INTRODUCATION

In themselves, families are endlessly fascinating. They are the crucibles in which we learn to interact with and relate to those close and distant to us, to compete and love, and to make sense of the world. The basic assumptions governing families are derived from the emotional relationships in them.¹ A business, on the other hand, is task-oriented, created to produce a product or service that adds value for customers and owners alike. Its survival and longevity is determined by its financial performance over time. When overlapped as family business—all the complexities of making a living with all the dynamics of family membership—it is no wonder that there are so many variations, so many challenges, and so few one-dimensional, one-size-fits-all answers. But we can learn from others’ experiences and research findings to develop tailored answers for our unique family and its enterprises.²

Enterprising families—in which each generation adds a layer of entrepreneurial contributions to the work of previous generations—are found in all regions of the world and in all facets of economy and society. The enterprises they run may be small, medium, or large. Their markets may be local or global. Their products may range from mundane, everyday items or services to the most technologically advanced ones. But what all have in common is that somehow they learn to navigate the fine line between family and business to be successful on both family and business dimensions simultaneously.

Enterprising families—in which each generation
adds a layer of entrepreneurial contributions
to the work of previous generations—are found
in all regions of the world and in all facets of
economy and society.

It certainly isn’t automatic or easy to instill in the next generation the necessary hunger and talent to find new and better ways to do things, find and service customers, finance the enterprise, and lead for the future. All are needed to create families and organizations that generate the new ideas, practices, products, and passion that cross generations. Our personal involvement with family business has led us to address enterprising families at all stages of their careers. We will use many examples of successful family firms around the world that have done and currently are doing what it takes to improve the odds that their enterprises can continue successfully into the future.

How Some Family Companies Innovate

Here are a few examples of the family companies that have innovated across generations and responded to changes in markets and business models.

Success against tough odds. How many text or email messages did you receive today? And, in comparison, how many letters came in an envelope? Most people now receive many more electronic communications than physical ones. If you are like us, perhaps you recall the delightful feeling of writing a letter to a loved one on special stationery or checking the mail box for days eagerly waiting to touch the envelope and the letter it carried. Or waiting anxiously for a payment to arrive in that special envelope with a clever plastic window that let the carrier read your name. Or the nervous wait for your grades to arrive in a distinctive envelope from the registrar’s office. Email attachments and electronic drop boxes have taken over the task of moving X-rays, photographs, and tickets around. What happened to those family businesses that made the envelopes that once carried letters, checks, or other documents from one place to the next? Did they collapse over time under the weight of new technologies? Most did, but not all!

Tension Envelope Corporation³ of Kansas City in the United States currently produces over 12 billion envelopes a year generating annual revenues in excess of 211 million dollars. A family-owned and -operated business in its fourth generation, this enterprise was founded by brothers William and Maurice Berkowitz in 1886. Despite the takeover of communications by computers and telephones, this company has enjoyed growth and stability for over 125 years, while others in its industry have perished under pressure. Their website declares that “it’s an exciting time to be in business” while acknowledging the changes and challenges “posed by technological advances, environmental concerns, and postal regulations.”

For many, words like innovation or entrepreneurship do not jump to mind when they think of a simple everyday product like an envelope. Think again. What are the different types of envelopes you have seen? In addition to the “Standard Commercial Envelopes,” the “Envelope Gallery” of the Tension Corporation lists products like “Special Opener Envelopes,” “Hot Note Envelopes,” “Advanced 4-Color Flexo Envelopes,” “Special Window Envelopes,” “Hot Potato Envelopes,” “2-Way Eco Envelopes,” “Large Mailers,” “CD/DVD Disk Sleeves & Bind-in’s,” “Send-n-Return Envelopes,” “Packaging Envelopes,” and “Seed Envelopes”—the list goes on to add different textures and embossing.

In addition to the seven envelope manufacturing plants at the core of this family business, Tension Corporation has grown beyond the borders of the United States and also added packaging and automation manufacturing to its portfolio. The entrepreneurial spirit seems to be imbued deeply in the culture of this company: over the years it has held more patents than any other envelope manufacturer in the country. Bill Berkley,⁴ the fourth-generation president and CEO, notes that his “great-grandfather believed that innovation solves customers’ issues, and [they] continue to apply for patents to continue this legacy.”

