Moving the family business beyond the founder’s vision

Many entrepreneurs generate large amounts of wealth that they want to pass on to their children and grandchildren. They’re not a family business yet, but they want to be one. When the resources are used wisely, they want their businesses and investments to continue to grow in value. But the mindset behind their success often undermines how open they are to the changes needed to continue a business into a second generation. It’s the next generation’s dilemma: how do succeeding generations preserve the founder’s legacy? And Continue to build a thriving family business?

Entrepreneurs fall into common pitfalls that hinder their continued success:

  • They become so confident in their own superpowers that they stop listening to others.
  • They feel they are the only ones who know how to run the business, so they refuse to step down or resign.
  • They expect growth to continue and do not anticipate major changes.
  • They want to find a successor like them, who will run the business like them.
  • They seek mentors, executives, and even family members who will not challenge them.
  • They want their children to repeat their journey so that they can “do it on their own”.
  • They think that being ready for the future means keeping things as they are, because after all, they have achieved great success.

This creates a big problem for members of the next generation, who often see the need for major business changes. While the elders are growing the business, the younger generation is often studying, traveling, working for other businesses, discovering new opportunities and opportunities, and taking proactive steps to prepare themselves to enter the business. They have a lot to offer, but founder behavior can be frustrating and can make them feel like their voice isn’t being taken seriously. How do they overcome the avoidance and reluctance of their elders when they clearly see the need for innovation?

For example, one family I worked with had built a large real estate portfolio under the leadership of their now 80-year-old entrepreneur father. Four of his seven descendants, in their 40s and 50s, worked in the business, but did not feel able to talk about new directions, while others worked elsewhere, sometimes in related fields. They knew the business and their relationships needed work. They wanted to meet to figure out how to work together after their father passed, but he gave them a message not to. Were they children who had to obey their powerful and successful father? They decided to meet anyway and informed their father. To revive the business, they consider new purchases, how much liquidity they need in their lives, environmental issues and the impact their buildings will have on their small town. They were content to wait for their father to pass, but they wanted to prepare for the major changes they felt were necessary in their business.

I interviewed senior and junior family members of 100 large, global family enterprises that have thrived in their third generation, and asked them: “What did you do to overcome these entrepreneurial tendencies? How did you set the business on a new course? Successful families realize that their company will not just continue to grow, so they must consider whether it is time to sell the old business or start a new venture. The elders may not have been ready, willing or able to do this, but it had to be. Transgenerational success depends on first overcoming this obstacle.

How did they accomplish this? These successful enterprises had a unique resource – not found in non-family businesses: their growing generation. This generation – which grew up in the shadow of the founder and inherits ownership and leadership – often lacks formal authority, but has moral strength and influence. They usually find ways to convert and convince elders and family.

When I asked the families responsible for these changes, two-thirds of the changes came from members of the growing generation, who took the initiative and got the support of their parents. Many families report that a major change in their family culture occurred in the second or third generation, moving from success in a single business to cross-functional collaboration, significant innovation, and redefinition of the business. Traditionally, the family continued as a joint entity, but the business itself took a very different form. This big change did not come from the top but was mostly initiated by the younger generation.

In order to sustain a long-term family enterprise, having a founder who can build a large business is obviously only the first step. Successful families need a second change, when the second and third generations redefine the business and develop new opportunities. Unlike the founding generations, their reality is that they need to collaborate and develop a structure that allows them to work together to explore and develop multiple opportunities. The challenges involved in doing this are often not fully understood by the founder, so successive generations must seek the support of the first generation owner or develop their own to prepare for their successor.

My research found that the growing generation typically does not expect consent; You have taken the initiative. After all, it was not the founder’s problem, but their problem: how could they continue the legacy they inherited? They came together and took action to make big changes. As millennials, or members of Gen Z, who have grown up in a digital and connected world, they have received a broader education than their elders. They looked to the future and were concerned about what needed to change in their business and how the family could work together to make the changes they saw as necessary.

Three structural innovations, in particular, enabled them to move from simply continuing what had been successful in the past to planning and looking ahead to how to deal with future challenges.

Active involvement with the business.

The new generation needs to be informed and engaged with the business. Whether they work in the business or not, if they expect to own it, they need to be prepared to take control as responsible owners. This starts with sharing information, but sharing must be active, and communication must be two-way. Transition and change cannot proceed until everyone is informed about what has happened. As prospective owners, they want more than financial information; They want to know about values, policies, practices, strategic goals, capabilities and risks on the horizon.

Active learning can take different forms: Young family members, even if they are not ready to join the board of directors as full members, can be invited to become board observers. This is like an internship, where you meet and learn from family and non-family board members and become familiar with the challenges facing their legacy businesses and other joint ventures. Other families create what they call a “junior board” that meets regularly with CEOs to learn about current business challenges. Each year a junior board takes a current problem and issues a report on their recommendations for solving it. Many of their ideas became major inventions. These opportunities provided a way for younger family members to present ESG and sustainability values ​​that they felt should be incorporated into the business.

Training and development programs with clear criteria for management roles.

Young family members must develop their potential to become leaders. The family should invest in their development and give them opportunities to use their education. In the example above, young family members are encouraged to develop their skills through coaching, assessment and education programs paid for by the family. Owning a successful business and inheriting the family fortune that came with it brought great responsibilities that made it prudent for each family member to develop business skills and play a role in family management. They cannot be passive spectators.

Business and family management roles are clearly defined, as are criteria and selection methods. Family members were invited to prepare to fill these roles, and the family had a clear plan to bring in the next generation. It was all part of an active family-based education and development program.

The creation of a family bank.

Family businesses often have investment funds, and many of the younger family members I interviewed were able to participate in decisions about portfolio construction, for example to reflect ESG values. Also, it was a process for family members to bring business ideas, and even their own business, to the family. As some families sell legacy businesses and become investment families, the younger generation is entrusted with taking the family into new investment options. In some families, the older generation led the inheritance business, while the younger generation became social investors. This opportunity is provided with appropriate checks and balances and often involves non-family mentors to ensure the efforts are successful. Younger family members may have access to the family’s wealth for entrepreneurial ideas, but they are also held accountable for how it is used.

As the founding generation’s legacy of business and entrepreneurial leadership gives way to a new generation, single-leader businesses with thriving businesses enter a new era of multi-related family ownership and often have to rethink what business they’re in, what goals they need to develop, and how they’re going to do it. road. The second transition is usually carried out by members of the second and third generations, who become entrepreneurs and pioneers. Their leadership is less visible than the founder, but no less important.

Growing a family’s wealth is not a matter of circumstance, nor is it merely a matter of imitating the success of the founding generation. Each new generation of a business family must reinvent itself, and that innovation comes from a capable, committed and cooperative group of owners of the younger generation. The older generation must prepare them, and then they must trust them to continue the legacy in their own way. As you prepare to become leaders, family wealth can continue to grow through the generations.

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