Transitioning refers to “the process of changing from one state or condition to another,” whereas transforming refers to “a marked change in form, nature, or appearance.” It is critical that families focus on transforming, as they often face external pressures that threaten their continued existence over generations. These threats may include economic recessions, technological changes, political volatility or regulatory changes.
Focusing on transitioning over time does not guarantee multigenerational success, as the business model and strategy may be rendered obsolete as a result of external shocks. Instead of being reactive, families can be proactive by driving change to create new opportunities that would be viable in the future, through regeneration, renewal and reinvention.
The modes of transformation that families can employ include:
- Strategy: setting up new product/service lines, geographic expansion, making new investments or divesting;
- Scope: driving technological change or driving sustainability measures;
- Structure: driving structural changes such as setting up a family office, or introducing governance bodies like a board of directors or family council.
It’s critical that families shift from a transitional approach to a transformational one for a couple of reasons.
The first of which is that disruption is here to stay: we may not know the nature of said disruption however, business owners will continue to experience economic, political and social shocks: According to Jason Miklian from the University of Oslo, Norway, “shocks to economic, political and social systems are becoming more pronounced, and the crises they generate are more severe and long-lasting”. Family business owners can be vulnerable to such shocks, leading to potential losses, demand and supply-side interruptions and potentially the demise of the business. Transformational enterprises by their very nature are diversified, both in their operational businesses and in their investments. This diversification enhances their resiliency and their ability to deal with shocks and future-proofs the enterprise.
In addition, family enterprises face change on 3 different levels. They comprise of 3 different systems: the individual family members, the collective family unit and the business. For example, individuals go through different life stages and their needs from the family and enterprise change as a result. The collective family unit also sees changes over time: children grow up to become young adults and may start their own nuclear families, expanding the family both in size and complexity (as tribes emerge). Lastly, the business goes through different life cycles: from start-up to growth, to maturity and then decline. Families are constantly grappling with how to thrive amidst change, how to transform and not just transition on all 3 levels.
A specific change that family enterprises go through as they navigate generational transition is moving from a dispensation that is characterised by a controlling founder to one that is characterised by siblings’ partnership (“Generation to Generation: Life Cycles of the Family Business,” Gersick et al.). This necessitates that families move from being governed by individual rulers to collective leaders practiced by the siblings. Here, they see themselves as co-builders of the enterprise, and share and discover ideas and co-create solutions together that can precipitate the transformation of the enterprise. However many family business owners struggle to build transformational enterprises due to common mistakes they tend to make:
Working in the business and not ‘on’ the business
Generation one enterprising families are often characterised by a dominant founder that enjoys founder-centricity. They are often so focused on working in the enterprise that they neglect to work on the enterprise. Such people are conscious operators rather than conscious owners.
To successfully transition a family business across generations, however, one needs to think more strategically, moving from knowing the minute details of operations to having a broader view of the enterprise. This entails becoming adept at driving the investments, people, governance and culture of the enterprise.
In addition, there needs to be an awakening to the full scope of the family’s ownership role and the totality of the resources at their disposal. Note that these resources are not just financial, but also social, intellectual and spiritual, sourced not just from the founder but also from the other family members.
It’s technical, not relational
Building legacy enterprises requires not just the technical i.e. legal structuring, estate planning, tax planning and wealth planning, but also the relational. Often times families invest time and money in drawing up legal structures such as trusts, thinking these will be sufficient to provide continued financial security for the family over time. In reality, the technical is built on a foundation of the relational. The relational must come first, where there are conversations aligning on the shared purpose, values, vision and mission of the family enterprise within the family.
In absence of that, the family may struggle to have clarity of oneness, to communicate and collaborate. Relational dynamics and conflict can create roadblocks and lead to irrational decision-making that has negative outcomes not only for the enterprise but also for the harmony of family relationships.
It’s a revolution, not an evolution
Families often pursue revolutions rather than evolutions in their enterprises. Revolutions refer to sudden and dramatic changes whereas evolutions are slow and gradual. Whilst evolutions are slower, often the risk of failure is significantly lower than that of revolutions.
A common revolution is when the founder passes away and the siblings are now in the power seat and they pursue drastic changes in strategy, advisors or in structure. The challenge they face in pursuing a revolution is that they often have minimal experience working together and so have not formed the cadence of an effective, productive partnership. They seek drastic change while their team is at an infant stage of development. This is quite risky and often disrupts not only the enterprise but also the family.
Instead, they should pursue evolutions, a gradual transfer of power, authority and influence of the second generation over the family enterprise, during the lifetime of the founder, where the siblings are intentional about becoming partners because partnership takes time, practice, and intentionality.
Investing in the relational
The journey to multigenerational success requires transformation, which is achieved by addressing both the relational and the technical. It requires the family to be connected.
The Case for Connection
Business families often face shocks that necessitate change. They need to be able to transform their enterprises to be future-proofed despite these negative conditions. The key to transforming is connecting. A connection enables a diversity of thought and co-creation of solutions. It triggers collaborative intelligence, drawing upon the natural diversity that families enjoy (age and gender). In a world of increasing complexity, businesses that enjoy greater quality and quantity of ideas have unrivalled advantages; however, that only comes about when families are truly connected, not divided or affiliated.
Characteristics of Connected Families
Unity not uniformity
Families that are connected appreciate and celebrate the differences in one another: they understand that their differences in age, gender, tribe, race and experiences culminate in their unique insights and perspectives. Families can maximise this cognitive diversity by facilitating collective co-creation of ideas. Whilst they appreciate their differences, they have clarity of oneness.
Interdependence and Independence
Connected families have independence as well as interdependence: they prioritise the good of the collective family as well as of individuals.
Vertical and Horizontal Connections
Families that are connected both vertically and horizontally enjoy age and gender inclusion.
Draw Upon The Family Bank
Such families provide a range of support (emotional, esteem, network, informational, and financial) to family members and draw on support from a range of family members at times of need.
The Impact of Connecting
Families can build this connection through investing in clarity of oneness, communication and collaboration. This will allow them to move from relying on the lone genius of the founder to triggering collaborative intelligence, where they work and think together and cultivate intellectual diversity. As a result, members are able to co-create solutions together, rather than just co-exist. Through collaborative intelligence, they are better able to solve enterprise challenges due to setbacks, increasing productivity, creativity and innovation.
Through the discovery of ideas and solutions, families are able to transform their enterprises to be relevant and future-proofed. Through future-proofing and continued longevity, the enterprise continues to be a source of wealth to the family, generate employment, and be a helm in communities. In doing so, families enjoy a legacy of transformation and leave a transformational legacy.