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How does a family enterprise innovate over generations?

Introducing the Next Generation Family Champion¹

By Dennis T. Jaffe

Timo Recker is a 29-year-old third generation family member of a successful German meat production company. While the business is successful and growing, he knows that meat production is costly to the food chain, and, more people can be fed if they eat fewer meat products. He wanted to do something that leveraged the skills within his family, which also help create a sustainable future. With funding from his father, he used the family food production expertise to develop his own company, LikeMeat, which creates vegetable based meat-like products.

The older generation did not ask Timo to do this. Rather than just enter the family business and work his way up to leadership, he took initiative to lead the family in a new direction. While his new venture is small, it has potential to take the family’s expertise into non-meat eating cultures. He is deeply respectful of his family’s achievements. Indeed, he could not have started his company without family financial and intellectual capital. But his venture moves the family in a new direction, following his own perception of values and what is needed in the future. He is what we call a family champion, a next generation family leader who takes the initiative to lead the family responsibly in a new direction.

The champion can lead the way when a business family faces a natural stumbling block. The elder family leader has served the family well for a long time. But the leader may become more invested in tradition and past successful practices, than in innovation and change. Family business leaders tend to stay in leadership roles far longer than leaders in public companies. This is positive in that they can firmly keep the family on track and sustain a culture of excellence and care for customers and their products. But any long- serving leader also develops blind spots, and an entrenched group of advisors, who can block opportunities for further development and may not be best positioned to see the need for change.

Enter the next generation. In a traditional family culture, the elders, especially if they are business founders, often emerge from humble roots with minimal education in a far simpler time. Their children, raised in a culture of affluence, are well educated, travel, and grow up in a digital, connected environment. While they appreciate the sacrifices and achievement of their elders--often they are in awe of them--they are also impatient to seize new opportunities and move in new directions. While they may be naïve, unprepared, or overly impulsive, they are also in touch with, and passionate about, genuine opportunities and creative ideas. How can they relate productively to the more conservative leaders with a very different life experience?

Young family members also have a choice that is always at the edge of their awareness. Should they prepare to enter the family business, or go their own way, developing a career outside the family business? Some family members develop careers in social service or the arts, which are possible because of family support. Some family members, sadly, decide that since their family is so affluent, their life task is to spend. How can the younger generation learn to make responsible choices about the business, the family wealth and their future?

Family elders too often expect the best members of the next generation to jump at entering the family enterprise. They can be surprised to find that the younger generation has questions and conditions. Potential family successors are able to look beyond the current success, at the challenges that lie ahead in a world in flux.. In school they see new business models and experience ideas and challenges outside the family leaders more limited experience. If they enter the family business, they want to know that the business will adapt to the emerging global business environment. Often that means looking at issues of environmental sustainability, or the effects of social poverty, illness, inequality or poverty.

Timo got the idea for LikeMeat when he and his father had a vegan “schnitzel” dinner at a London restaurant. They liked the food, and got into an exchange about it. Timo talked about his reservations about the sustainability of meat production, since meat needed more land and water, and produced more pollution than vegetables protein. He also valued healthy eating and felt that vegan food, if it tasted good, could be a competitive product. The family meat business offered resources in technology, manufacturing and marketing, and his father was persuaded to fund the new venture.

The vision of the next generation champion is more than just about business. It can concern the social capital of the family, the way the family uses its often-extensive resources to give and serve the wider community. One family foundation had a long history of supporting the symphony, the parks and other efforts aimed at the more affluent parts of the community. The younger generation felt that, with poverty and inequality deeply influencing their city, that the foundation should have a major focus on those “at the bottom of the pyramid”, with affordable housing, clean water and economic development. At the initiative of next generation champions, the family was asked to address this issue, and they were able to bring the next generation around to their views.

A family can adapt and change from two directions: top down or bottom up. A unique capability of a family business allows for bottom-up change. Members of the next generation have a special voice in the family. While they are young and starting out, they are also the heirs to the business, and as valued and beloved family members, they get the ear of the leadership in a way that does not exist in non-family companies. The reality that the next generation family members are the future of the business, and can get the ear of the leaders, creates a unique opportunity for innovation and family adaptation. Unfortunately, families are often not designed to allow for the exchange of ideas between generations. Elders expect their children to wait patiently and above all quietly. If a family is dismissive of their contribution, the journey of the champion is immeasurably harder.

