Family-owned businesses do not have to be conservative or lack innovation. It can have multiple benefits. Adopting an entrepreneurial culture within a family business can be an excellent way to grow the business, diversify risk, reduce tensions between the different generations and bring the young into the business. It can engage and excite the interest of the family again.
"It is not the most intellectual of the species that survives; it is not the strongest that survives, but the species that survives is the one that is able to adapt to and to adjust best to the changing environment in which it finds itself" Charles Darwin in his “Origin of Species.”
Many entrepreneurs receive their first round of funding from family and friends, but can also obtain it from family offices or family-owned businesses. Family businesses are well-placed to nurture and capitalise on the abundance of opportunities that exist and also help support the next generation with some of their entrepreneurial ideas within the safety of the family business compound. Look back at how the Rothschild family so successfully supported and nurtured their next generation.
When we talk about ‘adopting an entrepreneurial culture within a family business’, the outcome can take several forms. The business can launch a new business itself, invest in somebody else's other startup or it could actively experiment internally with new innovative products, services or markets. Very few family businesses survive without innovating and changing.
Here are a few good reasons why family businesses should develop an entrepreneurial culture:
Accommodating different aspirations
We hear it talked about how the 'millennials' have different aspirations, values, goals and desires. Remember they are growing up in a very entrepreneurial world where some of the largest companies in the world did not even exist when they were born. Also where failure is no longer seen as a bad thing, but more of a learning process.
We hear how so many founders or patriarchs and matriarchs or family councils would like to see the next generation work in the family business but do not always understand why they do not. Loyalty and duty in the 21st century mean something entirely different for the 20th century. The young want and are much more able to do their own thing nowadays. They have much more freedom of choice. Are you giving the next generation SCARF?
This definition of loyalty can often lead to conflict within a family business and can even lead to the next generation of a family choosing never to join or worse, leave shortly after entering the business to pursue a different career, ambition or passion. This can often leave the family business high and dry when it comes to succession.
Nurturing smaller innovative projects within a business can often be a good compromise. Members of the next generation can plan, launch and manage a new product, service or brand, or target a new market, without putting the original business at risk. At the same time, they can be entrepreneurial, learn new skills, get some experience and even provide the business with possible new sources of revenue.
Migrating the family business into the digital age
There is more to e-commerce than creating a web-based shopfront. E-commerce introduces new ways to test products and marketing strategies by gathering data and then using that data to optimise the strategy, user experience or price.
Many businesses will soon have to embrace some form of digital platform to remain competitive. A low-risk approach to doing this is to launch a digital platform as a distinct business unit, and then migrate the rest of the business onto the platform when the model has been proven. The next generation can often grasp this technology much faster than the older generation.
Owning the social piece
The next generation are increasingly concerned and vocal about social issues and how businesses should respond to them. This applies to younger customers, staff and family members. It’s something that the next generation within any family business can take the lead on. Even doing so on a small scale can help a business keep in touch with the market of the future.
New businesses are often lean and nimble businesses, due to the lack of funding and therefore adapt and adjust their strategy quickly as they learn from their successes and failures. This flexible approach can bring a new dynamic to an old family business. If a business sticks dogmatically to its five-year plan, as approved by the board and family council, it may take too long to become apparent that the strategy isn’t working.
If some newer parts of the family business are operated with a more flexible strategy, then this can be fed back into the main business. New opportunities and potential risks can be identified quickly, and the business can adjust course accordingly.
Diversify risk and deploy capital where it will grow
While Warren Buffett is best known as an investor, his success can also be attributed to his skills as a capital allocator. He manages a portfolio of hundreds of businesses and moves capital amongst them – always to the businesses with the best growth prospects.
If a family business is seen more like a Family Enterprise where it manages a portfolio of businesses, capital can be allocated where risk is lowest and growth opportunity highest. The reality is that not all companies can grow forever.
Ultimately, new businesses are flexible businesses that test ideas as cheaply as possible, quickly killing those that don’t work and building on those that gain traction. This organic approach to a family business can be invaluable and prevents it from getting stuck in a rut. It also happens to be a very effective way to accommodate the different aspirations of the next generation.
Try it, and the future might look bright
If you found this article interesting and think that you might need help implementing such a strategy, then we would be delighted to help. Please contact us