Consider this if you’re looking for a link between family business and entrepreneurship. Three-quarters of companies in 48 economies are founded with significant family involvement. In the US, 30% pull in family members within the first two years. Family is an essential component of entrepreneurship.
A family business is the product of a successful entrepreneur. While it may be tempting to view the continuation of an existing business through multiple generations of a family as non-entrepreneurial, this is far from the truth. Businesses always require new and innovative ideas, strategies, products and processes to succeed. In today’s competitive and dynamic business environment, each generation will likely need to develop multiple innovations to sustain the family business. That’s the spirit of entrepreneurship.
This, of course, is balanced by the stability and long-term perspective that characterise family businesses. Such enterprises are also often endowed with a greater sense of vision and identity that must be preserved while leading the company to further success. This is the tightrope that any family business’s current and future leadership must walk.
The benefits of entrepreneurship for family businesses
There are several ways an entrepreneurial mindset and approach can help a business. The key is to figure out how best to apply them to your business.
An opportunity to diversify
Diversification within a company can be difficult. It is risky and ties up capital and human resources diverted from the core business. Many companies have learned this the hard way. On the other hand, starting new businesses is a great way to take advantage of market opportunities or invest excess cash.
Business owners can separate these ventures from existing businesses, spreading investment and risk. Successful companies provide the financial backing to take advantage of opportunities that otherwise require loans or investments, granting them greater autonomy and a potential safety net.
This is an excellent way to involve family members whose skills lie outside the core business. If they have drive, vision and skills but do not want to work for the family business per se, you can allow them to use their skills in a separate venture. Regardless of the project’s success, they will learn valuable lessons that can benefit the family business in the long run.
An appetite for expansion
Want to expand but don’t want to turn your back on your core business? Give one of your children the chance to take on expansion as an entrepreneurial challenge. Trying new products or services this way can reduce risk and provide an excellent learning opportunity for the child and the business.
I call this having an [In]Side Hustle…Stephen Shortt
Similarly, expanding into a new country or territory may require setting up your own business to comply with regulations. In this case, you need someone on the ground to run things. A family member with an entrepreneurial bent would be ideal for such a scenario.
How to foster entrepreneurship in a family business
It’s tempting to think of entrepreneurship as an innate trait – something you’re either born with or not. Studies in the emerging field of genoeconomics have highlighted possible links between genetics and entrepreneurial inclinations. Still, many have also emphasised that environment plays a crucial role in developing such a mindset.
Depending on how a family business is run, it can be either a nurturing or stifling environment for entrepreneurship. If the next generation is brought into a staid, unchanging business and encouraged to do things the way they’ve always been done it can kill their entrepreneurial inclination.
On the other hand, a family business that encourages innovation, new ideas and perspectives, and out-of-the-box thinking can provide a phenomenal environment for entrepreneurship to blossom.
If you’ve founded a company, I’m sure you appreciate how much blood, sweat and tears it takes to make it work. This work is undoubtedly character-building, but getting your kids involved in the business and allowing them to help shape it gives them a chance to become entrepreneurial with a head start. Imagine what they could accomplish by doing so.
Formal governance structures, such as a board of directors, family councils and charters, can support entrepreneurship development. Establishing clear business goals and roles for each member can help create an environment where innovation is part of the core business, not just a side effect or distraction. A diversity of people and perspectives on the board and at the executive level can open up new conversations and ways of thinking about the business.
Crucially, while a willingness to innovate should be encouraged throughout a company, the entrepreneurial direction of a company is usually determined by the attitude of its executives or owners. This requires that these leaders take a proactive approach with a healthy but reasonable risk appetite and prepare the next generation to develop these traits.
This brings us to the issue of succession.
Business succession and entrepreneurship
Entrepreneurship is connected with the complex issue of succession. It goes without saying that the more experience the next generation has, the better prepared they will be to take over the management of the family business.
It is widely advocated that children should gain work experience outside the family business before joining it. This can help them broaden their horizons, discover their passions, build their confidence, and increase their credibility with existing employees of the business.
There’s also a strong case for them to join the company as soon as possible, as it allows them to build key relationships, learn business-specific processes faster and manage their professional development.
Involving the next generation in entrepreneurial activities within or alongside the main business has the potential to leverage the best of both these worlds. It can provide them with invaluable experience within the organisational ecosystem. It will also give them the opportunity to learn by tackling novel challenges, boosting their confidence and knowledge and ultimately preparing them to take the business to greater heights in the years to come.