1.
White
Paper—Janice
Darling,
MBA,
BSEE
Family-­‐Run
Businesses
Renewal
and
Innovation:
Preparing
for
the
future
Family
Run
Businesses.
Copyright
©2015
Springboard.
All
rights
reserved.
Page
1
of
6
The
value
of
family-­‐run
businesses
introduces
questions
of
passing
wealth
to
future
generations.
Founders
and
successive
generations
continue
to
evaluate
the
purpose
of
their
company.
They
must
decide
how
far
they
want
to
see
the
business
go
within
the
family
or
when
it
is
more
valuable
to
sell
the
company.
Within
this
context,
it
is
important
to
understand
the
advantages,
challenges,
and
considerations
when
planning
for
the
successful
future
of
a
family-­‐run
business.
The
most
successful
family-­‐run
businesses
demonstrate
strengths
that
are
different
from
publicly
owned
companies.
They
take
advantage
of
the
inherent
advantages
as
they
build
their
business
while
incorporating
them
as
a
foundation
for
staying
competitive
in
the
future.
Publicly
owned
companies
typically
have
better
access
to
talent
and
capital;
however,
family-­‐run
businesses
can
overcome
this
with
their
own
unique
strengths.
Flexibility
and
long-­‐term
thinking.
Family
owners
typically
want
their
firms
to
last
for
generations,
and
they
can
make
long-­‐term
investments
without
worrying
about
shareholders
focusing
on
immediate
profits.
The
family
has
a
unique
opportunity
to
take
long-­‐term
strategic
risks
in
the
evolution
of
the
company.
Freedom
to
pursue
passion
and
vision.
Founders
running
the
business
have
the
abilities
and
the
freedom
to
run
by
their
own
rules.
They
typically
have
a
loyal
team
who
will
follow
their
lead
allowing
decisions
to
be
made
and
instituted
quickly.
Heirs
can
often
keep
up
the
firm’s
success
by
continuing
to
follow
the
founder’s
successful
principles
and
vision.
Virtue
of
frugality.
A
reluctance
to
borrow
may
limit
growth
in
good
times
but
it
can
make
family-­‐
run
businesses
more
resilient
when
the
going
is
tough.
Without
a
lot
of
debt
and
outside
stakeholders,
it
is
easier
to
take
risks
and
think
creatively.
Better
labor
relations.
Workers
believe
promises
made
by
founding
families
who
are
committed
to
the
long-­‐term,
rather
than
outsider
bosses
who
may
be
gone
in
a
few
years.
Because
of
their
personal
stake
in
the
business,
family
owners
may
be
more
willing
to
engage
and
act
firmly
when
dealing
with
labor
unions.
Reducing
the
time
and
energy
required
to
bring
labor
unions
along
in
the
evolution
will
make
changes
easier
to
execute.
Superior
corporate
culture.
Family-­‐run
businesses
consistently
score
higher
than
their
non-­‐family
peers
on
culture,
worker
motivation,
and
leadership.
They
are
able
to
develop
a
loyal
staff
and
high
Family-­‐run
businesses
have
unique
strengths
that
provide
an
advantage
over
publicly
owned
companies.

2.
©
2015.
All
rights
reserved.
Page
2
of
6
performing
teams
that
stick
together
for
years.
Evolving
the
business
is
easier
with
the
trust
and
backing
of
employees.
Retaining
and
engaging
key
people
through
disruption
will
be
a
key
advantage
to
the
family.
Overall,
there
is
a
positive
“family
effect”
on
financial
performance.
People
tend
to
trust
family
run
companies
more
than
publicly
traded
companies.
This
trust
means
it
is
easier
to
engage
customers
in
change
while
making
the
story
easier
to
understand.
The challenge for family-run businesses
With
these
external
and
internal
advantages,
it
seems
counterintuitive
that
only
3%
of
businesses
will
stay
in
the
family
through
the
fourth
generation.
Some
of
these
businesses
are
sold
because
the
founder
or
successive
generations
could
not
move
the
company
any
further.
Some
are
sold
because
successive
generations
are
unable,
unwilling,
or
lack
the
skills
to
take
over
the
company.
Some
fail.