Innovation over generations of family leadership has no geographic bounds. Caran d’Ache, a Swiss family enterprise, has been a leading manufacturer and supplier of pencils, fine-art materials, and luxury stationery throughout the world. Since its establishment in 1915, this company has relentlessly pursued technical excellence and innovation regardless of changes in the business environment. Carole Hübscher, chair of Caran d’Ache’s Board of Directors, explains:

Our business has been through a lot. In the 1930s, for instance, it was difficult to get wood for our pencil production. We needed to find alternatives and we designed pencils with a metal body that are trademarked by Caran d’Ache as the ‘clutch pencil.’ We also tried to produce our pencils with fine Swiss woods which were hard to work with. It took us nearly seventy years to figure it out.⁵

Carol’s father Jacques Hübscher is credited with diversifying the company’s production, introducing luxury writing instruments and extending the company’s presence to more than ninety countries. The current generation of leaders, while continuing to excel in quality products and process innovations, is simultaneously focused on staying at the leading edge of sustainable development and opening flagship Caran d’Ache stores that are aligned with the company’s values.

In another part of the world, five generations of the Murugappa⁶ family in India have innovated and diversified their business portfolio over the past 115 years. What started as a money-lending and banking business in Burma (now Myanmar) in 1900 diversified into rubber plantations, textiles, insurance, and stock brokerage in Ceylon (now Sri Lanka), Malaya, and Vietnam by 1915. With continuous expansion through acquisitions, joint ventures, new product launches, and green-field projects and with annual revenues of over a billion US dollars since 2003, the Murugappa Group of Companies is one of India’s leading business conglomerates. It spans twenty-eight businesses, including nine listed companies in diverse industries such as abrasives, auto components, bio-products, plantations, and sugar, to name a few. While the family drives entrepreneurship, strategy, and governance, nonfamily executives lead the operations. Separation of ownership and management, with focus on the core values of arthashastra—the fundamental principle of economic activity that no one with whom the company transacts will lose—continues to guide this highly respected enterprising family of India.

Can you innovate if your industry is disappearing? Consider the transition of the Italian Falck Group; it dominated the iron and steel industry in Italy for almost seventy years from 1906 into the 1970s but suffered heavy losses in the 1980s and 1990s due to the structural industry crisis, only to re-emerge as a leader in renewable energy in the 2000s. This experience suggests enterprising families can accomplish this feat. The founding and evolution of the Falck Group has been well documented by the prominent economic historian Harold James in his 2006 book Family Capitalism: Wendels, Haniels, Falcks, and the Continental European Model. This case is remarkable because a visionary family member worked closely with a few savvy and astute nonfamily executives to ably redirect his family’s focus and identity from the steel industry (with which its name had become synonymous) to build on the founder’s entrepreneurial spirit and move the company from steel to the renewable energy industry.⁷ For the most part, this turnaround was accomplished while keeping the family’s solidarity intact. The younger brother of the turnaround family champion is today the chairman of Groupo Falck, as this company enjoys a Henokien position—an honor accorded only to fewer than fifty companies that are at least 200 years old and run by an heir of the founder, with the original family holding a majority stake or voting rights.

What makes some succeed? It is certainly not a new phenomenon for companies to innovate over generations of leaders and overcome not only industrial evolutions but also environmental or manmade disasters such as earthquakes, famines, wars, or accidents. Magazines such as Fast Company and Forbes release annual lists of the most innovative companies, and some of them, like General Electric and 3M, have been around for over a century. Countless books have been written both on innovation and the dilemmas of innovators or founding entrepreneurs, as well as on organizational leadership. What we explore is whether the mantras in these writings are equally effective for enterprises controlled by one or a few dominant families. With the complexities introduced by intermingling of kinship ties with the cutthroat realities of the business world, how do enterprising families like the Muruguppas, Falcks, Berkowitzs, and Hübschers accomplish the feat of being entrepreneurial generation after generation while simultaneously cultivating a functional family? How do these remarkable families overcome the sometimes valid danger noted by one of the greatest industrialists of the modern world, Andrew Carnegie,⁸ who warned that “the parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would.”⁹ After all, dimming the entrepreneurial spirit with easy access to wealth is only one of the golden handcuffs that enterprising families need to overcome.

