KPMG’s 2021 Family Business Survey, Transition, Diversity and Entrepreneurship showed that the ability of a family business to grow and evolve depends to a large extent upon the entrepreneurial mindset of family business leaders or their Entrepreneurial Orientation (EO). Family businesses can thrive across generations by enabling entrepreneurship, not by waiting for the next entrepreneur in the family to come along to do something differently.
EO has three key components – innovation, risk-taking and proactiveness. It also takes into account a business’ aggressiveness in taking on key competitors, and the extent to which they allow employees to act autonomously to pursue entrepreneurial opportunities.
In the STEP Project Global Consortium 2019 Global Family Business Survey of over 1800 family businesses worldwide, it was identified that of these five traits, family businesses emphasised proactiveness, innovation and autonomy above risk-taking and competitive aggression. Further, taken as a whole, family businesses in the Asia Pacific Region and the Middle East exhibited the highest levels of EO.
Creating a mindset of entrepreneurialism
It is not necessarily the case that a family business has an innate sense of entrepreneurialism. Many factors affect the family’s mindset, including maturity of the business and the family’s own aspirations.
Families in business together should reflect upon the question of what mindset they as a family wish to cultivate.
This may be based on an understanding of why they want to be a family in business together.
Our experience with families suggests that a family business needs to encourage the following activities to foster an entrepreneurial mindset.
Confirm the family’s long-term intentions for the business
Be clear on the importance of long-term thinking for the future of the family business and confirm the importance of innovation for success. Working through these issues as part of a transition plan can build comfort and confidence in the minds of the incumbent and their successors.
Focus on the family’s socio-emotional wealth and well-being (SEW)
Work on the relationship between family members as a basis for sustaining inter-generational support for entrepreneurialism.
Develop a forum for next generation family members to explain their goals
Forums such as family councils or family assemblies are useful ways by which matters of importance to the family, including each family member’s feelings towards the business and their future, can be expressed. Family businesses that had at least one such formal mechanism in place exhibited higher levels of EO according to the STEP 2019 Global Family Business Survey.
Create room for risk-taking
An entrepreneurial spirit doesn’t always pass down the generations by accident, leadership will need to give the next generation opportunities to innovate and develop.
If ideas are not encouraged because of an entrenched way of doing things – there will be little willingness to try something new. Several families create ‘a sandbox’ environment for new ideas to be cultivated.
Understand and accept that not all ideas are successful, build a framework to learn from failures and, to be on the safe side, ensure that ideas are evaluated quickly by reference to clear milestones.
Being deliberate about entrepreneurship does not mean that all family members need to be entrepreneurs. Successful family businesses by their very nature are entrepreneurial and successful families in business thrive on allowing ideas and innovation to flourish without having to identify the next entrepreneur.