Family evolution is not harmonious. The reality that a majority of families fail to cross generations as both a successful business and a connected extended family, shows that innovation and adaptation is difficult. Many family enterprises are absorbed into larger entities, liquidated, or fragment because of lack of alignment within the family or succession by inadequate family leaders. I have been studying long-lived families—those who successfully enter their third or fourth generation with successful businesses and a vital, connected, aligned family. Two of the most universal qualities of these generative families are their ability to create a respectful dialogue across generations, and their investment in adaption and innovation. Successful multi-generational families are resilient, adaptive and innovative, using both top-down and bottom-up strategies for change.²

The journey of a family champion is not always easy or natural. One young family member faced a deep dilemma. He was the only son, with two older sisters. His father, a traditional Asian patriarch, came from humble roots and made it clear that he expected his son to succeed him. His son, however, saw several challenges facing the family. First, his sisters were both educated professionals, and his older sister in particular had the skills and interest in leading the business. But his father would not hear of that. Also, he felt that he needed to develop his skills, and also his credibility, by getting an MBA in a western school, and working outside the business. His father, who had not gone to college could not understand why he needed an MBA, and from another country, and why he would not come back to the business and work right now! His choice—to become a dutiful son and do what is expected, or to gently challenge the thinking of his father to allow him the space to grow and develop, and to find ways to include all of his children, becoming a family champion of change. He has reached out to his sisters, and they in turn are approaching their mother, and then their father, to think about the next generation differently. To do this, they have to gently challenge the values and cultural views of their father, or else they will be sacrificing some of the value that they all can bring to the business.

An essential quality of family champions is that they are not given power or authority, they develop it by their initiative and persuasive approach to the family. They see a need and feel passionately that it is the right thing to do. To succeed, they need to educate the older generation. Previous generations of young people were not in the habit of educating their parents, because change was not the dominant theme.

Having passion and asserting the need for change is not enough for a successful family champion. Many passionate next generation ideas are foolish, impractical, or projects that the next generation or the family are just not able to manage. Successful next generation champions approach their parents and elders with respect and humility, and bring them along by being able to compromise and work together with them. The effective family champion and family elders enter a process of respectful, even loving, mutual learning, where the voices of tradition and experience interact with the voices of innovation and change. Cross-generational interaction can happen in any company, but because the champions are also members of the family, they have the ear of the elders, and the opportunity to talk to them at length.

For example, a real estate family was leaders in a city, where their buildings were the bright lights on the skyline. For three generations the family name was synonymous with progress and community leadership. The fourth generation family members were active in preserving land and wildlife, maintaining the shoreline and sustainable development. Third generation family members bearing the family name were active in organizations confronting the real estate association headed by the second-generation family leader. The family champion from the third generation sought out the second-generation family leaders, her father and uncle, and said that their conflict was not helpful to their family’s genuine interest in the future of the city that they all shared. She and her siblings and cousins patiently worked with their elders, to craft a shared set of values and plan, that all of them were comfortable with. Then, the family together produced a plan for the future of the city that pleased critics of development, and gained the support of business leaders.

The champion can take a more personal and less visible role within the family, becoming an emotional leader or internal force for conciliation. In one family, three second-generation heirs to a growing manufacturing company, were in deep conflict. They fought over who would be leader, the roles of their children, and business policies and development. Each of the three branch families began to cut off contact with the others. Despite their parents’ efforts, the third generation cousins became close as they grew up. As they considered entering the business, and what it would mean to inherit the ownership of this business together, they decided their parents’ conflict had to end. They formed a third generation council, and asked that the older generation allow them to develop a shared governance process that went beyond the branch conflicts, to create a unified third generation to grow and develop the business. The older generation, after initially resisting their efforts, saw their children acting more maturely than they were, and accepted their initiative.

The family champion is a special resource that emerges in a successful business family. Whether the family is able to listen and work with them, or inadvertently reject or alienates them, can often spell the difference between a family sustaining vitality and adaptation, or becoming stagnant. While relations between the generations are never easy or smooth, the family that is able to listen to and consider the new ideas of the next generation, and which creates a place for dialogue and shared learning across generations has made effective use of the special advantage of love and trust that lie within a family.

¹ The study of family champions is being advanced by the work of Joshua Nacht, who is completing his Ph.D. studying the emergence, capability and role of family champions.
² See my working paper Good Fortune: Creating a Hundred Year Family Enterprise, available from Amazon, or through my web site dennisjaffe.com. The paper is based on a study of 38 long- lived families, and defines some of the best practices for family generational adaptation.