The idea of a generational decline in family businesses is nothing new. The old adage “from shirts to sleeves in three generations” seems to exist in one form or another in many cultures and languages. A common assumption is that the decline is driven by a generation gap, in which successive generations become less motivated and less able to lead business. But the decline of family business entrepreneurial activity across generations is not inevitable. Rather than focusing on important issues (gaps) between generations, families should focus on correcting imbalances in expectations and needs. Focusing on increasing the entrepreneurial capacity of the next generation along with efforts to provide opportunities for the next generation to act as entrepreneurs will increase the desire of the next generation to take action. There are many differences between each successive generation, but entrepreneurship does not need to be one of them.
During the height of the pandemic, some research was conducted to understand how trading families were responding to pressures caused by some drastic changes in market conditions. While a full analysis of this research is not complete, one statistic emerged as particularly interesting. In an effort to better understand how business families are using entrepreneurship as a tool to address changes associated with the pandemic, I asked family business leaders what percentage of their current sales come from the innovations they’ve made since the pandemic began. The data was collected in the summer of 2020, less than 6 months after the World Health Organization officially declared COVID-19 a pandemic.
Two things surprised me about what I found. The first was the sheer scale of mass innovation that was happening as a result of the pandemic. Of the 124 companies contacted for the study, leaders indicated that an average of 29% of current sales were the result of changes made since the pandemic began. The fact that nearly a third of current sales were “new” is a testament to the ability of family businesses to adapt quickly in crises. Second, I have been struck by the differences in the overall level of innovation across the generations that are currently driving the business. Among the companies led by the first generation, 38% of current sales are the result of these recent innovations. For companies led by 2second abbreviation generation, sales driven by new innovations fell to 34%. For companies led by 3research and development or subsequent generations, only 18% of current sales have come from changes made since the pandemic began. Moreover, these differences have proven to be independent of the size/complexity of the organizations involved. While the ability to adapt 18% of the total business in such a short period of time is still important, the fact that the level was less than half the level of business led by the first generation caught my attention.
The idea of a generational decline in family businesses is nothing new. The old adage “from shirts to sleeves in three generations” seems to exist in one form or another in many cultures and languages. One common explanation for this decrease stems from the idea that members of the next generation are so pampered that they do not understand or are unwilling to face the difficulties associated with hard work, including entrepreneurial activity. Additional research finds that as the family business grows and extends across generations, the desire to protect the benefits the business offers leads to more caution Approaching. Regardless of the specific logic, a common assumption is that generational decline is driven by a generation gap, in which successive generations become less motivated and less able to lead business.
Several years ago, I oversaw a student-led research project addressing this assumption of an entrepreneurial generation gap in business families. As part of the study, individuals from multiple generations across many large business-owning families were interviewed. The consistency in results across these very different companies was strikingly similar. Almost all over the world, older generation family leaders have expressed their frustration at the unwillingness of younger generations to “go ahead” and “take the initiative” in order to take the business to the next level through their entrepreneurial activity. Members of The Next Generation were equally consistent in their response. They were respectively frustrated that the first generation was not clear or consistent in sharing their values or intended strategies to act in a way that would allow members of the next generation to take any entrepreneurial action in line with their parents’ wishes.
It is interesting that the interviews took place Not It reveals a real generational gap where the goals and desires of the first generation were very different from the goals and desires of the next. Instead, the inaction appears to have been the result of Incorrect alignment between the upper and lower generations. Both generations desired the same thing – entrepreneurial work – but the inability to connect led to frustration on both sides. Families who want to encourage entrepreneurial activity in the next generation will need to address this intergenerational imbalance. Here’s how:
When it comes to building an entrepreneurial spirit, the primary source of mismatch is a lack of understanding of expectations and needs. Families tend to have relaxed communication patterns, which often leads to this imbalance. When I teach executive audiences that include family members from two generations, I often divide the generations and ask each group the same questions about communication. It’s always surprising to both teams how little consistency has been. For example, when asked how well the family understood the succession plan, the older generation felt as if it was being communicated and understood well, while members of the next generation often tell me that they were unaware of the plan. The solution to this problem is a deliberate attempt to over-communicate. Share the information, then share it again. Research indicates that one of the most important complaints about business leaders is the lack of clarity in their communications. Leaders tend to believe that they communicate more than they do, and that communication is clearer than it actually is. Our interviews suggest that excessive communication from the older generation should focus on explicitly expressing their desire for self-directed entrepreneurial activity from the next generation.
