During my doctoral studies on innovation in the context of family businesses, I have been fortunate enough to have a dialogue with many family principals and entrepreneurs. Some have stood out as among the most innovative and robust businesses ever to exist in their specific sector. Perhaps one of the most outstanding and fascinating I have come across in this respect is the Munich-based Schoeller Group, which is owned and run by the family of the same name.
The family owners embody the unique longevity of the internationally renowned Mittelstand, to which Germany is so famous for. Their businesses have moved from their origins in iron production to the textile industry in the 18th century, followed by the move into sugar production in 1880, and subsequently, a wood processing industry in the 20th century before pioneering bottle and food transportation. Now the 8th generation is involved in digital innovation and startups. They are a truly remarkable family when it comes to entrepreneurship and innovation.
The family business dynasty – made up of two family lines – traces its history back to the 16th century. One line of descendants has successfully been involved in iron production for more than 500 years. My focus, however, will be on the Munich-based part of the family, who have also been highly successful across many generations.
They are a truly remarkable family when it comes to entrepreneurship and innovation
Their success gives us exceptionally prescient insights on how families innovate over generations, establish a long-lasting family business culture and, in particular, how they balance tradition and innovation for positive outcomes.
Johann Paul Schoeller (1700-1754) laid the foundation for a unique family business success story by entering the textile industry in 1718. With the knowledge of the many advantages of cross-generational entrepreneurship from previous generations, he introduced his son to the business early, unlocking their combined innovative strength.
They set new industrial standards by implementing a range of revolutionary process innovations, such as the first overarching supply chains for industrial textile processes. In this way, father and son soon became the industry’s driving force of innovation. By applying this family business culture, the next generations ventured further into a diverse range of industries and regions, such as paper, sugar and even into banking, not only in Germany but also in Austria, Switzerland, Poland, and Silesia – a historical region of Central Europe located mostly in Poland, with small parts in the Czech Republic and Germany.
Major historic milestones were the foundation of the textile production in 1718, the paper production in 1773 – both of which are still in operation today – as well as the Schoeller Bank in 1833 and the sugar production in 1880.
A business family rather than a family business
Ever since the first generation, the Schoeller family has been embracing their entrepreneurial family business culture. Every generation since then has either established its own business or followed its predecessors in continuing the family business.
This is consistent with my observations of many other – especially later-generation –family firms. Instead of considering themselves as a family business, they rather regard themselves as a business family. Consequently, they do not only think in established products or processes, but much more aim at expanding their family wealth.
Traditional types of technological innovation – being expensive, time consuming and uncertain – are no longer sufficient to respond to change
Similarly, the Munich-based Schoeller Group, which just recently celebrated its 50th anniversary back in 2016, can trace its entrepreneurial history back many centuries ago and is internationally renowned for their innovative reusable bottle crates and containers. Its origins lie in the part of the Schoeller family business dynasty, which was the sugar-producing line of the family. More specifically, Alexander Schoeller (1911- 1973), a representative of the 6th generation of the family, established the new business in 1938.
But why did a member of the family venture into a completely new sector again? The reason lies in external factors, namely World War II. But still the spirit of entrepreneurship and innovation continued to shine through. Alexander’s father Max Schoeller (1865–1943) sold the family sugar business after it was confronted with severe economic and political pressure during the 1940s.
With the proceeds from the sale of the family business, Max helped his son Alexander to acquire a wood factory in Silesia, which produced wooden boxes and containers. While being a completely new field for the family, Alexander recognised the company’s great potential, just as many of his ancestors had done in the past with other ventures.
Shortly after, the business began to flourish, soon employing around 150 people and becoming a big producer of crates. One of its key success stories was the development of the first plastic bottle crates. Based on his family entrepreneurial approach and his unique technological know-how,
Alexander realised that there was a huge opportunity in producing crates from only one piece of material, rather than dozens of separate pieces by using injection moulding. This was much more efficient than anything the competition could offer.
Business model innovation as a new avenue for value creation
Schoeller found that it could dramatically increase the service life, elasticity, reusability as well as hygiene of its bottle crates through technological – product and process –innovation. This enabled Schoeller to not only revolutionise the traditional product and its underlying production, but to also further innovate the industry’s established business model. The family business was now able to brand each and every crate individually, thereby also being able to use them as an advertising medium.
The rising importance of business model innovation is in line with the results of my research in the scope of my doctoral thesis. Traditional types of technological innovation – being expensive, time consuming and uncertain – are no longer sufficient to respond to change, especially when such change is becoming ever faster and disruptive.
Academics have turned to business model innovation as a new avenue for value creation. It challenges existing business and value architectures, develops new value propositions, implements new value chain structures, establishes new revenue models and reconfigures the resource base.
Once again, Schoeller was a great example of cross-generational entrepreneurship and innovation. As I have previously described, and in contrast to some false sense of tradition, the family did not cling to a faltering family business, but rather kept returning to its deep entrepreneurial roots.
The culture of entrepreneurship and innovation is continued by the 7th generation, which is currently in charge of the family business. Despite the enormous success of the wooden crate, its demand eventually fell and Schoeller ceased its production in 1965. The family effectively let go of a declining business to embark on another phase of their entrepreneurial journey. This time, they decided to focus on their strong industrial competencies, which were international licensing and the technical support of plastic crate productions. As such, Schoeller established an engineering firm that specialised in licensing, the design of bottle crates, and turnkey machinery systems.
