Viewpoint: Putting structure into entrepreneurship

A lot of next gens say that their biggest decision is whether to join the family business. In an important sense this is wrong, because they don’t really have a choice. Yes, they can choose whether they are going to manage part of the family’s assets, but they are always going to be part of a business family whatever they do.

This raises an important point in family businesses – that members need to change their mentality and to escape from the managerial mindset, and start thinking as owners. And ultimately that means, like entrepreneurs.

One of the biggest problems with business families is they are often obsessed with the control of one particular asset – the core business – and who will run it. So, when they talk about succession they tend to look for “the one” who will run the business, and they forget about the other members of that generation.

Apart from anything else, this is risky – what if something happens to that person? And how do the others who are not chosen feel? But perhaps more importantly it is unrealistic – the reality is that the entire family is involved in running the business in one way or another. They might need to learn how to be a good board member, for instance. That is a real task, and one that has to be taught.

But most importantly, this obsession with control and the core business is foolish. You can’t assume that just because your grandfather was successful making a certain type of shoes, you will be too. In business families there is sometimes a tendency to inertia, to assume that their success will go on. But that is not true and is actually a barrier to growth.

There is an interesting contrast between families and entrepreneurs in their attitude towards control. Entrepreneurs tend to be very willing to share control with a partner, or an outside investor. A family often doesn’t want to share anything.

They would be far better off embracing the entrepreneurial way of thinking, to identify the people in the family who have entrepreneurial talent and encourage them. Family entrepreneurs are absolutely vital because a successful family has to diversify outside the core business.

Even when they understand that they have to be entrepreneurial families often say “oh, we will do it in an informal way”, but that just guarantees that nothing will happen. The only way to encourage entrepreneurialism is to build structures around it, to create an investment committee or a business development board, and investment or entrepreneurial funds for projects brought in by next gens.

It’s a great way to develop next gens, to give someone in their 20s the money to start a new project. This improves their skills outside the core business, and if it goes well then you can have a “reverse succession”, where the business is bought by the parent company – this is what Rupert Murdoch did with his daughter Elisabeth’s production company Shine.

Ownership means taking a broader view of the family’s business, and to look to the future, not become complacent based on the successes of the past. Families don’t all need to fly headlong into non-core diversification, but it is always good to push things a little bit. Standing still only guarantees that you will be overtaken.

Cristina Cruz was born into a business family and is a professor of entrepreneurship at IE Business School in Madrid