Wait a minute…isn’t that a contradiction in terms? Absolutely not! In family owned businesses, Generation 1, the founding generation was the entrepreneurial generation that started the business. Generation 2, known as the siblings generation, Generation 3, the cousin consortium and Generations beyond that grow the family owned enterprise using the same drive and creativity through internal and external entrepreneurship. In fact, without fostering the entrepreneurial spirit in the following generations, the family owned business will struggle to remain viable in a fast-changing world.
Internal entrepreneurship or intrapreneurship is the development of new products, services, process or markets within an organization, driving new sources of revenue, profit and sustainability. It can deliver business diversification, encourages the next generation to participate in the business and creates value for all the shareholders. For the intrepreneur, it’s a path that encourages creative innovation while participating in the family business.
External entrepreneurship is the development of new streams of wealth across generations using the unique resources of the family business to gain a strategic advantage. This can include upstream or downstream diversification or establishing totally unrelated businesses. External entrepreneurship allows family member to develop independent, even if somewhat related, businesses to reduce risk and to encourage creativity. The family business resources and culture are a springboard for the entrepreneurial ventures.
A family office is another way of fostering the entrepreneurial spirit in a family owned business. It’s an organization that assumes the day to day administration of a portfolio of investments made by the family. There are single family offices, those controlled by a single family and multi-family offices that serve several families.
Whether your family choses to encourage intrepreneurship, external entrepreneurship or decides to participate in a family office, here are some guidelines for successful family business entrepreneurship:
- Give support to test out ideas but apply realistic screening criteria
- Let the entrepreneur fail but encourage them to learn from the failure
- Be honest about how difficult it is to be successful by openly discussing the challenges as well as the rewards
- Set the ground rules for access to business resources, availability of cash, ownership of the result and expected timeframes
- Provide mentorship and resources beyond just cash
- Don’t take over or step on toes but encourage independence
- Allow the entrepreneur to make their mark, leveraging the benefits of their generation and the benefits of belonging to a family owned business
- Define the scope of investible ideas, by defining what supports the enterprise and what does not
- Don’t try to make the new venture look like the core business
- Set realistic KPIs for a startup along with milestones and go / no go decision points
Fostering the entrepreneurial spirit within the family business, allows the family legacy to prosper!
Stephanie Olexa, President of Lead to the Future, LLC advises privately held and family owned businesses in the areas of succession planning, sustainability and governance.