By Henri-lee Stalk and Samuel Bruehl
August 15, 2024
In family businesses, founders are often celebrated for building successful enterprises from the ground up. As the business transitions to the next generation, there is an expectation to preserve and enhance this success. Still, for a business to endure, it must evolve, adapt, and respond to changing market demands. Cultivating entrepreneurial skills within the family is essential for identifying new opportunities and transforming the business when needed.
Members of a business-owning family often hold differing perspectives on entrepreneurship, which can both support and challenge the next generation in identifying new opportunities and creating value within and outside the company. While some family members may view entrepreneurship as essential for adapting to changing markets and ensuring the business’s long-term sustainability, others might see it as risky or unnecessary. However, fostering an entrepreneurial mindset is crucial for engaging the next generation, diversifying risk, and developing new skills that contribute to the family’s legacy and the enterprise’s continued success. Ultimately, encouraging entrepreneurial activities within the family helps to secure the longevity of the family business by driving innovation, growth, and resilience.
Within the business, one major challenge to entrepreneurship is the resistance to change from the senior generation. Older family members may be reluctant to adopt new practices, preferring to retain control over business development. This resistance can limit the autonomy of the younger generation, causing their innovative ideas to go unrecognized and restricting their decision-making power. Additionally, out of respect, the next generation may defer to senior members, which can stifle their skill development and hinder their ability to advocate for new ventures. Developing new products or business divisions within the family enterprise also poses financial and relational risks. The family business may lack the necessary structures and governance processes to ensure mentorship, clarity, accountability, and equity in resource allocation for entrepreneurial initiatives. This gap can hinder entrepreneurship by significantly increasing the risk of family disputes over capital allocation and support for these initiatives, leading to poor financial management and strained relationships within the family.
Outside of the business, there can be a skills gap between the capabilities of the next generation and the competencies needed for entrepreneurial success. Balancing educational, professional, and personal commitments can make it difficult for them to devote sufficient mental energy to creating a new company. Additionally, they may face regulatory, legal, political, environmental, and technological challenges, while lacking the network and support needed to launch an entrepreneurial initiative.
These challenges underscore the complexities and interdependencies inherent in family businesses striving to foster an entrepreneurial spirit across generations, both within and outside the family enterprise. When properly engaged, family members with entrepreneurial drive can play a crucial role in ensuring the continuity of the family business. They often bring a strong work ethic, high achievement motivation, creativity, and visionary thinking. Entrepreneurial family members can add value to the business, whether or not they are directly involved in its daily operations. For example, they might offer an external perspective as board members or identify new opportunities for investment and innovation as owners.
To address these challenges and fully harness the entrepreneurial potential of family members, we recommend four strategic actions. These actions are designed to bridge generational divides and enhance the integration of entrepreneurial initiatives within and outside the family enterprise.
Practice #1: Ensure there is effective cross-generation communication about entrepreneurial interests of the next generation and how these interests fit in the family enterprise
Both generations often struggle to openly discuss their aspirations and concerns regarding the next generation’s entrepreneurial interests. This struggle is driven by fears of conflict, change aversion, discomfort with uncertainty, and communication gaps. This innate tendency is known as avoidance bias, where we shy away from decisions that could lead to negative outcomes or discomfort, particularly within the dynamics of family businesses.
To overcome this challenge, both senior and next generations can engage in open, learning conversations focused on the family enterprise and its future. Actively listening, showing curiosity, and seeking mutual understanding of differing viewpoints are key elements of these discussions.
One second-generation family member we met started a public relations business with their own savings, which quickly became successful. This situation created conflict with their parent, the founder of a company in a different industry, who had specific and strong expectations about how the new venture should be run. The parent was unwilling to invest start-up capital or provide resources to meet these expectations, leading to tension and avoidance of discussions about the new venture. At times, the parent would offer support and then withdraw it, causing their child to think their parent wanted their company to fail so they would instead focus on joining the family business.
Over time, by recognizing the communication impasse, both parties were able to understand each other’s perspectives. The parent expressed concern that their child might miss out on corporate employment opportunities due to their focus on building a business, and how entrepreneurial setbacks could affect their self-worth. The second-generation family member reflected on the personal strengths and weaknesses they shared with their parent and how these similarities might have influenced the effectiveness of their communication.
Setting boundaries and clearly specifying expectations in family business discussions is challenging. The senior generation may be tempted to use financial support to express or withhold approval without openly communicating their thoughts and emotions about the next generation’s ventures. Effective communication about new entrepreneurial initiatives requires patience and time for open discussions to occur. Both generations must be willing to listen to each other’s feelings, fears, and experiences, even when they differ or are uncomfortable. By asking questions about past and current entrepreneurial experiences, actively listening, and allowing each party time to process and reflect without judgment, both generations can build confidence and reassurance in finding a path forward together.
Another next-generation family member we worked with, who had prior experience in real estate development before joining the family grocery business, shared that he spent several years advocating internally with senior generation members to gain approval for negotiating challenging urban land sales and development contracts involving the family’s real property. The family’s persistence and willingness to be patient with each other during discussions about this endeavor enabled them to design and build a uniquely innovative retail space that they had long hoped for but once thought was impossible. He is now leading the family’s expansion into new areas of real estate development.
Ultimately, fostering open communication and mutual understanding within family enterprises can bridge generational gaps and facilitate successful entrepreneurial ventures. By addressing avoidance bias and encouraging transparent conversations, families can navigate the complexities of business dynamics and support the aspirations of both senior and next-generation members.