There
are
many
reasons
leading
to
the
low
number
of
family-­‐run
businesses
sustaining
themselves
through
successive
generations.
Family-­‐run
businesses
have
a
fundamental
and
strategic
challenge
they
must
address
if
they
are
going
to
overcome
the
odds
against
them.
Family-­‐run
businesses
move
through
a
five-­‐stage
life-­‐cycle
model
that
is
closely
correlated
with
generational
transitions.
As
the
business
grows
and
matures,
leaders
must
continue
to
expand
their
thinking
to
focus
on
the
intersections
of
building
the
business,
running
the
business,
and
preparing
for
the
future.
Successful
family-­‐run
businesses
create
an
organization
able
to
sustain
the
innovation
needed
for
on-­‐
going
renewal.
The
challenge
that
most
family-­‐run
businesses
face
is
that
they
get
stuck
in
running
the
business
and
do
not
prepare
for
the
next
evolution
of
the
company.
They
continue
to
focus
on
doing
more
of
the
same—perhaps
better
and/or
faster—and
do
not
prepare
to
renew
and
innovate
the
business.
As
the
world
inevitably
changes,
these
companies
are
slow
or
unable
to
adapt
and
are
unlikely
to
last
through
the
third
generation.
© 2013 springboard Company Confidential
Existence Phase
Focus on viability
Survival Phase
Focus on growth
and revenue
Success Phase
Focus on control
and processes
Renewal Phase
Focus on growth
and revival
Decline Phase
Focus on
personal goals
Generation 1
Generation 2
Generation 3
Life Cycle of Family-Run Businesses
Build the business Run the business Prepare for the Future
Launching
the next
evolution
© 2013 springboard Company Confidential
100%
30%
12%
3%
third generation
Only 3% of family-owned businesses
make it to the fourth generation
without failing or being sold

3.
©
2015.
All
rights
reserved.
Page
3
of
6
The
inflection
point—success
or
failure?
Build
the
business.
In
this
phase,
the
founder
focuses
on
the
viability
of
the
business
and
is
responsible
for
the
entire
business.
As
the
company
grows,
more
members
of
the
family
tend
to
join
and
the
management
and
power
becomes
shared.
The
focus
is
on
generating
sufficient
revenue
to
sustain
the
business.
Run
the
business.
Once
the
business
is
established
and
is
sustainable,
the
focus
moves
onto
formalizing
processes
and
controls.
Hierarchy
and
structure
is
put
in
place.
The
family
business
grows
and
diversifies.
This
is
where
the
business
is
most
successful
and
is
generating
consistent
profits.
Often
it
is
when
the
second
generation
takes
the
helm.
And
it
is
where
most
businesses
begin
to
fail.
Prepare
for
the
future.
Just
when
the
company
is
most
successful
is
the
time
to
renew
and
innovate.
However,
because
the
focus
has
been
on
formalizing
and
managing
the
company,
the
leaders
are
often
unprepared
to
collaborate
and
think
strategically
about
change
and
evolution.
As
new
competitors
enter
the
market,
or
the
market
changes,
or
new
products
are
introduced,
or
customer
demands
shift,
or
other
big,
unanticipated
changes
happen,
the
leaders
work
harder
to
do
more
of
the
same
things
they’ve
done.
This
is
when
the
company
slides
down
the
curve.
They
establish
the
structure,
leadership,
and
capabilities
to
evolve
the
business
through
future
generations.
The
work
involved
in
preparing
for
the
future
is
just
as
important
as
running
the
business
and
is
seen
as
a
priority
among
the
leadership
team.
Traps to avoid
Once
a
family-­‐run
business
has
reached
the
success
phase,
leaders
can
easily
fall
into
these
typical
traps
that
prevent
them
from
spending
the
time
and
energy
required
to
prepare
for
the
future.
Trap
1:
Not
enough
focus
on
building
a
diverse
and
experienced
leadership
team
Trap
2:
Too
much
focus
on
internal
operations
and
not
enough
on
long-­‐term
strategic
thinking
about
the
business
Trap
3:
Inability
to
adapt
to
change
Many
family
businesses
have
the
same
leaders
for
20-­‐25
years.
The
passion,
leadership,
and
power
established
by
the
founder
sets
the
stage
for
leaders
to
follow
this
direction.
