With an estimated 60 per cent contribution to the GDP, family businesses are a vital cornerstone of Canada’s economy. They generate job growth, make significant philanthropic contributions and continue to outperform their non-family business counterparts on many parameters. Yet in the coming decade, a high number of family enterprises face a significant challenge when Canada’s boomer retires.
In family businesses, there’s typically a strong desire to pass the reins to the next generation to continue the legacy, yet this transition can only be successful when incoming leaders are capable and willing, says Allen Taylor, chair of the Family Enterprise Xchange (FEX). “The next generation brings its own set of values, hopes and dreams, which may not always be aligned with the expectations for a traditional succession.”
The pitfalls of generational transitions are not new, Mr. Taylor explains. The common notion – that the first generation builds the wealth, the second sustains it and the third loses it – is based on a well-documented cycle. While three out of 10 family businesses survive into the second generation, only one out of 10 are handed down to the third.
Mr. Taylor sees several avenues for involving next-generation leaders in family enterprises. In traditional succession, the ownership goes to a younger family member, who takes control of the direction of the business. Alternatively, these family members can become owners without being directly involved in the operation of the business. A third option – and one that is increasingly in the spotlight – is intrapreneurship.
The intrapreneurial model allows younger family members to leverage the family enterprise’s institutional expertise for building a separate business, explains Mr. Taylor.
It also opens a new channel for intergenerational dialogue, believes Guillaume Hervé, president of G3point0 Consulting. “Studies show that the large majority of millennials are not interested in entering the family business, but that doesn’t mean they are not business minded,” he says. “Kids who grow up in an entrepreneurial environment tend to be entrepreneurial themselves, but they often look for outside avenues to quench that entrepreneurial thirst.”
So why not channel this desire into something that can fulfill their dreams and benefit the family’s core business at the same time, asks Mr. Hervé, who is the author of Winning at Intrapreneurship.
There are many proven benefits of intrapreneurship that work in favour of family enterprises, he says. “Different generations partnering on a real business initiative get to appreciate what each brings to the table. And when you talk about succession, it’s always a challenge to create a merit-based succession plan versus one based on entitlement. Intrapreneurship gives members of the next generation the means to prove their business sense and leadership capabilities.”
While the older generation has a chance to see their collaborators and potential successors in action, the younger partners benefit from family support, which goes far beyond providing seed money, he adds. “With intrapreneurship, you leverage the core business by taking advantage of the abilities, resources, support and networks that can help the new business grow faster than a purely entrepreneurial counterpart would.”
In addition, family support typically comes with less aggressive expectations for seeing quick results compared to outside investors.
Younger generations can also act as effective change agents at a time when many companies struggle with organic growth, says Mr. Hervé. “Family enterprises are generally so focused on their core business, and on making incremental improvements to either their offerings or their cost, that they may miss the bigger picture, which can include diversification, innovation or new markets.”
Mr. Taylor adds that some of the most successful family enterprises have used an intrapreneurial-like approach for diversification and increasing their market reach. “There are many examples where the assets of a core business were leveraged to grow the company,” he says. “Intrapreneurship draws on the various strengths of a family enterprise to develop a strategy that speaks to the values of next-generation leaders and their desire to build something for themselves.”
But regardless of the way in which new leaders become involved, having a strategy is key for sustaining a business for more than one generation, says Mr. Taylor. “Business families are often forced into crisis management by an event, such as the founder’s deteriorating health or death. This typically reduces their number of options.”
The awareness that long-term planning is core to business success is what differentiates successful family enterprises, he believes. “The costs of dealing with adverse outcomes are substantially higher than the cost of doing the right thing,” says Mr. Taylor, who advocates for a proactive approach and sound family business planning.
“The success of family businesses, and whether they can sustain themselves, can have a significant impact on the outcomes for Canada in the near future,” he adds.
The Family Enterprise Xchange (FEX) is anational organization with the goal to empower family enterprises and their advisers so they can succeed and flourish. To achieve this, FEX provides business families and their advisers with a unique blend of shared wisdom and experience, and the world’s best, leading-edge thinking and knowledge.
For more information, visit family-enterprise-xchange.com.
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