Running a family business today can sometimes feel like running a marathon in which the course keeps changing. At first glance, it may look as if your goal is as straightforward as it's ever been: Develop and sell the best product or service in your market.
But then as you round the first curve, you see a host of new competitors, changing customer demands, perhaps even an entirely different delivery system made possible by technology that wasn't available when you started out. And suddenly, you recognize your family and business need a new identity.
The FFI/Goodman Longevity Study, a landmark family business study published in 2011, found that the main industry in which the respondents' companies operated shifted an average of 2.1 times during the history of the family business. With an exponential rate of change, globalization, shorter business cycles, technological innovations, political chaos and complex family dynamics, it's no surprise that family businesses must change to survive.
If you want to better position your family business to thrive in this fast-changing climate, developing a family enterprise mindset is key. It is an orientation that effectively puts the family, rather than the business, in the foreground as the creator of wealth.
A family enterprise mindset means developing the ability — or, more specifically, the agility — to continually direct your family's talents, finances and relationships toward seizing the best new opportunities consistent with your family vision. This positions you to respond effectively to changing business conditions while maintaining the family as a consistent strategic advantage. In the process, it strengthens your family's relationships or overall cohesion.
How to develop a family enterprise mindset
Developing the capacity required for a family enterprise mindset means changing how you think, how you feel and how you behave so that you:
• Evolve from seeing everything as a problem that you must solve to realizing that the system may require a strategic solution.
• Are aware of your emotions and able to label them and choose how to act (or not act) upon them.
• Step back from your own ego to see things more objectively.
• Have the agility to assess the mindset, style and perspective that will be most effective in any given circumstance.
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Strengthening the prospects for a third-generation family enterprise Several years ago, I helped three second-generation brothers collaborate on establishing a succession plan. They had previously sold their construction business and bought two businesses back from their buyer, had created two start-ups and still had a small business that had been in the family for years — with 85% of their wealth in investments. In short, like a growing number of family enterprises, they had changed their core business to survive in a changing environment. As we began to work together, they recognized the value of consciously developing the family's capacity to ensure its future prosperity and ability to respond to ongoing change. As a result, they have: • Changed their mission statement to reflect their role as a family enterprise. • Begun work to develop the four Âagilities — self-awareness, empathy, framing and innovation — in the rising third generation. • Created a chief learning officer position to guide this work — a role they are considering passing on to a member of the rising generation. All of this has strengthened the Âfamily's future capacity to thrive in what will undoubtedly be an ongoing changing environment. — Greg McCann |
There are many ways to develop a family's overall capacity. One way is through Leadership Agility, a leadership model described by Stephen A. Josephs and William B. Joiner in their book Leadership Agility: Five Levels of Mastery for Anticipating and Initiating Change. Leadership Agility is an approach to vertical leadership, a new model of leadership development.
For generations, it was thought that the best way to develop as a business leader was to master the specifics of your business. The idea was that the more you knew about all aspects of your business, the better able you would be to solve problems and lead the business. This is known as the horizontal leadership development model.
Vertical leadership development, by contrast, emphasizes how a leader thinks. This model considers the whole person, including their emotional and social intelligence.
Leadership Agility helps family business leaders navigate exponential change by enabling them to gain the perspective that comes from stepping outside the system — whether the system is the business, the family or even one's own ego.
To become an agile leader, you must develop four capacities:
1. Self-awareness. Emotional and social intelligence expert Daniel Goleman has described self-awareness as the ability to understand your own emotions and their impact on your performance. Developing greater self-awareness better enables you to see your strengths, weakness and blind spots — and to understand how others perceive you. This is critical to success, especially in a family enterprise.
2. Empathy. This involves developing a deeper capacity to sense other people's emotions and imagine what someone else might be thinking or feeling based on the situation and how they view the world. It is foundational to effective communication, decision making and compromise, and it boosts effectiveness. While some gloss over this seemingly “soft” capacity, its importance cannot be overstated in a family enterprise, where relationships are more profound and complex than relationships with unrelated colleagues.
3. Framing. This is the ability to clearly define what the issue is. It often is enhanced by realizing your role in the process and empathy for what others, such as a parent, sibling or niece, care about and value.
One family I worked with wanted to frame the choice of a family council chairperson in terms of expertise. After some reflection, they reframed it in terms of their family dynamics, which proved more effective.
4. Innovation. Innovation creates value in two basic ways. Incremental innovation improves the existing system (such as making a hotel more efficient). Breakthrough innovation disrupts the system (such as creating Airbnb as an alternative to hotels). In a family enterprise, cultivating the capacity for innovation might involve lifelong learning or becoming more strategic and hands-on in charitable giving.
Family learning and development practice
The acccompanying family learning/development practice diagram shows the range of ways family members can be involved with the family enterprise.
Family members must be unconditionally accepted as essential members of the enterprise, albeit with clear and enforced boundaries among family, ownership and management roles.
To assume deeper roles, family members must develop as people and as leaders by cultivating the capacities of self-awareness, empathy, framing and innovation. Doing so is arguably more important in a family business than in other businesses, given the lifelong relationships at the core.
As a next step, family members must be educated in ownership and governance competencies, such as financial literacy or development as a potential future board member.
Finally, role-specific training may be necessary — if, for example, someone aspires to lead the family's charitable foundation.
Of course, these processes often overlap, but considering them in turn helps clarify how each one contributes to the development of capacity building.
When self-awareness, empathy, framing and innovation are developed, all four skills ideally start to act in combination with one another. Consider what happened in one family that transformed its family employment policy into a family engagement policy.
• Family members demonstrated self-awareness by matching their talents, interests and goals with opportunities.
• They showed empathy by understanding other family members' feelings and perspectives.
• They reframed the previous family employment policy and developed an innovative new policy.
The work of developing and combining these capacities generally leads to advancement along three progressive stages:
1. Expert. This is the level at which most leaders begin and is most effective in relatively stable organizations. In the expert stage, success is achieved by making incremental improvements in existing strategies, and the leader has clear authority and expertise. The expert is typically focused on tactics and the go-to person for problem solving.
2. Achiever. The achiever has a strategic focus, which is most effective in organizations where success requires periodic changes in strategy. The achiever works to gain buy-in from key stakeholders, excels at cross-functional problem solving and is motivated to develop the competencies needed for effective management and leadership.
3. Catalyst. The optimal mindset and skillset for family enterprises, the catalyst stage is most effective in rapidly changing organizational environments that require significant coordination across multiple boundaries. A catalyst provides visionary leadership while engaging diverse stakeholders in collaborative dialogue and creative problem solving. The focus is on developing empowered organizations and teams capable of sustained success, fostering both personal and professional growth. Catalysts understand the culture of the organization and family and work intentionally to expand the leadership capacity of others.
All family capacity building must be customized to fit the family's needs. It's most logical for the family council to lead this effort.
Vulnerability-based trust helps family members who work together deal with conflict, gain commitment, create accountability and focus on results.
I have seen family businesses that commit to developing leadership agility become more effective at meeting challenges, whether driven by external changes or coming from within the family. Most find their work together more meaningful as a result.
Greg McCann (www.greg-mccann.com) works with family enterprises in the areas of leadership, succession, communication and conflict resolution, with a special emphasis on helping the next generation succeed in their careers and lives, through his boutique firm McCann and Associates.
Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.