Source: Northwestern University Kellogg School of Management
Generational transitions can be bumpy. They also can be an opportunity for growth and resilience.
How does a family business survive for generations? And as the economy continues to change, what can it do to stay competitive?
“For any business leader who has a family or might work with one, these are important questions,” says Matt Allen, a clinical professor at Kellogg and executive director of the John L. Ward Center for Family Enterprises.
By some estimates, ninety percent of businesses are family-owned. And while few are as consistently Shakespearean as the fictional Roy family of HBO’s Succession, many have to navigate complex family dynamics in the immediate term to set themselves up for success in the distant future.
“Family businesses need to focus on long-term resilience, which means preparing the next generation,” says Allen. “That’s a different time horizon than quarterly earnings.”
Allen offers four tips on how family enterprises can build and preserve multigenerational resilience.
1. Cultivate emotional ties, not just credentials
When it comes to preparing the next generation for leadership positions, family-owned companies tend to emphasize competence and academic credentials over experience within the organization. Some even have policies that require children and grandchildren to earn at least a master’s degree and to work for a certain number of years outside the business before they are eligible for a management position.
These are sensible expectations, but they come with the risk that these now-qualified young people will drift away from the family organization and not feel compelled to return.
“If they’ve been away for so many years, they’ll have no emotional attachment to the business,” Allen says. “They’ll often go work somewhere else.”
To avoid this, families should make sure they’re cultivating emotional ties to the business from an early age. Maybe that means family retreats, factory tours, or other events where future leaders can learn the essence and impact of the business. Summer jobs or internships are another opportunity to establish deeper connections.
“It’s the difference between explicit knowledge—knowing how to read a financial statement or how the market works—and implicit knowledge, which is more experiential and emotional,” Allen says. “If you want to build that implicit knowledge, it’s really about experience and emotional engagement.”
2. Don’t delay planning for a leadership transition
When it comes to succession, timing is everything. And here, it pays to plan. If everyone knows a decade in advance who will take the helm, the entire organization can prepare accordingly.
“What works terribly is saying, ‘We’ve got three kids and we’re not quite sure who will be taking over,’” Allen says.