It is not, however, necessary to wait generations to find enterprising families to learn from. For example, we also look at younger firms like Supreme Creations of the United Kingdom, in which regeneration of the enterprise took place when two generations joined forces. About two decades ago, Sri Ram established this company to make plain reusable bags out of jute, cotton, and canvas. With orders from UK supermarkets such as Asda, Tesco, and Sainsbury, as well as Nike and Top Shop of the United States, this was a successful start-up. However, growth accelerated when twenty-two-year-old Smruti Sriram, the Oxford-educated daughter of the founder, joined the business and introduced fashion designs. Within a short time, this family enterprise had over 50,000 clients around the world and was featured on the BBC news.¹⁰

What is necessary to innovate continuously and regenerate the enterprise to add value for customers? The hunger of working hard and smart must be developed, as at Supreme Creations, and then eventually sustained generation after generation. Investments must be made to avoid warfare among kin for dynastic legacy and power. Family turbulence through exits and entries caused by illness, death, divorce, marriages, adoptions, and similar events must be overcome. The inevitable disagreements about the direction of the business through the course of a family’s history must be managed. Furthermore, the pace of growth of the enterprise and the family may not be in sync at all times. In some generations, the enterprise may grow much more rapidly than the family, while in others there may be no capable or interested family members to lead the firm. How are such mismatches and challenges handled to tame the dark side of working with loved ones while reaping the competitive advantages of a family team running a generational enterprise? In this book, we draw insights from companies like Caran d’Ache, Falck, Murugappa, Supreme Creations, and Tension to understand what exactly they do that enables their enterprises to flourish over generations of family leadership, while other companies succumb to the challenging consequences of change.

It is not, however, necessary to wait generations to find enterprising families to learn from.

Technological and market changes are seen not just in bags, envelopes, pencils, steel, or banking but are evident in all industries. Yet against this backdrop of inevitable change, there are examples of enterprising families that seem to drink from the entrepreneurial fountain and have an unquenchable thirst to do things better in each generation, or at least to learn from and overcome mistakes in a generation.

Although they have often been major players in their chosen industries, such enterprising families are only now coming to public attention because of an increased awareness of the significant contributions of family enterprises to the economic and social well-being in most countries around the world. Depending on the definition used and the focal region, family businesses account for 60 to 98 percent of all economic activity.¹¹ Here are two standard definitions of family businesses, with slightly different emphases:

• Organizational entities in which either the individuals who established or acquired the firm or their descendants significantly influence the strategic decisions and life course of the firm, leading to success or failure of the business.¹²

• Businesses, whether public or private, in which a family controls the largest block of shares or votes and has one or more of its members in key management positions.¹³

Not only are these family firms major job creators, they have been found to be slow in downsizing when times are tough.¹⁴ And employees notice. For example, today Dot Foods Inc. is the largest food redistributor in the United States, delivering more than 100,000 products to distributors across the country, employing over 4,000 workers, and having sales over $4.5 billion. But even when it was a small family business in the 1970s, founders Robert and Dorothy Tracy established an employee retirement plan¹⁵ and maintained its no-employee-lay-off policy in the 1980s when they lost two major contracts. In 1999, the employees thanked the Tracy’s by raising $25,000 to buy a fifty-three-foot trailer to not have to relocate outside of Mount Sterling, Illinois.

Some family enterprises crumble or explode. These examples are living proof that enterprising families can find ways to transmit the hunger for excellence and innovation across generations. In addition, they can find their own unique ways to socialize and develop the next generation of leaders to ensure that the family enterprise continues to succeed and grow beyond the founder’s tenure. Nevertheless, sadly, it isn’t hard to think of examples of businesses around the world that did not do so well. Books like Family Wars¹⁶ capture the juicy estate battles of the Ford family, or the disagreements between the McCain or the Ambani siblings, or the struggles of the Spanish Álvarez family between father and sons,¹⁷ or the Gucci family’s saga of internal disputes. Yet such wrangling and squabbles are surely not the exclusive domain of legendary families that are in the public eye. Every community has its own set of unique family problems that lead to business exits.

Enterprising families can find ways to transmit the hunger for excellence and innovation across generations.

It is not just the changes in the business environment or family disputes that can halt the generational continuity of a family enterprise. What is a family to do when the political environment is so unstable that they live under the constant threat of abduction and kidnapping? Or what if a change of regime brings with it mass deportations that force the family to leave in a hurry with few possessions and to start all over again in another part of the world? What happens if a natural disaster or war strikes, leaving the business in rubble and several key family members lost to eternity? What is to be done when there are no suitable heirs in the next generation or when there are so many members in the next generation that the business is not big enough to accommodate them all? And what is the best course of action when an enterprise was started not by one family but by two or more? Or when two or more equally capable siblings have very different visions of the future? In this book, we focus on families that have found their own unique and effective ways to deal with these kinds of scenarios while continuing to regenerate their enterprise over generations of leadership—enterprising families. Sometimes this regeneration happens only after the core enterprise dissolves and various family members start completely new businesses.

