Innovation in the Family Business

A danger in any business is stagnation. As our business becomes more successful, we become more comfortable with our surroundings and less motivated to change from existing practices. Family businesses are no exception: Starting out on an entrepreneurial high, family businesses “are widely recognized as a major source of technological innovation and economic progress” (Zahra, 2005, p. 23). But somewhere in the process we lose the drive, the desire to continually bring innovative practices and products to our organization. Owners may become more concerned about the risk of losing their business, than the prospect of growing it into a larger and more successful entity. In sports this can be compared to a coach who becomes more conservative in a game that the team is winning and instead of trying to win the game, they try and keep from losing it, usually ending up with either a very narrow win, or a loss. How can we continue to promote innovation into the lifeblood of a family business, even as the owner is aging and may be facing the prospect of turning the business over to a younger generation?

One key to this is vision: What is the owner’s vision for the future of the organization? Does he, or she, want this to be a legacy to their foresight, and entrepreneurial abilities that will last for generations? Do they want to sell the business for the best price and leave an inheritance not tied to the business for their children and grand children? Do they want the business to be buried with them? Each of these questions can spur multiple answers and will ultimately decide the current and future direction that the business takes, but the answer to the first question is really the one that will determine the future success or failure of an organization. An owner, who desires to pass their legacy on to a succeeding generation, and give them the best chance of success, will plan for the future; will prepare that company to be a success in their chosen field, and will consider all aspects of what it takes to make that company successful.

Developing a culture of innovation then becomes a key component in preparing that organization for the future. That is a lot easier said than done however, and each organization will have to find what works best for them. One factor particular to family businesses though is identifying a successor and grooming them early to take over the organization. You cannot leave this decision to the last minute. The transition from one leader to the next is difficult in any organization, but when you throw the dynamics of the family into the mix, it becomes even more precarious. Many organizations fail because the new manager (son or daughter) was not prepared for the intricacies of leadership, did not understand the business, or was simply the wrong choice for the job.

We would like to hear from other organizations on how they have handled this transition and maintained a environment of innovation and excitement.

References:

Zahra, S. A. (2005). Entrepreneurial Risk Taking in Family Firms. Family Business Review, 18(1), 23-40.