In the world of family business, the entrepreneurs we celebrate are usually business founders. These smart, hardworking people identify a good business opportunity, gather money and loyal employees, and start a business that takes off. The founder’s heirs and subsequent generations of the family are expected to nurture and nurture the founder’s creation; they are not expected to be entrepreneurs themselves. Even attempting to reinvent the family business may be viewed as unfair by the family.
This constraint often kills the family business.
We believe it’s time to reevaluate the importance of entrepreneurs not just to the continuation of the family business, but to the continued success of the family itself.
Managers on the inside your core business who think like entrepreneurs (we call them intralessees) can identify opportunities that allow your family business to branch out into new lines of business, rejuvenate the founder’s legacy, and set the company on a new growth path. Contractors (usually family members) working outside the business, but with financial support from family, can keep talented relatives within a larger “family business”, diversify business activities and build assets.
Families who want to stay in business for another generation have no choice but to encourage entrepreneurship in and out of their business. There are professional reasons and family reasons why we believe this to be true.
In today’s competitive environment, characterized by rapid technological changes and fast-moving industries, there is no point in becoming too attached to current industries or methods to meet customer needs. You have to regularly change what you make and sell, and probably how you make and sell it. You must be agile and, as certain lines of business decline, be able to identify growth opportunities in and out of the core industry and pursue them experimentally and profitably. For that, you need the risk-taking attitude and ingenuity of an entrepreneur.
Entrepreneurs are good at identifying business opportunities and launching new products and services, even when they don’t control the people and resources needed to do so. They know how to attract talent to help them when their idea isn’t proven, borrow resources they can’t afford to buy, and get buyers interested in their business. Others may see them as risk takers, but good entrepreneurs are actually good at getting others to take risks. You need people like this in your family business and in your family.
We’ve spent a lot of time studying why some families succeed financially over generations and others don’t. (In fact, most don’t.) There are three reasons why families succeed.
First, successful families see significant changes in their industry and adapt by branching out into new businesses that can grow. Simply put, successful families are entrepreneurial.
Second, families succeed because they invest in productive activities (including the development of the next generation), emphasize asset growth, and consume relatively little of their wealth. These families maintain a culture that encourages family members to create things of lasting value. It is not surprising that these families encourage entrepreneurs.
Third, successful families remain reasonably united, keeping supportive members loyal to each other and to the mission of the family. Over generations, as families become more diverse, it is likely that only a few relatives per generation will work directly in the business. Members outside the company can still support family philanthropic efforts or social activities, and sometimes this level of involvement is enough to keep the family together. But investing in family entrepreneurs can also allow talented members to contribute to the wealth and mission of the extended family. (The new millennial generation, aged 15 to 30, seems particularly interested in becoming an entrepreneur.)
Investing in family entrepreneurs must be done objectively according to the feasibility of their business project, but also fairly within the family. Even if some entrepreneurial projects fail, these investments will help you identify talent to grow your business. And you send an important message: this family is committed to creating value.