By Bill Carroll for Ashridge Executive Education at Hult International Business School.
Six decades of living for many individuals used to spur thoughts of applying the brakes to the speed of life, particularly working life. But recently, many who have completed what statistics would say is two-thirds of a hopeful lifespan are eager to launch their “third thirty.”
The intention is to forge on, to create anew, to own big change—to, well, continue. They pursue a third slice of life. The same pivotal juncture holds true for the lifespan of family businesses, as it does for today’s determined individual prolongers. They both share a deep desire to continue.
But opposing forces are on the rise.
Family businesses are not constrained by the same biological clock as individuals. Some “centennials” have forged on for hundreds of years. But when considering the typical shelf life of most commercial enterprises, those few multi-generational family enterprises that carry on so long are sheer marvels to us.
Consider what they are up against. Only a third of entrepreneurs who successfully launch (those in their first slice of commercial life) are able to pass the baton to the second generation. And a mere single-digit percentage of those launchers ever get to enjoy the rites of passage to the third. Those surviving beyond that are a rare lot: the lucky, the great, and the marvels.
“Only a third of entrepreneurs who successfully launch are able to pass the baton to the second generation.”
Rare because the “shirtsleeves to shirtsleeves” saying that every culture in the world knows and expresses in its own linguistic way tells the tale of the common three-generational cycle of birth and ultimate demise that befalls most family businesses. What entrepreneurially started as “ownership” became “stewardship,” and from that, and often lastly, “custodianship.” You can feel the declining life force from the labels themselves.
Is there nothing that can be done today to overcome the harsh truth of the old phrase, to take a page from the marvels who have, and to just plain continue?
The answer to the question contains both good news and bad news. On the dark side, family businesses have always faced internal and external threats. Although applied coaching methods are indeed helping the cause, the foibles of people being people, and the inordinate difficulty of foible’d people managing foible’d people has been and always will be the commercial-life threatening force on the inside of things.
But it is on the outside where the big trouble lies. And the really bad news is that the trouble is only getting bigger. In an evolving universe, nothing remains the same, of course. But it is the accelerating pace of change itself that worries me for the many family businesses we serve at Newport Board Group.
The frenzied reality of rapid change is spawning a new phrase so powerful that it could displace “shirtsleeves to shirtsleeves.” And this phrase is one that business operators actually say out loud—and say with growing regularity:
“I didn’t see that coming.”
Complexity theory is helping to explain how and why we now come to say this so often. Complex systems—and a family business is a perfect example of one, as is the worldwide economy within which it competes—feature increasingly diverse, connected, and inter-dependent components that adapt. When the diversity increases, when the number of connections expand, and when the learning quickens we get large, unanticipated events. We get the sudden emergence of new phenomenon. We get change we didn’t see coming.
Keeping pace externally with rapidly changing customer expectations as well as competitive disruption bears down upon what were once reasonable market expectations. Annual budget? Try quarterly. And the old timeless phrase itself is under pressure. Unless we take right action before long we could be looking at just plain “shirtsleeves”—connoting a family business state that knows no transition to the next.
But hold on because here is the hopeful bit: family businesses are not out of options in the great struggle to continue.
Here are three initial steps that business founders and 2nd generation leaders should immediately consider:
1. Forge an emergence of your own, within your business
Wise family business owners have long insisted that younger family members gain experience working in other companies before joining the family business. Or to pursue an MBA first to learn the objective craft of business.
In this age of complexity, a new form of family-business wisdom is dawning. And that is to foster the next generation’s pursuit of the entrepreneurial. To fund and support their starting something new—something that rings closer to whom they are and what they love to do.
Tip: Have the Family Office declare a suitable funding provision and call for a patient but real standard of performance to be attained.
“A new form of family-business wisdom is dawning. And that is to foster the next generation’s pursuit of the entrepreneurial.”
2. Create the “blended family business”
Fostering the next generation’s entrepreneurship need not mean shortening the lifespan of the current business. By all means, continue with what works. I provide advisory service to third generation players who connect genuinely with the business they inherited.
Tip: In renewing entrepreneurship, look for a “cohering thread”—a new “golden mean” which connects the interest of the players, the business models, the family’s stated values, and ideally the customers to be served.
3. Practice commercial Aikido
To give vocal and financial support for the regeneration of the family business within each succeeding generation, and not just in the third or fourth generation on the brink of business failure, is to embrace the forces of complexity that abound today.
Like Aikido, which leverages the power of the opposing force, family businesses need to become their own generative source of “I didn’t see that coming”—as expressed by their competitors and customers alike.
Tip: As we may think of the core business as operating more with “exploit” (garner returns) than “explore” (defer returns), to use the language of complexity theory, foster the inverse balance with your next-gen springboards.
If we are going to make the “shirtsleeves” phrase irrelevant to our own family business story, let us go for another slice of business life. In this age of complexity, to create is to continue, and to continue is to create. If we truly foster that spirit within our family business, what marvels we may yet become.
“If we are going to make the ‘shirtsleeves’ phrase irrelevant to our own family business story, let us go for another slice of business life.”