How to harness innovation and entrepreneurship in a family business?
How to harness innovation and entrepreneurship in a family business?
Family Business Matters
Every business and business people have a family, they have heirs, who take over their business over time. Not every generation is that open-minded to take up a new hobby or to start their individual business. Some are still in conflict and have to join their family businesses, because business is something that requires freshness of ideas, strongitivity of mind, influential strategies to help achieve and target higher goals, basically a person with new aspirations and new level of dreams to take the lead in upward direction.
Here we are going to study about how entrepreneurship and innovation in a family business go hand in hand?
But first let us understand the meaning of the term innovation. Okay, then what is innovation?
What comes into your mind when somebody asks you to innovate?
No wonder, every new generation brings in their own set of believes knowledge and wisdom. Their technological experience, economic awareness, and ideology can help them achieve an altogether new territory of business, quite disintegrated with the older one. But if you misunderstand this for the term innovation; you are heavily mistaken, here.
Innovation is creativity, the freedom of thoughts, or may be disruption. Entrepreneurship on the other hand, is the courage to take risks, the ability to invest and divest in a particular project by analyzing its viability or inference. The ability to imagine something non-existing is a part of innovation, while an entrepreneurship is turning it into reality. For a successful family business, to survive, aspire and succeed, innovation is one of the most essential components.
The important aspect of the family businesses is that in a family business it's the family which evolves and not the business. As the family business grows longer and longer evolving into multiple generations; it involves a great deal of innovation in the operations of their businesses.
There are the Baby Boomers, Generation X, the Millennia's, and even Gen Z generations which are all very different from each other in the way they think and survive. But a family business accommodates them all. In an episode of Family Business Matters, Lloyd Russell explained to Marina Skinner, that how family businesses has always been risk aware, business model aware, business economy aware, and are flexible as their decision making can be done around a kitchen table in a outspoken comfortable environment.
They put up their ideas without any risks, or without any hesitance, and this is what the power of the family business is. Businesses learn through experience, which families hold a lot. Normally, with businesses of a family history of 70-80 years, they have been through a lot of good times and a lot of bad times, through which they thrive and consistently map the role of innovation and entrepreneurship while going through those critical times internally and externally.
The thing to learn is not their problems they faced during those times, but their response to those problems. How they actually react to the situation, and survived. Sometimes, they even took it as an opportunity to expand their business. Though this was something to note, but experts say that communication did play a great key role at every single level. They actually communicated to their market and collected a feedback of their performance to adjust their operational direction.
Communication mainly focuses on listening. Listening? Yes, listening to what the economic environment tells you, listening to what your direct business environment tells you, listening to your upstream supply chain, listening to what your downstream customer tells you, listening to the the opinions and disagreements of other family members, because the decision making is the final process after listening to all aspects of the problem.
Finding a solution without listening equals to a blind-fold walk, where the direction of your destination is unknown, and the one you are operating on is contingent to bring about the results.
There might be some of the members who don't manage the business directly or some at all, some may be just passive shareholders of the family business, but you must take their advice, their opinion, as this might change the very angle to proceed with, but also inject a new life into the business.
We have all remembered the case study of a Renowned Toothpaste company, which called for an open competition to suggest something that could boost their thwarted sales. After several days of no results, one person from outside the company suggested that he had a innovation strategy which could cost them nothing to implement but will still yield an increase of 40% in their business. After giving some thought to it and awarding him, they finally closed the deal. The idea was, ‘Make the hole bigger'. This small strategy coming from not the CEO, CFO, CIO ( Chief Information Officer) or any other influential decision maker of the company, made a big difference.
This can happen with anyone, ever a floor sweeper in a factory, or your permanent chauffeur, they can come up with ideas that are extra-ordinary, which your engineers can't even think off. Sometimes, it so happens that in order to look for some genius solution, we often ignore an ordinary and the apparent one. The members of your supply chain might come up with an idea, because what they are seeing and listening might be quite different than what you may be observing.
Now, Family business in India has been in picture for quite a long time. Most Indian families prefer the newer generations to take the lead to their family business rather than taking up something on their own. Though this tradition, has been kept aside for quite some time due to the market being full of innovative opportunities, businesses of different scaling and types. But still there exists more than a billion families, who are still operating on the same basis.
