All posts by Stephen P. Miller

Next-Generation Leader Development: Entrepreneurship Across Generations

Steve Miller
Steve Miller

In my earlier blog post, I wrote about the importance of next-generation family leaders gaining challenging work experience with real responsibility inside or outside the family firm. How might a next-generation leader accomplish this within the family firm?  It turns out that preparing for leadership and ownership succession in a family firm presents a great opportunity for next-generation leaders to stretch themselves and help the family business at the same time.

Transition in ownership in a family business often creates the need to grow the business to support the financial needs of more than one generation of family owners. It also often comes at a time when the market is suggesting a time for strategic renewal. The term “transgenerational entrepreneurship” refers to the ability of a family enterprise to meet these challenges by creating new streams of value across many generations (Cruz, Nordqvist, Habbershon, Salvato, & Zellweger, 2006).  Next generation leaders may have entrepreneurial ideas for addressing new opportunities in the market that the senior generation does not see or understand. Taking responsibility for developing those ideas into new products, services, processes, or business lines can provide a way to stretch their wings and establish credibility in the family firm.

One of my former MBA students did exactly that. His father established and operated a highly successful catalog business in a niche market. My student researched opportunities for distribution of other products that were underrepresented in direct-to-consumer marketing and identified a highly fragmented market that seemed ideal for direct marketing. He developed a business plan that utilized existing distribution and sales infrastructure for his new line of products and raised the necessary capital himself.

Not only has his “company within a company” been successful in its own right, but he also convinced his father that investing in developing a robust online sales platform in addition to the traditional catalog was necessary to keep both businesses competitive. He has gained valuable experience, established himself as a respected leader, and created a new source of growth for the family business. His father now sees him as a capable successor for leadership of the entire enterprise.

References
Cruz, C., Nordqvist, M., Habbershon, T., Salvato, C., & Zellweger, T. 2006. “A conceptual model of transgenerational entrepreneurship in family influenced firms,” International Family Enterprise Research Academy.

Next-Generation Leader Development: Inside or Outside Experience?

Steve Miller
Steve Miller

Laura is the second-generation CEO of a successful beverage company started by her father 25 years ago. She exudes a contagious enthusiasm for the business and articulates a clear vision for growing the family firm. When her father began thinking about leadership succession, the employees asked him to recruit Laura as their next CEO, and they love working for her.

Joe is a third-generation senior leader in a large manufacturing firm founded by his grandfather nearly 75 years ago. Joe is burned out and seems weighed down by the burden of overseeing the family enterprise. Employees don’t want to work for Joe, and one division of the family enterprise recently failed under his leadership.

Both Laura and Joe were educated at top universities, got work experience outside the family business, and are highly intelligent – three characteristics most often mentioned in the family business literature as important to next-generation leader success.  So what’s the difference between Laura and Joe?

A recent article in Harvard Business Review suggests that how next-generation leaders are developed has an important impact on their success in the family firm (Fernández-Aráoz, Iqbal, & Ritter, 2015). The interviews on which that article was based revealed that the best family firms execute a thoughtful development plan for future leaders that includes real job responsibilities at varying levels of responsibility. Where that experience is gained – inside or outside the family business – did not seem to be a key factor.

One CEO indicated that his family firm no longer requires next-generation leaders to go outside the family business to establish a track record, but rather encourages them to work for the family business from the start. This finding is consistent with my own recent research of 100 next-generation family leaders which showed no statistically significant relationship between experience outside the family business and next-generation leadership effectiveness. My study showed that the more important factor was having experiences at work that challenged and stretched the developing next-generation leader.

A closer look at Laura and Joe supports this conclusion. Laura’s outside experience was gained in a job that required her to grow a business line for which she was responsible. She had to learn a wide variety of leadership skills including planning, influencing others, and adapting to changing market conditions. Joe, on the other hand, received superb training in a technical skill important to his family business, but in a position without real leadership responsibilities.

Here at The Family Business Consulting Group, we think gaining outside experience is often the right course for many next-generation leaders. It can increase the likelihood that they will receive objective feedback on their performance and provides an opportunity for them to prove themselves in a setting where their family name is not an issue. But in the right circumstances, they can also develop successfully working inside the family firm.  It is not so much where the experience is gained, but rather the nature of the experience that makes the real difference.

References
Fernández-Aráoz, C., Iqbal, S., & Ritter, J. 2015. “Leadership lessons from great family businesses.” Harvard Business Review (April 2015).

Next-Generation Leadership in the Family Enterprise Part 2

Steve Miller
Steve Miller

In a two-part blog post, Family Business Group consultant Stephen P. Miller highlights some key findings from his recently completed research on how nextgeneration family leaders develop leadership skills.

My research on nextgeneration family business leaders demonstrates the importance of family climate on the degree to which nextgeneration family members learn leadership skills.  Ironically, some of the leadership characteristics we often observe in entrepreneurs who build successful family firms may actually work against them in their efforts to prepare the next generation for leadership responsibilities.  The kind of hardcharging authoritative leadership style that may have helped a senior family entrepreneur overcome the significant challenges of establishing a successful family firm negatively affects the development of nextgeneration leaders.  Nextgen family leaders need age and experience appropriate opportunities to practice decision making, take risks, enjoy successes, and recover from failures.  A senior generation leader who makes all the decisions and sets all the rules can unintentionally deny nextgeneration family members the experiences they need to develop their own leadership skills.

The study further suggests that nextgeneration family members interested in playing a leadership role in the family business should consider taking responsibility for their own development of leadership skills, particularly emotional and social intelligence competencies.  If the family climate is one characterized by senior generation leaders who exercise unquestioned authority, nextgen leaders would be well served to suggest or create some area of the business for which they could be responsible and held accountable by others.  If the senior generation refuses to allow it, then the potential nextgeneration leader may be wise to seek experience with genuine responsibility and accountability outside of the family firm.  The research is abundantly clear that shouldering real responsibility is strongly related to emotional and social intelligence competencies demonstrated by the most effective leaders.

Next-Generation Leadership in the Family Enterprise Part 1

Steve Miller
Steve Miller

In a two-part blog post, Family Business Group consultant Stephen P. Miller highlights some key findings from his recently completed research on how nextgeneration family leaders develop leadership skills.

Engineering a successful generational transition is often the issue that most concerns family business entrepreneurs who hope the businesses they have created will thrive through multiple generations of family ownership.  Family firms that develop effective nextgeneration leaders often employ the following leadership development strategies:

  • Ensure next-generation leaders have job assignments with real responsibility, accountability, and risk; inside or outside the family business.  Nextgeneration leaders need opportunities to make complex decisions and experience the results of those decisions.
  • Provide accurate feedback on performance, often from trusted non-family leaders in the business.  Nextgeneration leaders benefit from knowing how others perceive their leadership practices in order to learn the emotional and social intelligence competencies that account for over 85% of top leaders’ performance.
  • Create a positive and supportive family culture.  Families that work hard to foster open communication, establish effective conflict resolution and governance processes, and create an overall positive family climate enhance the chances that nextgeneration family members will develop leadership skills.
  • Start early:  Learning leadership skills takes decades, so wise family business owners encourage nextgeneration family members to gain leadership experience in activities in which they are personally interested in school and early in their careers.

The good news is that leadership skills can be learned.  Forwardthinking family enterprise owners focus as much or more on the development of their human capital, including nextgeneration family leaders, as they do on their financial capital.