Family Entrepreneurship
Technological development is changing the way we compete and the industrial configuration of all sectors of the economy with new business models that challenge prevailing practices and the way value is understood, created, delivered, and captured.
Industries may change radically or progressively, but all will evolve. They will be faster, based on new infrastructures, with increasingly shorter cycles, and this will lead to a structural change that will generate a new technological and economic paradigm.
We will face a more demanding business ecosystem, more complex, more uncertain, and dominated by the principle of creative destruction that challenges the existence of established organizations, which to remain will have to develop dynamic capabilities for innovation and entrepreneurship of new business models.
In this environment, the family business can make use of its proven capabilities such as its closeness to the customer or its flexibility, but in the long run, creating sustained value will require greater agility, an increasing degree of digitalization, as well as greater scale to compete.
Innovate and Diversify to Strengthen Heritage
Family businesses can use innovation and diversification to continue capturing value and strengthening their heritage. However, both represent significant challenges. Innovating within a family business can be difficult as successful formulas from the past generate much resistance; similarly, creating an environment that fosters idea exchange, provides the resources and tools required to experiment within the organization, which is typically designed and oriented to operate in the short term, is also difficult.
On the other hand, business diversification presents significant challenges as management skills among different companies can be very different, and the allocation of resources (time and capital) among different projects creates constant tensions.
Family Startups as a Source of Value Creation
Recently, startups have become the most efficient way to create value as in an environment that demands agility, these types of organizations, thanks to their flexibility, level of technological adoption, and their differentiated and customer-centric value propositions, are better equipped to compete and grow rapidly.
Entrepreneurship driven from "family startups" could make sense to address the typical challenges associated with innovation and diversification if we configure projects from the family business group that—by leveraging all human, financial, and relational capital of the family—are able to trigger new businesses within the family portfolio, either to reduce risk or to create additional growth opportunities in related or unrelated businesses.
Additionally, these entrepreneurial projects of family businesses provide ideal spaces for the development of the next generation from where its members can experiment, learn, incorporate new practices, consolidate as leaders, and generate value for the family and for society.
Challenges of Change for the Family Business
In the family business, as time passes, families grow, and companies become mature. The recurring questions are:
- How to continue generating economic value?
- How to create spaces for the members of the next generation?
- Questions that in the current business context become even more relevant.
Technological and competitive change represents a great opportunity, but family businesses will respond in different ways, some will be able to promote change, others will simply adapt, while others will no longer be able to remain. The challenge is to align opportunity with capacity and willingness.
Family businesses have been entrepreneurial organizations that have managed to earn a place in the market but will need to continue promoting—in the future— the values that initially led them to generate wealth. That is why, in the present context, they must promote and prioritize innovation and entrepreneurial projects within and outside their current organization—controlled by them or not—both in related and unrelated businesses to the historically main asset of value generation.
In that sense, the ultimate goal of transcendence and legacy in family businesses should be to generate not assets, but values, and among them, the value of entrepreneurship, a most challenging and interesting challenge in the times we are living; but at the same time, it consists of returning to the essence of the family business—and human nature.
How do we test our limits, face our fears, and grow to become something greater than ourselves?
Originally published in the LEGADO Magazine, December 2023 edition.
ABOUT THE AUTHOR:
Salvador Cerón is Director of the Professionalization Practice of Family Business Management at Cerón & Co.
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