The entrepreneurial transition to the 7th generation took place in 1982, when the two brothers Martin and Christoph Schoeller took over the engineering firm. Once more, a combination of technological and business model innovation helped to achieve yet another breakthrough. The brothers developed a new generation of double-walled crates, whose outer walls could also be used as advertising space. Additionally, the advertising space allowed them to introduce the use of multi-colour printing. All these steps combined product, process and business model innovation.
Schoeller was soon to become the pioneer in developing reusable crates and containers. Furthermore, despite considerable resistance and hurdles, Schoeller was the first mover in the retail sector to establish a functioning packaging system for reusable crates and containers. Again, this success was not solely built on technological innovation, but much more on business model innovation through the introduction of a novel value architecture that was new to the whole sector.
In more detail, the brothers were able to convince the German retail sector to transport vegetables and fruits in reusable containers, rather than in one-way cardboard boxes, aiming to reduce the huge amount of packaging waste based on rising environmental pressures.
Given the background of the family, it was not too surprising what Leopold Schoeller, a member of the 8th generation, decided to do…
The family business developed and implemented an environmentally sound as well as a more economically efficient solution by using a combination of intelligent design and comprehensive service. The family business proved that reusable transport systems can not only be environmentally friendly, but can also replace conventional single-use transport packaging in an economically advantageous way. Thus, Schoeller advanced to become the global market leader in returnable packaging.
Innovation in the digital age
Even with all their entrepreneurial efforts in the past, the question arises: How is it possible to keep up such a long-standing tradition and legacy of family entrepreneurship and innovation in the 21st century – especially in the ever faster changing and increasingly digital future?
In my previous Viewpoints, I have illustrated how Viessmann, a 4th generation family business faces the future by embracing the digital native next generation and how family firms can accelerate their digital transformation through cooperation with startups. Of course, there is no patent remedy or magic solution. Each and every family business is unique, just like its owner family and its individual family members. Nevertheless, from the feedback I regularly receive from many family entrepreneurs, whether old or young, best practice approaches by other family businesses can help them with their decisions, because, despite their heterogeneity, their challenges remain the same such as succession, family governance, and innovation vs. tradition.
The Schoeller’s current cross-generational approach – yet again – serves as a great example of how to set the course for a family firm’s digital future and at the same time for how to initiate a smooth generational transition in the long run.
Given the background of the family, it was not too surprising what Leopold Schoeller, a member of the 8th generation, decided to do after he graduated from university. Instead of gathering his first practical experience as an employee somewhere else, Leopold decided to set up his own business. But his major tenet was that it should be related to the family business in order to “generate and exploit as many synergies as possible”.
Consequently, he founded TURTLEBOX, the first removal startup to offer environmentally friendly and reusable removal crates made of recyclable plastic fabric. Due to his family business background, Leopold had the big advantage to start his own business by getting a loan from his family.
But, just like his highly entrepreneurial ancestors, he did not rest on his family’s laurels and thanks to the startup’s early success, Leopold could pay back the loan soon after the new venture was launched. In fact, he could even attract an external investor for further growth.
Another great advantage for the startup was the decision to move into the family business premises. Leopold highlights the importance of this move by repeatedly mentioning the priceless value of the closeness to the family business.
This way, the next gen entrepreneur does not only benefit from the immense know-how of Martin and Christoph Schoeller as well as of their employees, but also profits from the family business infrastructure.
Although the startup is separated from the family business, there are some significant synergy effects, which result in unique and sustainable competitive advantages. In addition to his activities at TURTLEBOX, Leopold recently launched another innovative project. On this occasion, he is helping the traditional family business to digitise its processes and to implement digital business models.
In more detail, he is among the first to introduce a pool of reusable containers for the consumer electronics industry through “Narrowband IoT” solutions. The technology enables its user to track each and every crate at any given time and to generate a variety of data (e.g. location, height, temperature, shock measurement, etc.). The idea for this project originated from Leopold’s work within the startup ecosystem. However, in contrast to TURTLEBOX, the newly established entity operates completely within the Schoeller Group, but remains a hundred percent engagement of Leopold, who gets paid a management fee in return.
Generational transition through cross-generational entrepreneurship
The Schoellers and the various businesses they have run since the 16th century are perhaps one of the most remarkable entrepreneurial families I have recently had the pleasure to meet. Through their relentless ability to innovate, but also to let go of no longer profitable businesses, the family has been able to continually re-invent their entrepreneurial activities over many years. Indeed, they represent a case study for any family business looking for how to prosper and succeed over a long period.
In my opinion, it is advisable to hand over the business to the next generation step by step in a cooperative manner, especially in the face of today’s severe innovative pressure. The emerging knowledge economy, which is radically disrupting traditional industrial value chains requires both old and new know-how.
In this way, one can create a fruitful environment for both generations in order to learn from each other and furthermore guarantee a smooth transition. As I have shown, the younger generation can provide the necessary input and solutions when it comes to those all-important digital opportunities.
On the other hand, the older generation can share its deep insights and know-how about the company, its strengths and weaknesses, and expert knowledge of their industry. By pooling these traditional strengths with a contemporary culture of entrepreneurship and innovation – as exemplified by the startup scene – families can ensure their businesses remain successful and competitive throughout their future generations to come.
Leopold von Schlenk-Barnsdorf
Leopold holds a Master’s degree in management from the European Business School (EBS) in Oestrich-Winkel, Germany and is now PhD candidate at the Witten Institute for Family Business (WIFU). His doctoral thesis is on innovation in family businesses. Apart from theory, he also has insights into his own family’s fifth generation business which was founded in 1879.