Practice #2: Build Next-Generation Entrepreneurial Capabilities
Many believe that people are born with an entrepreneurial mindset, which comprises motives, skills, and thought processes that set entrepreneurs apart from non-entrepreneurs and contribute to their success. However, studies on entrepreneurial behavior have shown that this mindset is not innate but is developed through exposure to various factors:
- Individual Factors: Developing entrepreneurial attitudes and traits such as being creative, self-motivated, execution-oriented, and developing interpersonal skills to communicate well and team well with others
- Social Factors: Learning through formal and informal educational experiences such as learning about business from stories shared by family elders, classroom learning, and hands-on experiences such as internships and jobs.
- Economic Factors: Financial resources that enable you to pursue entrepreneurial interests and leverage your network
Creating entrepreneurial pathways within the family business should begin early, with a focused effort to cultivate entrepreneurialism in the next generation. By raising the next generation within a family enterprise and providing the right structure and support, they can develop their entrepreneurial mindset from early childhood through to adulthood. The exhibit below illustrates how one family actively nurtured the entrepreneurial mindset of the next generation.
- Practice #3: Create Space for Entrepreneurial Creativity
Encourage the next generation to pursue entrepreneurial ventures outside the family business. Consider supporting them with networking opportunities and, where feasible, access to the enterprise’s resources to help them overcome obstacles when launching their new companies. This approach offers the independence many entrepreneurs seek, serving as a strong motivator compared to a traditional career path. It also provides a platform for them to test their ideas and prove their viability. If their venture succeeds, it opens doors for cross-generational discussions about integrating it into the family business. This strategy fosters innovation and equips family members with valuable experience for incorporating entrepreneurial initiatives into the family enterprise. Additionally, the family business ecosystem can provide support in areas such as administration, human resources, accounting, regulatory issues, and legal matters as they launch their new ventures.
For example, a next-generation family member started their own coffee company as a proof of concept for the family’s new venture fund. The family provided a grant to help grow the company, which now operates five retail outlets locally. Due to its success, the next-generation member sought to scale it further. Ultimately, the family purchased a 25% stake in the chain, which then became a business unit within their portfolio.
By giving the next generation space to be creative and develop ideas outside the family enterprise, you can bridge generational differences and fully leverage their entrepreneurial potential.
- Practice #4: Create Structures to Support Entrepreneurship in the Next Generation
A critical element in establishing entrepreneurial pathways for the next generation within the family enterprise is creating appropriate structures and guidelines. Support must be transparent to ensure fairness and avoid conflicts over why some family members receive support for new ventures while others do not.
There are different types of structures that can be deployed. A Family New Venture Board provides dedicated oversight and strategic guidance for entrepreneurial initiatives led by family members. A new venture policy establishes guidelines for supporting entrepreneurial activities within the family enterprise. Lastly, a Family Venture Capital Fund allocates financial resources specifically for family-led ventures. Families will us an internal venture capital fund to train the next generation on venture investing and to deploy funds to invest in promising new venture ideas of family members.
The Mulliez Family, which has experienced five generations of succession and consists of over 1,400 members, owns 130 brands or chains with annual sales of 100 billion euros (Deslandes, 2024; Schneider, 2022). This remarkable achievement is a testament to their use of governance structures to foster entrepreneurialism within the family (Allen & Gartner, 2021). They attribute part of their success to their family motto: “Le tous dans touts: all family members in all businesses.”
Throughout the family’s evolution, generations have partnered together to create a diverse range of businesses, including a supermarket chain, home décor and fashion companies, restaurants, and an equipment rental business. The Mulliez family provides internal support and seed funding for entrepreneurs within the family, encouraging the next generation to create new businesses within the family holding company or invest in outside startups. To further support their entrepreneurial initiatives and effective use of capital, the family has established a think tank called “For Why, For What, For Whom” and a Club Des Entrepreneurs (Mayaud, n.d.).
The success of the Mulliez family demonstrates the importance of structured support, transparent policies, and dedicated resources in nurturing entrepreneurial spirit across generations. By implementing these practices, family businesses can drive growth and sustainability of their diverse business ventures while also inspiring and empowering future generations to innovate and lead.
Navigating the complex dynamics of family businesses requires a delicate balance between honoring established traditions and fostering the entrepreneurial spirit of the next generation. By addressing challenges such as resistance to change, financial and relational risks, and the need for clear structures, family enterprises can create an environment where innovation thrives alongside legacy. The strategies outlined—promoting open communication, building entrepreneurial capabilities in the next generation, creating space for independent ventures, and establishing supportive structures—serve as foundational steps toward bridging generational divides that occur in business owning families and ensuring sustained growth. Adopting these practices not only maintains the legacy and values of the family enterprise but also enables future generations to introduce innovative ideas and further the family’s shared business goals for today and tomorrow.
References:
Allen, M. R., & Gartner, W. B. (2021). Family entrepreneurship: Insights from leading experts on successful multi-generational entrepreneurial families. Strategy.
Deslandes, M. (2024, May 27). Barthélémy Guislain re-elected to head the AFM, owner of Decathlon, Kiabi, and Jules. Fashion Network. https://ww.fashionnetwork.com/news/Barthelemy-guislain-re-elected-to-head-the-afm-owner-of-decathlon-kiabi-and-jules,1636129.html
Mayaud, A. (n.d.). Family business: My 25 years at the heart of an entrepreneurial family. https://familyenterprisefoundation.org/media/2590/family-business-25-years-heart-entrepreneurial-family-antoine-mayaud-sneak-peek-final.pdf
Schneider, V. (2022, July 14). “Family communism”: The Mulliez family business model. Le Monde. https://www.lemonde.fr/en/summer-reads/article/2022/07/14/family-communism-the-mulliez-family-business-model_5990110_183.html