You might be tempted to think of the family businesses as small mom-and-pop firms but you would be mistaken here. In fact family businesses represent some of the largest businesses of the world.
In the developed world, more than 30% of the large companies comprises family businesses. Companies like Walmart, Coke industries, Mars, Cargill, Newscorp, these are all family businesses. And when we look at the emerging markets, more than 50-80% of the large companies are family businesses are family businesses.
You can say that they are the very relevant part of the corporate landscape. Lot of business schools and analysts researched about family businesses is their performance. It details about how a family businesses focus a lot more on resilience and stability rather than break out growth.
1They grow slower than non-family businesses,
2They tend to be more profitable,
3They grow faster in good times,
4They acquire less debt,
5And they even do smaller mergers and acquisitions.
But you'll see here, if this was the case with you, like you owed your own family business, you might not want to bet everything in your business on one or two big decisions, so resilience is a much more important term rather than break out growth.
Another important aspect of the research talk about the role of the family in the family businesses. Firstly the family starts with the family being owner/ manager but then after some gap, the role of the family is minimized, so the owner/manager is set aside, then they become the owner investors, and then they gradually become pure investors.
In fact this is the logical reality, because when a lot of time has been passed, the businesses become really big, but the family becomes quite complicated, and then people seem to be more tempted to hire some of the professional managers in the circle of business to lead the race.
In the emerging markets, where rules and regulations are still evolving, even the families are very different, they are much larger, they include the cousins, they include the in-laws and they include the multiple generations brought together under a single brand name of the family business.
In families, the sense of hierarchy is much higher; children don't seem to talk back to their parents. They don't seem to discuss many things that can be discussed in other parts of the world. We never talk about the break out growth, or probability to let the loss-making business die, because we are somehow more attached to it than its profitability.
It has been tested all around the globe mainly Brazil, India, Southeast Asia, and Eastern Europe, for the performance of the family businesses, and how does the role of family changes over time. Family businesses from the emerging markets perform and evolve exactly the opposite on every dimension that we used to measure for the developed world.
Family businesses from the emerging markets are the fastest growing large corporate entity in the world, they grow faster than non-family businesses, they grow faster in good times and they grow faster in bad times too. They trade off profitability for growth, they take on more debt, and they do significantly larger merger and acquisitions. For instance, they pursue breakout growth.
One more point to be noted here, that in the emerging markets, a near-about almost ninety percent of the family businesses are run by family members.
Though the role of family appear to come down to different generations, when a study since the evolution is conducted. But in the emerging markets, it seems to be elevated all the way up in many companies and in many countries that is exactly opposite.
1 STAY, DON'T LEAVE: The resignation of the family head is not required every time, they may still carry on to become ideal and profitable business. Because sometimes people don't trust the fresh talent with qualified degrees, but the original person handling the business for generations. This TRUST plays a great role. Banks, Customers, Government, they all support us in their different ways. They need not prove themselves for their changing policies or disruption.
2 DEFINE, DON'T COPY: The family businesses do need a lot of processes and procedures to develop a system and framework to everything. But suddenly when they start evolving, it is totally confusing that why do they bring in the processes, procedures, systems of the western culture, instead remaining dedicated or even advancing their own systems. Why copy? People don't understand but they create a mess because of this.
The entrepreneurship and the discipline is nowhere to be found.
Instead, you just need to figure out where to place the discipline and when entrepreneurship is needed to get the desired result from the process. You can call that an Instinct even. You need to define your own ways of working.
3 STEWARDSHIP, NOT GREED: It is said to be hard dealing the family business, because here the need is growth, development and survival, more than profitability. One cannot work out of greed in a family business, you have to secularize your leadership ways apart from the core instances. You have to have a quality of patience, a quality of generosity, which does not let you prioritize the profit. A sense of purpose needs to put forward before the principle to earn wealth.
Family businesses do face a lot of turmoil especially during succession. Because of the difference in values and the difference in thinking, family business tend to divide.
But what you need is the quality of Stewardship, a sense of purpose and belonging, a sense of value building for the future, becoming trustees for the future, doing it for a purpose and not just for filling each other wallets.
Family businesses will continue to rule the world, in the emerging markets, only if they understand the meaningful of their distinctiveness, only if they decide their own course, and only if they continue to remain steward. They are the champions of businesses in the world history, and the leading direction for the growth markets.