Wise Growth Strategies in Leading Family Businesses

As I said in the Preface, I wrote this book with family businesses in mind. I would like to address all members — the active leaders, those in the background with more supporting roles and those who aspire to have active leadership roles when their generation is ready. I hope to share some of the insights that I have gained through my research about what makes a family business more likely to succeed and how to put those learnings into practice in your family business.

The Distinguished Family Business Award was initially created in 1996. Today it is awarded annually by IMD, in partnership with Lombard Odier Darier Hentsch. In addition to highlighting the important global economic contribution of family businesses, the award recognizes outstanding companies which have successfully blended family and business interests and identifies best practices which may be useful to other family businesses.

Growing any business is a challenge. Growing a family business is even more of a challenge as evidenced by the fact that a vast majority of small- to medium-sized family businesses grow very little. In order to support a growing, multigenerational family, its leaders must adopt growth as both a mindset and as an objective to be implemented over time. There are three reasons for this. Firstly, as the family grows there are exponentially more family owners and that translates into paying a growing number of dividends. Secondly, market conditions change and adaptation and renewal are necessary. Few family businesses escape the need to adapt. Business growth is the outward sign of successful adaptation and responding to market needs. Thirdly, when business growth is built upon a vision that each successive generation has developed and implemented, it confirms a sense of personal worth and professional achievement for the family and its leaders. Instead of just inheriting a business and its already existing vision, the successor generation is seen as contributors in their own right — leaders who have developed their own vision. This positive perception is held both by themselves and by others, including non-management family members and the organization’s management and employees.

Generational transitions are the most critical periods for any multigenerational family business. The functioning equilibrium of the stakeholders’ four needs — family, ownership, management and the individual — is upset and a new equilibrium needs to be found in order to provide stability and transparency for the overall system. There are, however, inherent weaknesses in the system which tend to add complications in reaching a new and functioning equilibrium as quickly as possible. Quite the opposite, these weaknesses, as I outline below, tend to favour the creation of conflicts, most typically between two generations.

As shown in the preceding chapter, most successors attempt to achieve recognition as fast as possible, and they focus on business strategies before having transitioned through a development process as described earlier. The best practices learned from the award-winning family businesses highlight that business growth should be wisely constructed on the achievements, values and traditions of previous generations. Growth should not be undertaken at any cost. Evolutionary “wise growth” is more effective for family businesses than revolutionary growth. This is particularly true for those that are mindful of their traditions.

Family businesses are complex structures; they have to reconcile and create equilibrium for the needs of four different interest levels: family, ownership, management and the individual. Over time, the needs of these four stakeholders change and evolve, thereby creating the need for a new equilibrium. Most family businesses experience difficulties in finding an effective approach in creating the new equilibrium, which results in high financial and human opportunity costs. The nine award-winning family businesses provide insights and examples for meaningful and effective solutions. Most importantly, they actively developed the next-generation leaders. This is by far the most important strategic decision a family — as business owners — faces in regard to sustaining the family business.