We have entered a new era that presents unprecedented challenges and significant opportunities for family businesses. Some characteristics of successful family businesses—their long-term prospects, strong financial resilience, loyalty to stakeholders, and commitment to positive social impact—will help them succeed in this new era. However, other characteristics—such as their insistence on privacy and control, their narrow definition of governance, their prioritization of family harmony over family unity, and their slowness to make significant changes and changes in direction—will require Change.
Surviving and thriving in today’s turbulent times requires new ways of thinking, strategies and practices for family businesses. The owners themselves must take the lead from within, persisting in new directions and transformative actions to ensure success in the years to come.
In a two-year study published in September 2022, Cambridge Family Enterprise Group (CFEG) explores these new requirements for success. Our research includes global surveys of owning families, interviews with senior and next-generation family members, and extensive secondary research – all built on CFEG’s 33 years of experience advising, educating and researching family businesses around the world for guidance. The resulting white paper shares our learnings and advice in the new era. Here are some highlights:
A Transformative New Reality for Enterprising Families
Families and their businesses will always need to adapt to changing times, but in general (except during periods of disruption) they face fewer changes and have more time to adapt. In today’s complex, fast-paced and hyper-connected world, the nature of change itself has changed. Look at greater volatility, far-reaching knock-on effects, and more frequent disruptions in recent years, all of which make the future more difficult to predict.
In addition to all the other requirements of good ownership, we are now telling owners that they must think like futurists, act like champions of change, and not be bastions of stability like the traditional expectations of family-owned groups.
To help households anticipate change, CFEG tracks four global macro forces affecting household businesses: 1) environmental degradation and ecological disruption, 2) technological progress and digital disruption, 3) globalization/deglobalization, and 4) socio-political- economic power. We also monitor the changing characteristics of entrepreneurial families and family businesses. We combine these perspectives to regularly assess the impact on society, businesses, family offices and families.
Homes that are ready for change use outside-in and inside-out thinking to adapt to changes both externally and internally. Both are critical to building the resilience and agility needed for long-term survival and prosperity. Successful families must have strong internal support to make the necessary changes between owners, family members and governance groups such as boards and family councils.
How ready (ie, willing and able) are families and family businesses to change? Our survey revealed a worrying gap: Enterprising households foresee turbulent times ahead and recognize the need for change so they can adapt, but They are less sure of their ability to change in the desired way. Respondents felt that their families were less prepared to change than their family businesses.
However, some families do appear to be prepared for these new conditions.A third-generation owner shares her family’s experience with “the turmoil and chaos of recent years”, pointing to the two challenges and opportunities for them.
“The upheaval makes you challenge traditional business models. We think ours will last, but we have to be ready for change and keep asking ourselves, ‘What are the potential pitfalls and how will we adjust?’ “Our biggest opportunity is the flip side of disruption; it takes us out of our comfort zone and opens up new investment opportunities for us.”
This attitude is encouraging, but many families need a greater sense of urgency to meet the challenges ahead. Below, we propose a new family business model and five transformational strategies aimed at making it happen.
A new model for family business success
The traditional approach to family business management – nurturing the family’s existing family business – encourages reinvestment in traditional businesses, thereby supporting business growth within the industry. Even historically, this focus has hindered diversity and limited options for long-term growth and success for families. In today’s turbulent environment, when businesses and even industries can come and go quickly, this definition of management has an accelerated demise.
Today, good governance needs to be defined more broadly as building multiple values across each generation – including finances, reputation, relationships, intellectual property, social impact and talent. The key to long-term success is building and rebuilding an attractive portfolio of assets and activities guided by a refreshed, compelling family business mission and shared values.
My new mantra for families today is: Build value based on your values. But how does the family implement this new model of family business success?
Transformation Strategies for Entrepreneurial Families
The “Future of Family Business” study identified five transformational strategies that are critical to implementing new value and value-driven models and succeeding in turbulent times. Our white paper provides actionable practical advice for each strategy, as shown below.
Reposition and reorganize your owners.
Competent, consistent and loyal owners have always been an important foundation for the success of a family business.In turbulent times, when businesses need to be more agile and owners must make smart bets quickly, the stakes are even higher. How can families ensure that owners understand their roles and have the mindset, skills and networks needed to successfully navigate the new era?
