You've likely heard the old cliché about the buggy-whip maker (or his more recent counterpart, the video rental store owner) who stubbornly sticks to his business model until changing technology renders his enterprise irrelevant. Presumably you've taken this cautionary tale to heart and are not relying on typewriter ribbon sales or telephone booth installation to feed your family.
Even if your family enterprise faces no immediate threat of disruption, innovation should be part of your strategic plan. Finding new lines of business can increase your customer base and provide revenue to counteract dormant cycles in the core business. If you manage innovation well, what was once your “side hustle” might even overtake your legacy business and become your main profit center.
This is not a new concept. Some of America's oldest funeral homes started out as cabinetmakers that expanded into making coffins and then into providing funeral services.
Innovation can come from anywhere in an organization, but NextGens tend to be a fruitful source of ideas. They are generally more fluent than their elders in the latest technology. Plus, the experience they gained in the classroom and in jobs outside the family business (as required in many family firms' family employment policies) has given them exposure to different ways of doing things.
What can your company do to encourage innovation? Here are some suggestions:
• Teach your NextGens about responsible risk taking. Start by putting them in charge of a relatively low-risk project and allowing them to fail, if that's what ends up happening. Be supportive and help them analyze what went wrong. This will give them confidence to continue taking risks that are necessary to succeed in business — and experience that will serve them well when they take on bigger tasks.
• Start a “family bank” to fund entrepreneurial ventures outside the family firm. Most young people lack the collateral to obtain bank financing for a start-up. Establishing a source of family funding that requires accountability (via a business plan, payment terms, etc.) will encourage entrepreneurship in a formal, professional way.
• Take advice from your non-family executives and independent directors. They are not as wrapped up as you are in the family legacy and dynamics. They also know about opportunities and risks beyond the walls of your headquarters.
• Make innovation part of your strategic planning. Set aside time and space to brainstorm new ideas. Don't just run with every idea that comes up — vet proposals' viability with focus groups. Consult staff who'll be carrying out the plan about challenges they foresee.
• Inform your family shareholders about what innovation entails. There will be start-up costs, and it will take time before a new venture pays off. Explain your rationale for green-lighting new projects.
New ideas may seem to have come from the heavens, but innovation actually requires cultivation, as well as sufficient time, space and funds for those carrying out the project. Monitor the process and watch for red flags. And get ready for a thrilling ride!
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