Published on: June 04, 2022

Perspectives > Enterprise Growth & Scalability

If you are the founder of a family business – or a descendant actively involved in leading one – you may find yourself wondering how your business will continue to flourish as it expands in size and complexity. Or what you’ll do if the next generation isn’t too enthusiastic about their inheritance.

So, you hire a consultant who tells you that you should ‘professionalize’ – adopt the mantle, governance, structures, processes and systems of a modern corporation. The consultant tells you this is a wise course of action, and offers to guide you on how it can be done.

But… what if professionalizing what your family has built up with so much passion and hard work leaves the business without what made it special in the first place? Your family’s business isn’t any ordinary company; it’s part of your family’s identity, and you may be worried that its uniqueness will be lost.

Bringing up baby

Raising a family business has many parallels to raising a child. Watching children grow up, take risks and face life on their own can be nerve-wracking for parents as they realize they can’t always be there to protect, direct and decide. When this happens to your family business, it’s disruptive for you, your employees, your customers, and, of course, your family.

Therefore, let’s explore how a family business can have the best of both worlds, preserving its uniqueness while preparing to grow and scale.

The perils of professionalizing

Here we’ll look at just three ways in which the process of transforming a family company can be disruptive.

  • People. The culture of a family business derives from the family at its heart, and this culture is by definition as unique as the family. Hiring new people is an essential step in professionalizing. New people come from different backgrounds and corporate cultures. Integrating new hires and long-serving employees into a cohesive, harmonious corporate culture can be tough. Clashes are likely at every level from bottom to top, blunting the company’s edge and taking away its focus.
  • Processes. Professionally managed corporations have defined processes with many benefits, from streamlined operations to more efficient delivery. But adopting a process-driven philosophy wholesale isn’t going to do much for a family business that may be built on relationships and tacit knowledge. In many cases, the organization will eventually snap back like a rubber band to its old style of working, leaving the processes to exist only on paper. This mismatch between theory and practice leads very quickly to disruption and chaos.
  • Personality. The other major risk of wholesale process adoption is the dilution of the company’s identity. Professionalizing may require embracing industry standard practices, but it should never mean sacrificing what makes a company unique to begin with. The values, beliefs and passion that the family brings to their business may be lost if the transformation happens too fast, or if the family steps away too soon. A company without a unique personality and voice won’t last long in today’s hyper-competitive marketplace.
4 questions to grow up right

With all this in mind, for family businesses to transform themselves for a modern, corporate future full of promise and potential, they need to be clear on the answers to these 4 questions at the outset.

  • What role will the family play?

The critical first step is for family stakeholders to agree on the need to transform, and their vision for the future of their company. Their aspirations for themselves and their business must be aligned. Clear and specific roles should be defined for each family member who wishes to be part of this business future. That may mean redefining their roles or creating completely new ones.

For example, maybe you, the founder of a small advanced electronics company, much prefer tinkering with technological challenges than you do meeting with banks or customers. Perhaps your role in the transformed business can be to lead R&D, where your experience, expertise and interests come together while professionals deal with strategy and operations.

Further, family stakeholders have insights into the business, market, customers and strategy of their company that outsiders may lack. These should not be lost. The transformation strategy should clearly articulate what makes a family business distinctive and successful, and incorporate these qualities for continued competitiveness.

  • Where will the borders be?

Robert Frost famously wrote, ‘Good fences make good neighbors.’ This is emphatically true for family businesses to sidestep disruption when transforming into professional corporations. Strong governance must underlie the entire process:

      • How will the family engage with the business going forward? What company rules will the family submit to?
      • Non-family individuals will join the Board of Directors as the company transforms, bringing invaluable new insights and perspectives. What will the Board’s relationship be to the family, the business, and other stakeholders?
      • How much autonomy will the new corporate professional leadership have in strategic (or even operational) decision-making, and at what level? Who will set the leadership objectives for the corporate ‘center’ and individual business units or functions? Having a separate power center in the family is a recipe for bottlenecks at the top – and here’s what we at COD think about that!
  • How can the company be stronger?

Transforming a family business requires making it strong and resilient enough to stand and succeed on its own. This has several vital elements. Here are a few:

      • Leadership. By engaging the right leaders in the right leadership structure and composition, with clear expectations, and actively supporting them for a significant time, the family can ensure their business is in safe and capable hands. There are several models to do this, but it’s always critical that trust, transparency and relationships between executives and family stakeholders are front and center throughout.
      • Organization Structure. Drawing an organization chart is a very satisfying exercise; it creates order out of chaos. But families and their transformation consultants must guard against over-complicating. By defining a structure that meets the business’s needs for the short- and medium term (say, 3 to 5 years), the strategy leaves the company and its incoming executive leadership free to flex and adapt to the changing needs of business.
      • Process Improvement. As we have seen, too much of a good thing doesn’t work. Instead, by focusing on cross-functional, critical business, and support processes, the transformation strategy will protect and nurture the company’s unique attributes, culture and family knowledge that contributed to its success so far while giving it a framework to scale and grow.
      • Measurement. Letting go of control can be tough, especially during a transformation as drastic as this. The simple expedient of putting in place MIS solutions (or other mechanisms for regular communication and updates) can assure family stakeholders – and other company-watchers – that the business is on track and performing to plan.
  • What do you want to be when you grow up?

So far, we’ve looked at nuts-and-bolts strategies and tactics. But the success or failure of a family business to professionalize while retaining its uniqueness rests on institutionalizing the culture, values and leadership behaviors that made it special.

Clear and explicit articulation of the company culture and values; specific actions to institutionalize and preserve them; creating a shared narrative history that people can get behind; clear behavioral expectations for leaders, managers and employees – these are just some ways in which the company can achieve continuity of what made it special as a family business while stepping forward confidently into its enterprise future.

Author: Sweta Sorab

Growing up isn’t something young humans can avoid, and neither can successful family businesses. The transformation period can be disruptive and full of turmoil if not handled with foresight, sensitivity and an awareness of nuance. COD has helped numerous family businesses get it right with minimal disruption, transforming themselves into high-performing enterprises set up to thrive for generations to come.

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