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March 1, 2024

A Simple Innovation Blueprint for Lasting Family Business Entrepreneurial Success

In the fast-paced world of business, multigenerational family enterprises stand as pillars of endurance and adaptation. With each passing generation, these businesses evolve, leveraging innovation and entrepreneurial spirit to stay relevant amidst changing times. Yet, the journey to sustained success is riddled with challenges, demanding a strategic approach to innovation and excellence. From navigating generational dynamics to fostering an environment conducive to innovation, it is key to understand the essential components that drive entrepreneurial success.

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 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.

Challenges Generational Families Face

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.

  • Fear of failure: when success has come naturally in the past, trying something new is scary. 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 around for generations, the pace of change in the modern world can take them by surprise, and even 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 with 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. It is only by including innovation as an item on the agenda that it will get any mindshare

Developing an Innovation Framework

A framework for innovation and entrepreneurship is lacking in a number of companies. Even in cases where the older generation is aware of the need for change and wants to support this change, a purposeful framework has not been established.

Companies that skip establishing a framework 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.

  1. Stories need to be well communicated, between and within generations. There is no such thing as an ‘overnight success’, and in fact the myth of such success, can 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. In fact informal storytelling is intrinsic to families, their dynamic interactions and their interpersonal relationships. So family businesses are well placed to be successful in establishing and maintaining this foundational pillar.
  2. 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.
  3. 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.
  4. 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 their entrepreneurship. A scorecard is useful for this, with different members of and generations of the family assigning a score to each dimension and 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.

Here are sample questions this scorecard could address:

  • 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 ‘intrapreneurs’ with breathing room?
  • Do you allow family members to fail?

The scorecards, when compared between different generations, should be used for ongoing conversations, to help keep the company aligned and to continue the momentum in the direction that everybody has agreed upon.

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. 

At Trusted Family, we have worked with several multigenerational business families to define and establish this framework. Connect with one of our experts today to help us help you define yours.