And the next generation is not immune from the need to over-communicate with themselves. Our interviews indicated that the next generation tends to be shy about asking questions and sharing their needs with the older generation. Members of the next generation must focus on over-communicating their desires to meet the entrepreneurial expectations of the older generation, and their need to better understand the values and strategies of the older generation in order to do so. Many of my students approach me after class and ask me how to ask their parents questions about their business or entrepreneurial ideas. They are generally disappointed when I tell them there is no easy way. They are also generally elated when they finally raise the question with the family and find out it wasn’t as horrible as they expected. Parents can certainly help with this process by being present and open when asking questions.
Communication alone is not enough to fully promote entrepreneurship in the next generation. As we discussed earlier, some people may point to a lack of motivation or motivation in the next generation as the reason for this inaction. My research with my students indicates otherwise. essence Research In organizational behavior it indicates that behavior – action – is driven by three variables: 1) capacity for the individual to take the expected action; 2) the Stimulate for the individual to take the expected action; and 3) Chance Provided for the individual to take the expected action. Sometimes referred to as the “AMO Theory of Motivation (Ability-Motivation-Opportunity)”, this research suggests that families should look beyond motivation and focus on enhancing the ability and opportunity for the next generation. Here’s how:
Despite the common belief that entrepreneurship is an innate ability, research indicates that entrepreneurship is I learned. As families increase the ability of the next generation to act as entrepreneurs, they will see more entrepreneurial behavior. The ability to build can occur in a number of ways. I will focus on two here.
First, education. Formal education focuses on entrepreneurship Reproduction In the last years. Opportunities exist – from elementary school through graduate school, and from degree programs to community education and certifications. Business families should take advantage of these formal educational opportunities to increase the ability of the next generation to act as an entrepreneur.
Second, getting involved. Next Generation Members benefit Significantly from hands-on learning. To achieve this, family members must be involved in the business from an early age. In particular, parents should look for opportunities for the next generation to participate in the entrepreneurial efforts that the company is pursuing. Even if they are not willing to actively participate in decision-making or implementation, the authority of shadow leaders, sitting in meetings, or visiting clients should not be underestimated. I know one family in the restaurant business who, from a young age, took the whole family to eat at different restaurants (not owned by the family) every weekend. On the drive home, they talked about what they experienced and how it compared to what their restaurants offered. By the time these young leaders graduated from high school, they were experts at recognizing innovation opportunities through competition analysis.
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In addition to being able to act entrepreneurially, the next generation also needs to be given the opportunity to do so. Members of the next generation need a safe space to pursue and test new ideas – to experiment with their entrepreneurial thinking and experiment with different solutions. Some families provide this space by dedicating resources to next-generation entrepreneurial activity. Next Generation members can apply for grants, loans, or equity investments from the family business that allow them to conduct research or even launch a new venture. Other families prefer to keep opportunities within the company, hosting “design challenges” where all family members are invited to develop and present ideas for solving “real” problems the family business is facing. Some families feel uncomfortable allowing the next generation to engage in business activities, and instead allow the next generation to act as a leader in planning family vacations or retreats, promoting the business of a family business, or organizing a family service enterprise. The key in any of these efforts is to provide enough autonomy so that members of the next generation truly feel that they have a context or space in which they can truly act.
The decline of family business entrepreneurial activity across generations is not inevitable. Rather than focusing on important issues (gaps) between generations, families should focus on correcting imbalances in expectations and needs. Overcommunication about expectations and needs will create more alignment. Focusing on increasing the entrepreneurial capacity of the next generation along with efforts to provide opportunities for the next generation to act as entrepreneurs will increase the desire of the next generation to take action. There are many differences between each successive generation, but entrepreneurship does not need to be one of them.