Typically
there
is
little
need
during
the
founder’s
reign
to
spend
much
time
building
a
diverse
and
cohesive
leadership
team.
Transitioning
the
CEO
role
to
the
next
generation
sets
the
stage
for
the
future.
Alarmingly,
a
PwC
study
published
October
2014
of
2,400
family-­‐run
businesses
in
40
countries
found
that
only
16%
of
them
had
a
“discussed
and
documented”
succession
plan
in
place.
As
the
next
generation
steps
up,
it
needs
to
focus
on
preparing
for
the
future.
A
talented,
diverse,
and
collaborative
leadership
team
that
brings
long-­‐term
strategic
thinking
is
essential
to
evolve
the
company.
Successful
family-­‐run
companies
start
a
new
curve
to
avoid
sliding
down
the
initial
curve.

4.
©
2015.
All
rights
reserved.
Page
4
of
6
Building
the
right
leadership
team
for
the
future
requires
a
disciplined
development
process
and
selection
criteria.
This
will
ensure
solid
experience
and
preparation
of
all
leaders.
Successful
leaders
focus
on
creating
a
diverse
team
of
family
members
and
non-­‐family
members.
Unfortunately,
many
times
we
see
offspring
who
view
the
family
business
as
a
fallback
option
and
who
ascend
to
leadership
positions
without
meeting
the
required
criteria.
This
puts
unnecessary
stress
on
other
leaders
and
the
organization
as
they
attempt
to
work
around
underperforming
offspring.
Another
problem
with
building
a
diverse
team
is
that
family
members
often
specialize
in
the
same
aspect
of
the
business
(ex.
finance,
research,
sales).
This
creates
a
lack
of
cross-­‐functional
expertise
needed
for
executive
leadership.
This
lack
of
diversity,
paired
with
having
a
successful
business,
makes
it
even
more
difficult
for
a
team
to
think
strategically
about
the
future
evolution
of
the
business.
When
leaders
have
not
been
preparing
for
the
future,
personal
dynamics
and
squabbles
among
family
members
are
exacerbated.
Rather
than
focusing
on
the
future,
family
members
become
more
focused
on
their
own
personal
needs
and
desires.
This
is
a
distraction
to
the
business
and,
even
worse,
results
in
little
or
no
time
and
energy
being
spent
on
designing
and
executing
the
needed
changes.
Successful
family-­‐run
businesses
have
diverse
leadership
teams
made
up
of
family
and
non-­‐family
members.
They
dedicate
time
and
energy
to
think
strategically
about
the
future.
They
encourage
candid
feedback,
collaboration,
and
problem
solving
during
the
evolution.
They
prepare
for
the
future
by
building
structure
and
capabilities
to
continuously
think
strategically,
innovate
and
evolve,
and
execute
change
as
part
of
running
the
business.
Four steps to consider in preparing for the future
Once
the
family
is
successfully
running
the
business,
it
is
the
perfect
time
to
prepare
for
the
next
evolution
of
the
company.
While
there
are
many
aspects
to
running
a
successful
company,
there
are
four
critical
elements
required
for
family-­‐run
businesses
to
continue
to
be
successful
into
the
future.
1. Establish
the
structure
for
generational
transitions.
Corporate
governance
structure.
A
professional
board
will
ensure
the
business
is
run
professionally
and
provides
independent
oversight.
This
allows
family-­‐run
businesses
to
hire
and
keep
the
best
people.
Disciplined
executive
succession
process.
Follow
a
disciplined
search
involving
multiple
candidates
for
executive
appointments
(especially
the
CEO).
Clear
expectations.
Make
sure
the
entire
leadership
team
is
clear
on
roles
and
expectations.
This
will
reduce
confusion
and
will
better
establish
a
new
leader
in
their
role.
Support
and
guidance.
The
right
transitional
support
can
cut
the
risk
of
a
failed
hire
or
promotion
in
half.
The
onboarding
process
(along
with
a
fair
and
professional
selection
system)
can
help
a
CEO
succession
unfold
smoothly
and
effectively.
A
wide
diversity
of
experiences,
backgrounds,
and
thinking
is
essential
to
challenge
the
status
quo
and
surface
new
ideas.

