: family values. For better or worse, these values light the way for any organization, although many have had to put them aside as they were detrimental to the business or inhibited growth.

Still, for successful companies, starting with the founding generation, these values have been the main asset, representing a historical legacy full of rich anecdotes and memories from everyone who helped to grow the business. Values such as: autonomy, innovation, risk management, productivity and courage. Drawing on these foundations, the current and future generations have had to promote this entrepreneurial spirit. This rejuvenation process may involve some of the following steps:

  • Provide training workshops for all members of the family on how to start a company and create a business plan, trusting that they will see the light in the future of the organization itself.
  • Organize forums and internal debates to give way to innovative ideas, with a commitment to support the prevailing initiatives.
  • Promote internal entrepreneurship programs, identifying potential family members who may stand out for their talent.
  • Start a seed capital fund that is dependent on the board of directors and made up of members from outside the family.
  • Create a holding company to invest in new projects. This could entail the search for new investment partners outside the company.

In many cases, the wise option is to delegate to professionals outside of the family.

Common mistakes

Despite all the above, this process of transmitting knowledge and values also leads to mistakes that are seen all too often in the realm of family-owned business. These mistakes occur in three situations: in conflict management, not knowing how to deal with problems; in the process of preparing a family protocol, copying models from another company; and in developing the strategy, not having the necessary capacity to create a strategic plan.

To manage these situations, first and foremost the members must create a protocol, so everyone is clear on the rules of the game. For this task, it could be helpful to have an advisory committee formed by independent professionals.

In using this protocol, conflict resolution may become more manageable. In any case, the process is more important than the content itself, since it is a time for everyone to learn how to negotiate in a healthy way by identifying the boundaries and distinctions between the business, family and shareholders. Finally, developing the strategic plan will depend on the relationship between these three agents.

Overcoming these challenges and ensuring the rejuvenation of the business is not an easy task; it is certainly not an overnight process. However, it is paramount to the survival and development of family-owned businesses. After all, in addition to making money, the people involved with these businesses have far greater motivations: they look to create value in the economic and social realms.

 

Emprendimiento intergeneracional eng - Recuadro

 

Enrique Ogliastri, Professor of negotiation, family-owned business and strategy at IE Business School.

© IE Insights.

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