Family businesses extending to the third and fourth generation have always been rare but with high proportions of potential family business successors undertaking higher education, there is a crisis developing in the family business sector with regard to succession.
Fewer children seem interested in following in their parents footsteps in the family business and even less are inclined to want to take on the burden of leadership where they don’t have the same passion for the business that their parents have.
With a significant portion of our family businesses owners now approaching retirement, this problem will impact many families in the SME sector. However this crisis could be averted if families changed their view of what being in business as a family meant.
Most families see the family business as a fixed entity. The parents are often fixated on the product or service the business offers and they often see the specific business as the source of the family’s wealth and a place for current and future employment of family members.
Of course this view is often not shared by the younger members of the family, who are often better educated, more traveled and have more diverse interests than the business founders. Some simply don’t want to work for their parents, others wish to pursue different careers or simply have little interest in the specific market of the family business.
However many of the children of entrepreneurs have entrepreneurial talent. Quite often this drives them to leave the family business to pursue other interests, often to the disappointment of the parents. In fact, supporting and encouraging younger members to start new ventures may be the solution to solving the family business crisis.
Family businesses, instead of focusing on the products they produce could focus on the business talent and business resources they have that they can bring to bear on any entrepreneurial venture. That business experience coupled with the business resources that the family has accumulated could be directed to any business venture in which any member of the family might have a passion.
Parts of an existing business can be spun out to create new ventures for younger family members to get their feet wet. They should be encouraged to develop the business into new customers, suppliers and markets in addition to their ties to the core business.
Business expertise should be consolidated into Boards of Advisors to support each new venture. Parts of the core business that are not contributing, or where there is little future interest, should be sold off and the proceeds put into a new venture development fund.
Younger members should be encouraged to put up business plans for their own ventures that align to their own passions. Other members of the family may then find possible jobs across a range of different ventures.
Lucio Dana of Family Business Dynamics says that many families business could benefit from this model. “This approach utilizes the financial and non-financial assets and capabilities to create new ventures or spin-offs rather than continue solely to produce a specific product or service.
When successful, these initiatives can result in growth, diversification, increased profitability and wealth creation and encourage continuing entrepreneurship in business families across generations by providing challenges and occupations for potential successors who are not interested in fitting in to existing family business structures or ventures.”
Concentration on one business may in fact be the riskier path and a family business without a successor can be a millstone for the aging owner. More family members may be interested in being part of the family enterprise if they have the opportunity to take on the responsibility for a new venture where the family has little at risk.
Those ventures that thrive can receive additional support while those that fail provide real world experience to the next generation of family leaders. Over time, the business evolves and diversifies as each member pursues their own passion, but always with the backing of the family business knowledge and resources.
The family itself needs to see itself as the family equivalent of the venture capital fund, starting and building and harvesting new ventures as their talent pool and interests change over time. Just think how exciting this version of the future would be for younger family members.
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An Inside View Of The Life Of An Entrepreneur