5.
©
2015.
All
rights
reserved.
Page
5
of
6
2. Develop
a
diverse
team
of
family
and
non-­‐family
members.
Family
“leader.”
Maintain
what
is
special.
Protect
and
celebrate
the
role
of
the
family
“leader.”
A
strong
personality
draws
talented
people
into
their
orbit
and
keeps
them
there.
Future
leaders.
Assess
all
talent
(especially
family
members)
on
competencies,
potential,
and
values.
Identify
future
leaders
from
within
and
outside
the
family.
Talent
development.
Identify
and
develop
talent
early.
Start
early
to
find
ways
to
develop
a
broad
base
of
talent
that
already
fits
within
the
culture.
3. Focus
on
collaboration
and
strategic
thinking.
Vision
and
strategy.
Align
the
entire
leadership
team
around
the
vision
to
ensure
the
team
is
working
toward
the
same
end.
Re-­‐visit
the
vision
and
strategy
for
the
future.
This
is
also
the
way
to
build
a
shared
connection
and
respect
among
a
new
team
while
reinforcing
the
higher-­‐level
purpose
and
values.
Strategic
thinking.
Bring
the
leaders
together
specifically
to
talk
about
strategy,
changes
needed,
and
new
ideas
and
thinking
outside
of
running
the
business.
Be
explicit
on
expectations,
timing,
and
accountabilities.
Make
this
time
a
priority.
4. Prepare
for
change.
Enrollment.
Prepare
the
organization.
Clarify
the
changes
required
and
the
plan
to
move
the
organization
through
those
changes.
Communicate
and
build
credibility
of
the
leaders.
Momentum.
Sustain
momentum
and
manage
results.
Establish
routines
and
processes
to
track
and
report
progress,
measure
successes,
and
fix
problems
early.
Change
execution.
Take
a
structured
approach
to
leading
changes.
Make
sure
leaders
have
the
capabilities
and
resources
to
deliver
the
expected
outcomes.
Summary
Family-­‐run
businesses
will
move
through
several
critical
transition
points
during
their
life
cycle.
The
first
is
moving
from
building
the
business
to
running
the
business.
The
next
is
in
shifting
from
running
the
business
to
preparing
for
the
future.
This
is
where
the
new
growth
curve
is
defined
and
launched.
For
families
who
expect
to
see
their
business
succeed
beyond
the
second
or
third
generation,
they
must
renew
the
business
and
define
the
new
curve
or
they
must
prepare
to
fail.
Successful
families
know
that
the
environment
will
change
and
they
must
prepare
themselves
to
continuously
adapt.
This
requires
that
leaders
invest
sustained
energy
and
time
for
a
future
payoff.
It
means
making
strategic
planning
a
priority
among
the
leadership
team
to
prepare
for
future
evolution
and
change.

6.
©
2015.
All
rights
reserved.
Page
6
of
6
References:
HBR
January-­‐February
2012:
Avoid
the
Traps
That
Can
Destroy
Family
Businesses,
by
George
Stalk
and
Henry
Foley
HBR
April
2015:
Leadership
Lessons
from
Great
Family
Businesses,
by
Claudio
Fernándex-­‐Aráoz,
Sonny
Iqbal,
and
Jörg
Ritter
PwC
2014
Family
Business
Survey
Economist
April
18,
2015:
Family
Companies—To
Have
and
To
Hold
Economist
April
18,
2015:
Management
Theory—Survival
of
the
Fittest
Economist
November
1st
2014:
Family
Firms—Business
in
the
Blood
Labor
relations
studies
by
Holger
Mueler
and
Thomas
Philippon
of
New
York
University’s
Stern
business
school
Heinz-­‐Peter
Elstrodt
of
McKinsey
on
the
index
of
“organizational
health”
provided
to
114
family
firms
and
around
1,200
other
large
companies
Lester,
D.
and
Parnell,
J.
(2004).
The
complete
Life
Cycle
of
a
Family
Business
Janice Darling is the founding partner of springboard, a change execution consulting firm.
Springboard’s goal is to provide targeted and objective consulting advice to companies facing
change—helping leaders successfully execute change through their organization to achieve and
sustain results.
www.springboardincorporated.com