September/October 2015 Toolbox
A primer on nurturing innovation
Innovation in the Family Business: Succeeding Through Generations, by Joe Schmieder • Palgrave Macmillan, 2014 • 124 pp., $23
Many family business owners recognize that long-term sustainability of the enterprise depends on the family's ability to innovate. But what can a family company do to encourage and nurture innovative thinking? Joe Schmieder, a principal consultant at the Family Business Consulting Group, offers some suggestions in Innovation in the Family Business.
Schmieder, who specializes in succession planning and strategic business planning, writes that the purpose of his book is "to inspire enterprising families to focus more energy and resources on innovation throughout their family businesses, and to provide them some ideas for creative directions to pursue on multiple dimensions."
Chapters center on how-to topics such as "Structured Chaos: Creating a Culture of Innovation," "Money and Metrics: Funding and Measuring Innovation" and "Leadership and Ownership Transitions: Ensuring Succession Supports Innovation." The author illustrates his points with examples from more than 50 families and their businesses. Each chapter ends with a helpful summary, headlined "Things to Remember."
"Family businesses are different from nonfamily firms, and many of the ways in which they are different support their ability to innovate," Schmieder writes. These characteristics include a long time horizon, cultivation of long-term relationships with suppliers and customers, greater emphasis on family values than on profits, freedom from debt and trust within the family.
Yet, the author points out, many family business owners avoid risk altogether and are unwilling to take on debt even for sorely needed upgrades.
Among the characteristics of long-lasting family firms, Schmieder writes, is their tendency to take smaller risks that involve minimal debt in order to preserve capital for the family shareholders. The upshot is that the types of innovations that emerge from family firms are those that make smaller splashes than, say, the Apple Watch. "Groundbreaking new products . . . rarely emerge from family businesses," Schmieder observes. "Family-run enterprises tend to prefer smaller-scale, incremental innovation over radical changes."
Because of their preference for small improvements made gradually, "observing family firms innovate is like watching paint dry," the author writes.
How does a family establish innovation as one of their core values? Important lessons about entrepreneurship can be imparted when the history of a family business is retold, the author notes. "When it becomes clear to incoming family members that it took some truly innovative moves to create, grow and sustain the family business," Schmieder explains, "they understand the critical nature of innovation more deeply than ever before."
Even so, he argues, many family businesses wait until the handwriting is on the wall before they begin to focus on innovation. Entrepreneurial thinking in family firms, Schmieder writes, "still tends to happen more out of necessity or opportunistically, rather than deliberately or as the product of a firm-wide focus on meaningful change."
Being intentional about fostering innovation while developing a strategic plan can help to ignite the entrepreneurial spark, the author advises. One of the book's chapters focuses on creating new products and services, featuring examples of innovation processes (along with diagrams) that are excerpted from classic product-development literature.
There are other productive ways to innovate besides building the proverbial better mousetrap, Schmieder notes. One method is to invest in areas outside the core business, thus reducing dependence on a single market.
Other areas that benefit from innovative approaches are business models, estate planning, training of next-generation members and governance structures, Schmieder points out. "In many cases, these often-unheralded innovations produce key results for the family business."
Creative genius can't be forced, but it can certainly be helped along. This concise book will help family business owners shape their processes—from daily operations to succession planning and governance procedures—to ensure they support innovation.
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