Survival rates for family business are a genuine cause for concern. Although a thriving family business sector could form the backbone of an economy, it is generally acknowledged across the globe that family firms have a life cycle limited to three generations, and during the third phase they are expected to fail.
Through a variety of studies and interventions, longitudinal research (Hallmarks) since the early Nineties, and more recent studies conducted in Asia and Europe, ICE has thoroughly investigated the dynamics of the family business structure. Most recently we have had the opportunity to apply this learning to provide insights into enterprise and entrepreneurship in China, with a specific focus on family business sustainability and succession.
Read about the CDFQ China project here
Equipping the next generation
A multi-lateral approach is required if we are to improve survival rates of family firms, including the need to educate the business support sector in the dynamics of family business, which can be significantly different to those in non-family firms, and to raise the profile of family business in enterprise policy. These capacity building priorities relate to external stakeholders, and are critical to the future of enterprise and associated economic development.
Through this post, however, we turn to the need to capacity-build the firms themselves, and in particular the need to future-proof family businesses by equipping future generations with the skills to become enterprising wealth-creators of the future.
This Century belongs to those who have ideas, see change as an opportunity and are prepared to make things happen, so we need to nurture enterprise talent in our children. We can do this by providing the right environment, one which is lively & dynamic, in which they can learn both at school and at home. This is crucial to creating future generations of entrepreneurial citizens as well as future entrepreneurs.
As well as nurturing entrepreneurship in all children, a vital element will be the effort we put into specifically encouraging and nurturing the children of family businesses.
Often, these children show little or no interest in the business as a career opportunity, with their interest being orientated more to consuming the wealth that has been created than continuing in their parents’ and grandparents’ footsteps. This dynamic presents a huge risk to the sustainability of family businesses which make significant contributions to the wealth of our economy.
The practical experience, connectedness and deep tacit knowledge built up over years to create sustainable enterprises is a priceless economic asset which we cannot afford to squander. On a social level too, the potential of our children to be good citizens will more likely be nurtured as wealth creators, with all the responsibilities which that entails, than by casual consumerism.
3 ways to help family businesses to respond the challenge
Through our experience of working both with family-owned business and those providing support to the family business sector, ICE has concluded that a multi-faceted approach is needed to help the family business sector to respond to this socio economic risk. It should involve both parents and children, proving both with the attitudes and the skills required to succeed.
Here are 3 ways to help family businesses to respond to this challenge:
1. Stimulate enterprising behaviours in children
Transform the aspirations and skills of children and young people, by encouraging them to recognise the concept of enterprise as a creative pursuit, and as a legitimate and engaging vehicle for learning and developing the skills and qualities they need to face the future with confidence and enthusiasm. Children learn to solve problems, develop their interests and conjure new ideas almost instinctively. By inspiring them to do so in the context of enterprise they, and their parents, can be confident that whatever unexpected turns the world takes in future they will be amongst those best equipped to succeed.
2. Help parents and teachers to be enterprising, and to take action
Parents and other key intermediaries (teachers and trainers) should learn how to nurture talent and the potential in all of us to be enterprising. By adopting an enterprising attitude themselves they can they pass on the ability and confidence to succeed to their children. Then, we mustn’t stop there. Parents need to be motivated and supported to take immediate action to maximise the enterprise potential in themselves and their children once they have acquired the skills; this can be achieved through being helped to develop a practical action plan of how to work with their child and, most importantly, to celebrate success.
3. Transform the business to be fit for a new generation
Assist those that are directly involved in family businesses – parents and their children – to transform the business through embracing and exploiting new opportunities within the global economy.
This approach will not only serve to revitalise existing businesses and therefore improve their prospects; it will also improve the engagement of children through increasing their involvement in business activity and potentially making use of their more current knowledge and skills.
Read about ICE’s training programme for advisers to family business delivered in China here
Image courtesy of renjith krishnan / FreeDigitalPhotos.net
Dinah!! Inspiring as ever. Such wisdom! Am tweeting this one out!! X
Thank you. Family businesses are an important part of the economy. I have recently been working in Croatia with an organisation setting up an Institute for family business. Further blogs on this topic to follow!
A really interesting read that highlights a genuine need for changing perspectives. I especially see the third point as being particularly relevant to so many family businesses who are suffering unintended inertia due to years of ‘good times’ and consequent lack of change. With the relatively sudden economic and informational changes over the past decade, many have failed to keep up and change their ways, with younger generations expecting status quo that just won’t remain. Where some family businesses have consequently gone completely, others have resorted to bringing external management which has diluted family control. For family businesses to remain within the family and succeed, mechanisms must be put in place to ensure that new opportunities are constantly sought. Whilst this is true of any business, I feel it’s a particularly important issue for family businesses.
Thank you for your comments Alex, and yes I agree – reinvention is key for family businesses. How this is best achieved is open to debate. Some think that the next generation should even be encouraged to think about starting a completely new business or a ‘spin out’; and perhaps a three generation life cycle is actually an appropriate limit for an existing family business. Interesting thought?
A three generation lifecycle, an interesting thought. While it may be appropriate, I do wonder whether it’s something that can actually be planned at inception or indeed at all. Or is it more a case that come the third generation there’s usually a desperate need for change?
What are your thoughts about willingness to change or feelings of loyalty to the family? Do you think problems are more internal, with an unwillingness to go against the family and implement change, or do you feel a simple inability to effectively implement change due to resources and knowledge is more prevalent?
With regard to the longevity of the family business, this time horizon observed may be partly to do with family dynamics, or it may be a natural point in the evolution of any small business. It would be interesting to compare the longevity of family business versus small business in general to see if there are indeed different influencers at work and what effect they have.
To address your second point, the huge changes that have occurred in the business environment generally, together with the very difficult current economic environment mean that many businesses need to make significant changes to remain competitive. As far why this may not happen with the generation change in family business, from my experience I have observed cases of resistance by the “old guard“ to the sometimes quite radical changes proposed by the new generation, and cases where the new generation lack the vision needed to identify what needs to be done, or the entrepreneurial spirit of the founder to drive the business in a new direction. Sometimes the interplay among family ownership, family management and family politics make it difficult to implement the necessary changes, even if the vision and entrepreneurial spirit are present.