Entrepreneurship in Family Owned Businesses

By Richard Lane

Perhaps with more sensitivity than with other types of business, family owned businesses must balance both innovation and entrepreneurship with the preservation of core identity. When a business is associated with your family name and carries that legacy, proposals that would lead it into uncharted waters come with their own complex set of concerns outside the usual remit of good business practice. This balancing act could, in some cases, leave family businesses exposed to accusations of traditionalism or being slow to adopt new technologies. However, it is entrepreneurship and innovation that began these businesses, and it is increasingly these twin areas of focus that are ensuring their longevity.

Indeed, since the 2008 financial crisis, but particularly in the wake of Covid-19, more family businesses than ever are openly embracing new ideas to compete in an increasingly disrupted economy. In fact, a recent study by KPMG found that, since the start of the pandemic, family firms are 42% more likely than non-family firms to deploy a business transformation strategy. It would appear that family-led operations have taken a clear lead in being open and receptive to these new ideas. This is not only good news for the businesses themselves, but also for the wider economy, as such businesses constituted almost 30% of UK national income pre-pandemic according to a recent Institute for Family Businesses Research Foundation report

So, what can other organisations learn from family businesses about entrepreneurial business transformations in the wake of the pandemic?

A major aspect that a family business can leverage to their advantage is their ability to adopt a long-term outlook. The nature of accountability in public and institutionally backed companies often limits their scope to look further than the next quarter’s results when setting targets. For family owned businesses, however, their shareholder structure allows for greater long-term observation and more patient development. New plans are not beholden to the limiting parameters and changing priorities of quarterly reporting. Instead, the long-term vision that family businesses can strive towards is an invitation to set stable and clear business goals, truly committing to initiatives and giving them the time and energy they are due. In family businesses, this approach is organically fostering entrepreneurship, as it is with this security that family members and employees will have the confidence to vocalise their ideas. By taking this long-term view, family businesses are better placed to empower and encourage its members with an entrepreneurial spirit.

Alongside this outlook, however, it is crucial that businesses actively provide regular opportunities for employees to be entrepreneurial. As with many valuable business initiatives, a culture of entrepreneurship and innovation has its root at a structural level. Family businesses have the upper hand with this. Whilst public companies are more likely to have clearly delineated roles for employees, in family businesses there tends to be greater scope for family members or employees to ‘wear different hats’ and become involved in a variety of roles across the business. Greater exposure, more experience and a wider understanding of a business’ landscape beyond an employee’s day-to-day role equips them with the breadth of knowledge to be proactive about identifying opportunities and more responsive when they come. 

If succession is handled poorly, the founders of a family business, who are often idolised and revered, could feel disconnected from subsequent generations, who may feel they are burdened with a maintenance project.

Due to the personal investment and concern for family legacy, investing in innovative endeavors can be daunting to a family business. However, here, again, structure plays to the benefit of family businesses. Entrepreneurship may be a ringfenced part of the budget, but when facing more ambitious and risky situations, companies can safeguard the core business by placing entrepreneurial initiatives into new separate corporate structures. Whilst protecting the original business, this practice is also beneficial for transparency and understanding the venture; because the venture is controlled, funded and accounted for separately, the review process is more clearly laid out. Peace of mind is maintained for the original core company, whilst also allowing the new venture to reap the practical benefits.

Furthermore, these structures can have the additional value of doubling as employee incentives. Businesses are increasingly willing to offer shares or options in these new subsidiary entities, which is likely to be especially attractive given that this is not the norm in traditional corporates. A family can structure their succession processes to offer this type of ownership to the broader family group. But to truly benefit from the freedom of this flexibility, they are offering the opportunity for such schemes to their wider body of employees. By example, this will then encourage others to seek opportunities to follow in their footsteps too. 

Generational struggles may well be perceived as the final hurdle to fostering entrepreneurship in family businesses. If succession is handled poorly, the founders of a family business, who are often idolised and revered, could feel disconnected from subsequent generations, who may feel they are burdened with a maintenance project. Post pandemic, however, we are beginning to see the increasingly active older generations able to take consulting roles in their family business even after stepping out of the driving seat. With this, they are bridging the communication and identity gap between generations and, as younger cohorts arrive, are increasingly confident with leveraging new technology and picking up the pace of change. Ultimately, new isn’t always better, but a new perspective is invaluable, and may well prove the catalyst to fresh ideas. 

Despite traditional associations to the contrary, family businesses provide a fertile ground for fostering entrepreneurship and innovation; their controlling structures empower stakeholders to recognise good ideas above market trends and this same independence leaves scope for more fluid, and thus better-informed, workforces. Additionally, the new style of succession events is encouraging of strong intergenerational relationships, which in turn allows new thoughts and traditional insight to crystalise into the next great idea. Innovative thinking will never come on a plate, but in the right environment it can thrive. Family businesses have a unique opportunity to foster this environment, but all organisations may well benefit from taking a leaf out of their book in the months ahead.

About the Author

Richard Lane

Richard Lane has over 25 years’ experience in corporate law, advising entrepreneurs and corporates and acting for many families, family businesses and family offices. He regularly advises on governance issues, structuring ownership through generational transitions and disputes, and increasingly, he advises international families pursuing large-scale investments in the UK or overseas 

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.