How Can This Book Help You?

What are we trying to do? In this book, we share insights drawn from published accounts of successful entrepreneurial leaders in family enterprises and our observations of and conversations with hundreds of business students and members of enterprising families. We aim to extract a handful of actionable ideas that are neither so abstract that they can be applied to anything with no visible consequence nor so particular that it would take a lifetime of searching to find the exact situation to which the advice is suitable.

How do we do it? We start by looking and reporting. Family firms are everywhere in the world, from small startups to companies with over one billion dollars in revenue, and they can be multigenerational organizations or may fail to even survive to, or through, the second generation.¹⁸ Sometimes the death throes are precipitated by spectacular family blowups and at other times by inadequate leadership and adaption to changing conditions. One barrier to long-term survival is the failure of the current leadership to develop, instill, and select entrepreneurial leadership in the next (and succeeding) generations involved with the business. Whether members of the next generation take managerial or non-managerial ownership roles or not, if they don’t have the urge and capacity to innovate as needed when the business and societal environment changes, their firms will not thrive.

Who is this book for? This book is for “enterprising families” everywhere. These are families in which each generation adds a layer of entrepreneurial contributions to the work of previous generations. We use the word entrepreneurial in the broadest sense, not just as starting new businesses. Instead, it may take the form of initiating value-creation activities, such as regenerating business processes, adding new products or services, opening new geographical regions, increasing distribution channels, improving financial methods, creating more effective marketing strategies or new channels or target segments, forming new partnerships, developing logical extensions of business lines (or disruptive ones), finding new sources of employees, and so on. To thrive over the years and changing circumstances, family enterprises, like all other organizations, need innovative entrepreneurial contributions. But not only must they be creative in the business sphere, they must also bring their entrepreneurial mind-set into their family system as well. Innovations in this sphere may take the form of finding creative ways to develop the entrepreneurial and leadership skills of all family members and to engage all family members in meaningful ways that align with their interests and strengths, as well as the needs of the enterprise. That might well include the conclusion that for some family members, full lives can best be lived outside the family enterprise.

One barrier to long-term survival is the failure of the current leadership to develop, instill, and select entrepreneurial leadership in the next (and succeeding) generations involved with the business.

Where do we get our information? We use a variety of sources for examples. These include research journals, such as Family Business Review and the Journal of Family Business Strategy and practitioner-focused publications, such as Family Business Magazine and Tharawat Magazine. We also look at collaborative global research projects, such as the Successful Transgenerational Entrepreneurship Project (STEP) convened by Babson College, to understand the secrets of enterprising families around the world that master innovation in every generation; classic books that we reference throughout; and observations of family businesses, some by our colleagues along with our own. In addition, we bring in and apply relevant concepts and research findings from the business strategy, leadership, social psychology, team, and change literatures.

Who are we? Part of what makes this book different is what we share and the complementary skills we bring. We are both educators—teachers and researchers interested in entrepreneurial family firms. Allan grew up in a family business and completed his doctorate at Harvard Business School, studying Indian family firms in the 1960s. Pramodita (Dita) grew up in India surrounded by her enterprising family. Life’s journey took her to Sierra Leone, Nigeria, the United Kingdom, Canada, and then to the United States. A graduate of the University of Calgary, her doctoral research focused on succession in Canadian family firms in the 1990s. With Frank Hoy she co-authored the text book Entrepreneurial Family Firms, which is used in courses around the world. Between us we have taught at undergraduate, graduate, and executive levels for over seventy years. Through this work experience, we have listened to the concerns, dilemmas, and excitement of our students from family business backgrounds. We have had many opportunities to speak with the incumbent leaders, often the parent or grandparent generations, and hear their perspectives, excitement, and anxieties about their family firms. As educators we address and meet family business leaders and advisors around the world. In our research on enterprising families we have had opportunities to interview, survey, and observe these firms up close, and we continue to learn from the work of others. Dita’s consulting is atypical as it often takes the form of case studies she writes, student projects she guides, and the “go-to” person she becomes for many of her current and past students hailing from enterprising families. This happens with some of Allan’s students also. Our middle-class family business backgrounds and deep familiarity with different cultures make it easy for our current and past students as well as their parents and grandparents to communicate with us. We are products of enterprising families that work hard to be entrepreneurial while achieving success on familial and business dimensions. What we have discovered speaks to families like ours, and we want to share our observations and insights with enterprising families who can benefit from these experiences and insights.

