How to find the right balancing between innovation and tradition through an entrepreneurial philosophy
How do multigenerational family businesses manage to stay successful and relevant? An entrepreneurial attitude and a spirit of invention are often what brings a company into being in the first place, and are what maintains its success. However, after huge time spans, sometimes hundreds of years, how can companies move with the times without destroying what made them successful in the first place?
Entrepreneurship is typically in the DNA of the businesses that last for many generations, and cultivating this mindset is key to success. But it isn’t always easy to sustain performance and keep improving when the bar is already set very high. The next generation faces the pressure of not only living up to the previous generation’s expectations, but also the desire to not let the company or the family down. This can lead to a lack of engagement with the family company, or even breaking away altogether.
There are a number of reasons why it is difficult to sustain innovation in a family business that is faced with the often conflicting challenge of both continuing the legacy and building upon it. These include:
- Fear of failure: when success has come naturally in the past, trying something new is scary. Trying to change anything comes with risks, and one of them is the risk of failure. Add to this the inherent dynamics in family relationships, and the trepidation in challenging or disagreeing with one’s elders, and it is clear why fear is one of the greatest stumbling blocks to innovation
- Evolving from the status quo: sometimes starting from where you are can be more difficult than starting from nothing, and this is one of the key challenges in developing or sustaining a culture of innovation, the desire to not throw out the old to create the new
- Sense of complacency: when a company has always been successful, it is hard to imagine a world in which this will not be true. For a business that has been in existence for generations, the pace of change in the modern world can take them by surprise, and even some big names have gone by the wayside in recent years. However, once the potential for complacency has been acknowledged and a desire to evolve is clear, complacency can be addressed through appropriate actions from all generations of the family working together
- Lack of priority: sometimes the operational activities of a business simply expand to take up all the time that is available. This can be particularly true when operating in times of crisis, such as the pandemic, when the safety of workers and the ability of the company to operate with a disconnected workforce take precedence over change and improvement. It is only by including innovation as an item on the agenda that it will get any mindshare
- Lack of clarity: many companies, particularly those that have been established for generations, have a desire to innovate and change as a response to an evolving world and changing customer demographics, but just don’t know how to get started. This is where the younger generation can be invaluable in bringing new ideas and approaches to the table, but rather than requiring a leap of faith from the older generation, this is where a rational, sustained framework for engendering innovation is required
This framework for innovation and entrepreneurship is what is lacking in a number of companies. Even where the older generation is aware of the need for change, and wants to support and encourage this change, the right framework has not been established.
Companies tend to take one of two approaches.
- At one extreme, they try to develop a detailed programme for the next generation to follow, but they do not involve that generation in the development of the framework, and they micromanage its implementation, so it is doomed to failure from the start.
- At the other extreme, they simply leave the next generation to figure it out on their own, which leads to a range of problems including disconnect, confusion, and in turn failure.
So what does an appropriate entrepreneurial philosophy, designed for success, look like? There are four key pillars, which together form a balanced framework. This means that it is essential to look at the whole picture and execute well on all of them, not just excel at one or two of them. Successful family businesses build a balanced approach across these four foundational pillars, which are stories, structures, support and space.
- Stories need to be well communicated, between generations and within generations. There is no such thing as an ‘overnight success’, and in fact the myth of such success, established as folklore within the business, can actually cause more harm than good, as it can further exacerbate a fear of failure. The hardship before the success should be included in the storytelling, rather than glossed over. The lessons learned from failure can be communicated, as well as the understanding of what actions and changes led to success. Stories do not necessarily need to be written up and communicated formally, and indeed informal storytelling is intrinsic to families, their dynamic interactions and their interpersonal relationships. So family businesses are particularly well placed to be successful in establishing and maintaining this foundational pillar.
- Structures need to be established before they are actually needed. There should be clear, well-defined and well understood expectations for behaviour, for communications, and for what constitutes success. Cross-generational dialogue, as well as dialogue within generations, is essential to help engender conversations about not just overall goals, but also to ask questions about how the company can support entrepreneurship and whether the company is all in agreement with regard to wanting to be entrepreneurial, as well as discussing how expectations are different across generations. Involvement in, and input to, the appropriate structures will result in increased engagement across all generations of the family, which will in turn lead to strength in the entrepreneurial approach.
- Support is about more than money, and involves a number of non-financial ways in which previous generations can use their experiences to help the next. It is about helping the next generation test the viability of their ideas beyond immediate family and ascertain who in a wider market is likely to be interested. It is about using the legacy of the company business to introduce the next generation to experts that can help. However, an essential part of support is also about recognising that what worked for one generation will not necessarily work in the environment in which the next generation is operating, and differentiating between support and micromanagement.
- Space is essential for entrepreneurship to thrive. The next generation needs to be free to explore and venture beyond what has already been done, with permission to fail, rather than trying to innovate in a culture where failure is not an option, or worse, punished. Stories can also play a role in generating space, in that if the next generation knows the previous one failed before succeeding, this provides them with more of a sense of freedom than thinking they have to build on a legacy of success after success.
With these four pillars in place, the organisation needs to understand how to measure and improve upon their entrepreneurship. A scorecard is useful for this, with different members of and generations of the family assigning not only a score to each of several dimensions, but also explaining why they assigned that score. The scorecard can contain three possible results for each attribute: green when this is in place and operating successfully, yellow when it could be improved, and red when it has not been addressed at all, or where it has failed in the past. Typical questions such a scorecard could address include:
- Does your company share real stories about entrepreneurship?
- Have you established structures for what and how family resources will be provided to aspiring entrepreneurs?
- Do you test for viability of business ideas before proceeding?
- Do you offer benefits beyond money to support family entrepreneurs?
- Do you give boosts without micromanaging the next generation’s entrepreneurial endeavours?
- Do you provide space to aspiring entrepreneurs to pursue their interests outside the family business?
- Do you provide family ‘intrepreneurs’ with breathing room?
- Do you allow family members to fail?
The scorecards, when compared between different generations and different family members, should be used not for judgement, but for ongoing conversations, to help keep the company aligned and moving in the direction that everybody is agreed upon, whatever entrepreneurship looks like in the business.
With a multigenerational family business, an entrepreneurial philosophy is not just about accepting responsibility, but also about assuming it. A well-developed framework for entrepreneurship, with all four pillars firmly in place, can help enable and cultivate an entrepreneurial drive in the next generation. A balanced scorecard can be used on an ongoing basis between and within generations to revisit the framework, make sure it remains fit for purpose, and ensure that innovation and entrepreneurship can help even a longstanding company continue to stand the rigours of time.