A question recently popped up when working with a few of my clients regarding strategy and execution in family enterprises. Should the typical processes and activities involved in strategy planning work just as well for family businesses – why or why not? To explore this a bit further we will need to understand what makes these businesses unique in the first place.
How are family businesses different?
Most would agree that family businesses are different in several ways. Many advisors, like myself, are all too familiar with the good as well as some of the challenges associated with these organizations. There was an excellent article published by the Harvard Business Review, March 2016; “Why the 21st Century Will Belong to Family Businesses” , that provided an overview of five key attributes that makes family businesses different.
Family businesses (The “Familyness Advantage”)
- Instill their owner’s values into the organization’s culture
- Think and decide based on decades rather than quarters or years
- Make more meaningful contributions to their local communities and have stronger reputations
- Have flatter org structures enabling decision-making to be more agile and swift
- Are owned by a small group that are heavily engaged in managing and operating the business
How does this play out in the long run?
Regarding the long term impact of these businesses, a recent Rotman study, tracked results over a 50 year period and compared them to non-controlled widely held companies. The study confirmed that;“Family companies live longer, are more stable and are less risky” and “…their excellent long-term results may be driven, at least in part, by the long-term perspectives of family owners”.
The same article above pointed out the disappointing statistic that 70 per cent of family businesses don’t make it to the second generation. This statistic could be driven, at least in part, by some of the key challenges many family businesses face. The article outlined a few of these challenges, and I have added a few of my own:
- Transition of power to subsequent generations or to professional managers is slow, or not planned well
- The creation of a strong and independent board of directors is not often done or done well
- The establishment and maintenance of high standards for governance and transparency – structure is sometimes not seen as a good thing by entrepreneurs
- Owners spend too much time “working in the business” rather than “working on the business”
- The key attributes of an entrepreneur sometimes get in the way of long-term planning. Check out a previous blog I wrote on this subject.
What Do These Findings Tell Us about Strategy Planning?
Given these unique attributes and challenges, I believe the “how” and “why” of strategy planning and execution should be radically different. It is reasonable to think that with strategy planning and execution practices tailored to protect the “familyness advantages”, more of them would survive to the next generation. Unfortunately, too few family businesses really understand and assign resources to ensuring their strategy planning & execution activities stand apart from the usual processes that businesses follow. The rest of this article will outline what I think is needed for strategy planning & execution in family businesses.
Key Characteristics – “The YSN Way”
The Three Circle Framework
It is only now as an advisor to family businesses that I have learned, and am still learning frameworks, techniques and activities that are uniquely designed for family businesses. The key framework I am using now to better understand the family business systems is called The “Three Circle Model”. “The Three Circle Model” just celebrated its 40th anniversary, if you can believe it. Created by Renato Tagiuri and John Davis at Harvard Business School (HBS) in 1978. This model involves 3 intersecting circles, representing “Ownership”, “Business” and “Family”. This framework was a game-changer as it allows each person impacted by a family business (owners, leaders, employees, family not working in the business, etc.) to find themselves somewhere in this family business system. Just as important, it allows the family to have deliberate conversations within specific circles, independent of the impact of the other intersecting circles. It an be helpful to think of the three circles as separate “hats” that one may put on when having a conversation or making a decision.
Some advisors use this framework for succession planning conversations only. I am a big advocate of using it for ALL strategy conversations, no matter how close one may think they are to needing a succession plan.
Through our work at YSN, we have enhanced this time-tested framework so that on one page, the owner and his/her family can visually see some of the key strategies and concepts to adopt in each of the three circles. This is a great starting point to consider!
Please contact us here and we will send you a FREE copy of our YSN template!
From what we explored above, I think you will agree that strategy planning for family business is in need of its own processes and frameworks. I look back at my 15 plus years working in family businesses and really wish I was better equipped with this information. The results on the businesses, communities and families would have been significant. Yes, the businesses I had the privilege of working in are still doing well today. But, I am confident the owners would agree that tailored strategy planning and execution processes like the ones we are outlining here, would have prevented several bumps, bruises and family/ business conflicts, etc. along the way. All of these challenges can have the effect of eroding long term family wealth and harmony.
In a future article, I will outline the other essential characteristics we’ve learned from working with several family business clients over the past little while. A few of these you might see when strategy planning for non-family businesses, but most of these are unique and ensures the real familyness advantages are not only identified, but protected and nurtured over time. Please stay tuned!