Although some of Allan’s research, teaching, and consulting work has been with family businesses, most of it has focused on broader, more generic organizational issues: developing leaders, acquiring influence, building teams, and creating organizational change. He has worked in numerous countries with organizations in many different industries and of many different sizes, ranging from software startups to industrial conglomerates like General Electric. Several thousand managers have attended his executive education workshops and been a major source of his education. About 20 percent of his work life has been in leadership roles in academic institutions with low turnover, which have certain parallels to family businesses. Like family members, at times faculty members resist top-down direction. In such cases, the leader’s ability to influence and inspire becomes even more important. Thus, together we bring deep knowledge about the intricacies of family business with broad knowledge of how to tackle the challenges of building organizations of all kinds, both from above and below.

What should you expect? When trying to understand how entrepreneurial skills and mind-set can be nurtured generation after generation, we find that size is not the most critical variable, as goals vary significantly. Some enterprising families focus their entrepreneurial energy on increasing the size and scope of their enterprise, while others prefer to stay small over generations. For example, by its fiftieth anniversary in 2012, Wal-Mart, founded by brothers Bud and Sam Walton as a single store in Rogers, Arkansas, had surpassed the 10,000 stores and 2 million employees mark. On the other hand, Johannes Klais Orgelbau GmbH & Co., the German organ building firm, has maintained its size at about sixty-five employees for over 100 years. Both are highly innovative companies that have successfully nurtured and grown entrepreneurs in every generation to remain world leaders in their respective industries. We learn from both, but our application focus is on the midsized family enterprises. Of course, no shoe fits two individuals perfectly—so we don’t expect all of the insights we share to fit perfectly for you or your family. But we hope that some combination of ideas from different examples might be just what you need at this point in the evolution of your enterprising family.

It is clear to us that no one dominant factor creates entrepreneurs in every generation, but many small things coalesce to form a unique way that allows for each enterprising family to excel over generations. As you read, different things will strike you as suitable for your business and family, and for you personally, whether we pointed them out or you just observed them in a family or business we discuss. And you may well think of others in your world who would benefit from reading all or a portion of the book and discussing it with others in your generation. Continuous learning is good for keeping entrepreneurs developing in every generation—for those interested in leadership roles in the business or in the family.

In spite of mythology that lone entrepreneurial heroes create businesses by themselves, research¹⁹ indicates that 80 percent of new ventures start as family firms with significant influence of family members on the human, social, and financial capital of the enterprise. And it turns out that one of the few characteristics common to almost all successful entrepreneurs is openness to new ideas and experiences.²⁰ We hope this book provides a shortcut that helps a new generation to continue the entrepreneurial process for your family. Different parts of the book will spark ideas for you and them, depending on the life and career stage of each member, the nature of each member’s experiences and aspirations, and the family’s traditions and practices. And better yet, it might serve to launch discussions that prove fruitful for adapting its ideas to fit your situation.

One of the few characteristics common to almost all successful entrepreneurs is openness to new ideas and experiences.

How does it unfold? In this introduction we included a few examples of the companies that got us thinking about this topic and sources we found useful in developing our thinking. In the next six chapters we elaborate these observations at the individual (chapters 1 and 2), family (chapters 3 and 4), and organizational (chapters 5 and 6) levels. The odd-numbered chapters—1, 3, and 5—are the “what” chapters. In these, we build a short list of the practices—not always obvious—of successful entrepreneurial leaders, enterprising families, and entrepreneurial organizations respectively. The even-numbered chapters—2, 4, and 6—are the “how” chapters. These address the pathways to the best practices. In these chapters we share answers to your question: How precisely do enterprising families prepare individuals, families, and organizations for transgenerational success?

In presenting some of the patterns and pathways observed in enterprising families, we hope to enable you and your family to carve out a unique set of actions and strategies that are well suited to your individual and collective situations. Because families and businesses are living entities, existing in evolving and sometimes dramatically changing environments, with the passage of time the pathways that seemed perfectly suited for earlier stages of life of an individual, family, or business will likely need to be revised to protect, nurture, and grow the financial, intellectual, human, social and organizational assets. Each chapter provides a work sheet that prompts you and your family to reflect honestly on where you stand today in building entrepreneurs in every generation and to develop an action plan. Chapter 7 pulls together the book’s main ideas and aims to help you choose a sequence that might fit the current conditions of your business; it also includes our “Iron Laws of Influence for Enterprising Families.” We know there are ideas that can help you!