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Moving a Family Business Beyond the Founder's Vision

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Many entrepreneurs create enormous wealth that they want to pass on to their children and grandchildren. They’re not family owned yet, but they want to be. They want their wealth to be used wisely so that their businesses and investments continue to add value. But the mindset that has led to their success often undermines how open they are to the changes needed to pass their business to the second generation. It’s the next-generation dilemma: how will the next generation preserve the legacy of the founder? When Do you want to continue building a thriving family-owned business?

Business founders often fall into common traps that hinder their continued success.

  • They are so confident in their psychic powers that they don’t listen to others.
  • They don’t want to resign or let go because they feel they are the only ones who know how to run their business.
  • They expect continued growth and do not anticipate any major changes.
  • They want to find a successor who will take over the business just like them.
  • They want advisors, executives and even family members who will not challenge them.
  • I want children to repeat the journey of “creating themselves”.
  • They assume that preparing for the future means keeping things as they are.

This poses a major problem for the next generation of members who often see big business changes needed. While older people have grown their businesses, younger generations are often more active in learning, traveling, working in other businesses, discovering new opportunities and possibilities, and preparing to step into business. They have a lot to offer, but founders’ behavior can be frustrating and can make them feel like their voices aren’t being taken seriously. How do they overcome the avoidance and reluctance of their elders when they clearly understand the need for

As an example, the family I worked with had developed a huge real estate portfolio under the leadership of an entrepreneur father who is now 80. His seven descendants are in their 40s and 50s. Four teens had worked in the industry, but didn’t feel like they could talk about new directions. They knew business and their relationships needed work. They wanted to meet to discuss how they would work together after their father died, but he sent them the message that they shouldn’t. Were they kids who had to obey their father? They decided to meet anyway and let their father know. They considered business renewals, new acquisitions, the liquidity needed to live, environmental concerns, and the impact buildings have on small cities. They were content to wait for their father to die, but they wanted to prepare for the big changes they felt needed in the way they did business.

I interviewed young and old from 100 large global family businesses that have thrived beyond the third generation and asked: How did you put your business on a new trajectory?” The successful family understood that the company didn’t just keep growing, so they decided to either sell their legacy business or start a new venture. The elders may not have been ready or willing to do this, but they had to. Intergenerational success depends first on overcoming this obstacle.

How can this be achieved? These successful companies had unique resources that non-family businesses do not have. Raised in the shadow of their founders and expecting to inherit ownership and leadership, this generation often lacks formal power, but it does have moral power and influence. They usually find ways to step up and persuade their elders and family members to change.

When we asked those families responsible for the most significant changes, they reported that two-thirds of the changes stemmed from younger generation members who took the lead and garnered the support of their parents. Many families report that a major change in family culture happened in her second or third generation. It is a transition from success in a single business to multi-faceted collaboration involving business diversification, significant innovation and redefinition. Families usually persisted as shared entities, but the business itself took a very different shape.

It’s clear that having a founder who builds a great business is only the first step to sustaining a family-owned company for the long term. A successful family needs a second transformation as the second and her third generation redefine the business and open up new opportunities. Unlike the founding generation, their reality is that they need to work together and develop mechanisms to work together to seek and develop multiple opportunities. If the founder doesn’t fully understand it, the next generation will either have to get the support of the original owner or develop their own for succession.

According to my research, the younger generation typically didn’t wait for permission. they took the lead. Ultimately, it wasn’t the founders’ problem, it was theirs: How can they continue the legacy they inherited? They acted collectively to manage the big change. As members of the Millennials or Generation Z, they grew up in a digital and connected world and received a much more extensive education than their elders. They looked to the future and shared their concerns about what needs to change in their businesses and how families can work together to make changes where necessary.

Three structural innovations in particular have enabled us to move from simply continuing what worked well in the past to being prepared and looking ahead in how we will meet the challenges of the future.

Active involvement with business.

New generations need to be informed and involved in business. If they are looking to become owners, they should be prepared to exercise oversight as responsible owners, whether they work for the business or not. This starts with sharing information, but sharing must be proactive and communication must be two-way. Migrations and changes cannot proceed unless everyone is informed of what is happening. As prospective owners, they want more than financial information. They want to know about values, policies, practices, strategic goals, capabilities and immediate threats.

Active learning comes in several forms. Younger family members who are not ready to serve on the board as full members may be invited as observers to the board. This is like an apprenticeship, where you can meet and learn from family and non-family board members and familiarize yourself with the challenges facing legacy businesses and other shared businesses. Other families create what they call “junior boards” where they meet regularly with key executives to learn about current business challenges. Each year one of her junior boards produced a report addressing current issues and recommendations for addressing them. Many of their ideas became major innovations. These opportunities provided a way for the younger member of the family to put forward her ESG and sustainability values ​​that she felt needed to be incorporated into the business.

A mentoring and development program with clear standards for governance roles.

To become a leader, the younger members of the family must develop their abilities. Families must invest in their children’s development and provide opportunities for them to apply what they have learned. In the example above, young family members were encouraged to develop their skills in a family-funded coaching, assessment, and education program. Becoming the owner of a successful business and inheriting the family wealth that comes with it carries with it a great responsibility to carefully consider that each member of the family develops business skills and plays a role in the governance of the family. brought. They could not be passive bystanders.

Business and family governance roles were clearly defined, as were qualifications and selection methods. Families were invited to prepare to take on these roles, and the families had clear plans for accommodating the next generation. All of these were part of an active family-based educational and development program.

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 portfolio construction decisions, for example to reflect ESG values. There was also the process of bringing business ideas and own ventures into the family. As some families sold legacy businesses and became investors, younger generations were tasked with bringing families to new investment opportunities. and the emerging generation became social investors. This opportunity was presented with appropriate checks and balances, often involving non-family advisors to ensure the success of the effort. Younger members of the family had access to family wealth for their entrepreneurial ideas, but were also responsible for how it was used.

As the traditional business and entrepreneurial leadership of the founding generation is replaced by newer generations, they have gone from having a single leader with a thriving business to having several related family owners. We are entering a new era of transition and often need to create a new generation. A path for them to rethink what business they are in, what goals they develop and how they do it. The second transition is usually taken over by his second generation and his third generation members who become entrepreneurs and pioneers in their own right. Their leadership is less visible than the founders, but no less important.

Growing family wealth does not happen only by circumstances or by imitating the successes of the founding generation. The older generation must prepare them and trust them to carry on the legacy in their own way. If they are prepared to be leaders, family wealth can continue to grow across generations.