Carol Mushriqui, Senior Wealth Advisor
One of the biggest contributors to the success of a family business is the ability to continue to innovate throughout generations in order to keep up with a rapidly changing environment. This approach requires considerable agility, creativity and a relentless tenacity – what some would call an entrepreneurial spirit.
One of the key questions we often hear from business founders is how can they pass down that entrepreneurial spirit to their children to ensure the longevity of their business as well as their wealth for generations to come.
While there is no secret recipe for ensuring multi-generational entrepreneurship, we believe there are a number of ways to nurture and encourage the ability to be creative and innovative in the next generation.
1. Recognise the change in perspectives
It is important to recognise the shifting perspectives from the founding generation to the next generation. Founders typically have strived to create something out of nothing, taking on bigger risks in order to build something of value, and create significant wealth, perhaps for the first time. Their focus and energy is often on wealth creation.
Meanwhile, their children may feel a sense of expectation to perform, succeed and maintain the wealth that has been created, as well as the pressure to find their own path and achieve their own dreams. Often they ask the following questions:
- How will I live up to my parents’ expectations?
- What is my purpose, outside of the wealth my parents created?
- What value do I bring to a business that was already a success without me?
First, we must recognise the change in perspectives and attitudes from one generation to the other, and not assume that the next generation will carry the same attitude towards wealth as their parents.
2. Redefine success
Many will recognise the well-known statistic that 30% of family businesses will survive to the second generation, 13% to the third generation, and only 3% of family businesses will survive beyond that. But what if survival does not necessarily equate to success? What if success means much more than simply handing the baton down from generation to generation? Isn’t it possible that the sale of a family business as a way to harvest value and create new opportunities for family members can be seen as a huge success?
In our conversations with business families, we often encourage and facilitate a discussion on redefining success and identifying what that means to your family in particular. Is it the continuation of the family business, or might it include your daughter’s success in a new venture or your son’s success in managing the family office and diversifying the family’s assets? Could success also include enhancing family communication and strengthening relationships, or finding better ways to execute decisions as a family?
Whatever success means to you and your family, it will be important to the next generation in particular to think holistically about success, as this gives them the opportunity and permission to think creatively about how best to use their talents and resources.
Often, some families find it helpful to have a facilitator guiding these discussions about what success looks like for you and your family, and articulating your vision and values, both individually and collectively.
3. Reduce the obstacles in the way of entrepreneurship
Often one of the biggest obstacles to entrepreneurship in the next generation is the fear of failure. Some of the methods that families use to overcome this fear can include:
- Creating an internal family venture fund. Setting aside funds for the specific purpose of supporting family members in their new business ventures often gives the next generation the license to take the plunge and put their ideas into action. It can be a good way to show the next generation that they have the support and resources they need to think creatively.
- Support through external mentorship. Partnering with a mentor from outside the family can often be a good way to give the next generation fresh insights and the objectivity that they need, without the heightened expectations (or sometimes judgement) that can often come from family members.
- Starting a family forum for sharing ideas. Many families have found that brainstorming with family members has offered unique wisdom and insights based on a rich history of experiences. Starting a forum for sharing ideas across generations can offer a helpful sounding board for younger family members embarking on an entrepreneurial venture for the first time, as well as giving the seasoned entrepreneur some food for thought.
- Embrace failure as a part of the learning journey. It is sometimes said that overnight success takes a long time. The key lessons to be learnt on the road to success are often those that only failure can teach. Part of encouraging entrepreneurship is embracing failure, as an unavoidable part of success. So share stories of failure, as well as stories of success. Pass them down from generation to generation and don’t be tempted to downplay the failures of the past. These are key conversations to have with the next generation to help them overcome that fear of failure.
Please contact your J.P. Morgan team if you’d like us to help you consider an approach that’s right for your family and find the best ways to help nurture entrepreneurialism in your next generation.