Families must take the work of ownership seriously and not see it as a birthright. Investing in owner development programs will increase the likelihood that enough owners will support their company’s professional and financial needs. Further developing a strong team of active owners, usually a small group of owners capable of making key strategic decisions, should be a priority.
Some of the most challenging changes in preparing for this new era will be attitudinal. Owners – who traditionally believe they need 100% control over ownership and major decisions – must collaborate more and control less. Households need to become more flexible in terms of ownership structures, the percentage of equity they own, and collaboration with outside parties, all of which are critical to accessing knowledge, capital and new opportunities.
Get ready to turn around.
The ability to respond to threats and seek opportunities in a timely manner will differentiate winners from losers. You can’t predict the future, but you can – and must – be able to anticipate and respond quickly to changing conditions. How can owners ensure their family business and home are prepared?
Owners need to gain altitude, monitor change signals, and construct their view of the future. Today’s family business must be in a state of constant exploration and focus on the future. Strategic foresight – a valuable tool for this purpose – requires a formal process to scan horizons and track key trends, develop alternative future scenarios, and then identify benefits based on identifying the owner’s strategic vision and choices – — This benefit can be learned more with the owner.
Family businesses also need to develop an entrepreneurial culture and approach to experimenting with new ideas, business models, and value creation approaches (eg, “think big, start small, scale quickly”). Owners must be willing and able to move in and out of businesses, assets and activities easily and quickly in order to build agility into their family business portfolio and organization.
Accelerate your digital transformation.
Recent research has shown that strong digital capabilities can translate into strong financial performance for family businesses, but they are lagging in their digital journeys. How can family businesses and family offices catch up and benefit from digitalization faster while reducing risks in the digital age?
Owners need to take this issue with a sense of urgency and bring digitalization to the owner level. Owners must be strong advocates of digital, taking the lead in developing a digital transformation roadmap that may involve incremental and radical innovation. Owners must also ensure that their family businesses and families proactively manage cybersecurity risks, including financial, operational, reputational and privacy risks.
Prioritize social impact.
Enterprising families are called to take leadership roles in tackling tough social and environmental issues, building on their long history of community service. How can families prioritize social impact, strengthen their legacy, engage family members, and have a positive impact on the world?
Check out their entire family business to see how they can enhance their long-term social impact. Family members need to be mobilized to identify their social impact goals and plans to achieve them. As part of this work, owners need to promote and support ESG (environmental, social and governance) in their operating companies.
Today, many families have joined the socially responsible investing movement, which includes a variety of investment vehicles with dual goals of financial return and social good. Family offices and private investors are pioneers in impact investing. Today, it’s especially popular (and a great way to attract them) among younger generations of family members.
Get involved and revitalize your family.
The family is the cornerstone of a family business, but as with any organization, each generation needs to get involved around a compelling mission and reinvigorate to contribute to it. Keeping families united, interested and contributing to the family business is especially challenging today in an increasingly diverse world in terms of values, lifestyles and geographic distribution. Family leaders need to embrace and capitalize on the new diversity of families, both to maintain family unity and to tap into a rich talent pool. Personal connections, openness to new ideas, a formal policy of inclusion, and giving family members a variety of roles to contribute to the family business can all help.
Families must give their new generation different expectations and more choices than in the past, or they risk losing them. A proactive and flexible approach is required, including earlier invitations to “sit at the table” to important discussions about the future, talent development plans and opportunities for intergenerational collaboration.
For the bold moves needed to succeed in these turbulent times, families need to step up the family governance game. In particular, family councils, which carry the lion’s share of family governance work, need to become more strategic and empowered to prepare families for the future.
A call to action for enterprising families
Surviving, let alone succeeding, in these new turbulent times requires almost constant adaptation as well as some major shifts in the family business. Every family needs to look outside to understand the challenges and opportunities they face, and Look inward and examine the strengths and weaknesses of their family business. Family members then have a shared responsibility to define the future they want and plan their transformation journey.
The Future of Family Business is both a call to action and a valuable resource for enterprising families, especially owners. A family’s roadmap for adopting our new model and transformation strategy may involve incremental or radical changes, or more likely both. Regardless of the change agenda, there is no time to waste. As Jon Kabat-Zinn famously said: “You can’t stop the waves, but you can learn to surf.” The waves are getting bigger and faster.
Happy surfing.