Tag Archives: Growth

Incremental vs. radical innovation (“Everything in moderation”)

Joe Schmieder
Joe Schmieder

Groundbreaking new products—like the iPhone or Viagra—rarely emerge from family businesses. Family-run enterprises tend to prefer smaller-scale, incremental innovation over radical changes, versus the publicly held Apples and Pfizers of the world, which have deep pockets for R&D funding. For most family enterprises, growing by incremental steps is preferable to advancing by giant leaps. This “incrementalist” approach dominates partly because family businesses are averse to taking large risks and taking on large debt. Not surprisingly, then, family businesses tend to be quick followers or quick improvers, rather than original innovators. But we can argue that incrementalism represents a form of innovation, as it focuses on steady improvement of offerings or ways of doing business through meaningful change.

Research suggests that successful, long-lasting family firms exercise moderation with regard to most key dimensions: planning, leverage, and innovation, among others. A 2013 research study conducted by Alfredo De Massis, Federico Frattini, Emanuele Pizzurno, and Lucio Cassia entitled “Product Innovation in Family versus Nonfamily Firms: An Exploratory Analysis,” highlighted how family businesses tend to take an incremental approach to new product development, as part of a broader objective of careful resource management. The moderation approach is related to the desire to maintain sufficient resources, financial and otherwise, for family shareholders. Thus, while venture capital firms talk about burn-rate, or the amount of cash a start-up venture plows through in early stages, and how quickly a given innovation can be brought to market and scaled, family businesses tend to talk about less exciting things, like self-funded developments or modifications to existing products. That prompts some to believe that observing family firms innovate is like watching paint dry. In reality, steady progress is the key to success and continuity for many family businesses and non-family firms. The paint may take time to dry, but it sets very well, with deeper, longer-lasting color.

The moderation approach to innovation has served most family businesses well: They evolve at a pace that fits them, based on collaborative thinking among family leaders and non-family executives who understand and adhere to the family’s guiding principles. At the same time, the incrementalist approach may not always be ideal, especially in fast-shifting markets. Family businesses that fail to adapt quickly enough to the changing landscape will struggle to perform. The print media industry, for example, has been a high-profile sector populated by many family-owned firms (such as newspapers). In the new millennium this market has undergone rapid transformation, mainly because of the rising popularity of non-traditional content-delivery channels, especially digital ones. Some family firms have adapted very well to the Digital Age, innovating digitally based strategies and offerings. Others have not adapted nearly as well, and are suffering greatly for it.

The highest-performing family businesses are those that have learned to be just innovative enough, like Goldilocks searching for the “just right” bowl of porridge in the bears’ house. They match their innovation speed to the requirements of their industry and the pace of their competition, moving more deliberately than many non-family peers, in part because they don’t face the same kind of pressure for short-term results.


The Family Business Difference: Capitalizing on Family Innovation

Joe Schmieder
Joe Schmieder

Family businesses have unique strengths built on the overlap of family and business, in part because the family running the business has more at stake—including reputation, survival, and security—than the managers and employees of non-family firms do.

Innovation is one such strength at the family-business intersection. Innovation in a family business, like most other features, is different from that in non-family firms. A key dimension of difference is that innovation in family firms is driven and enhanced by several distinct factors that can ultimately yield greater business performance, and family harmony.  Family-business features that serve as innovation drivers include:

  • Personal attachments such as family bonds, customer relationships, and inter-family-business connections—all of which support innovation

  • An incremental approach built on exercising moderation with R&D spending and emphasizing small changes to offerings, rather than giant leaps

  • Longer time horizons that yield greater patience with the development time associated with innovation

  • Shared values including innovation itself, with several supporting elements such as innovation-focused objectives and cross-functional visibility

  • Low leverage, with an emphasis on reinvesting funds back into the business—and into innovation, specifically

  • Experimental tolerance, or a willingness to try new things, even when that means going against the conventional (in a calculated way)

  • Family leadership that supports innovation by generating high-value ideas and speeding the product development process

Family businesses are indeed different from non-family firms, and many of the differences cited above support their ability to innovate, which in turn supports their growth and profits and the family’s well-being.


Does Your Leadership Inspire Others?

Anne Hargrave
Anne Hargrave

“If your actions inspire others to dream more, learn more, do more and become more, you are a leader” – John Quincy Adams

Entrepreneurial leaders encourage entrepreneurial behavior and innovation in all that they do, which enables others to see things differently, and capture and act upon the problems and opportunities they see every day, in all their walks in life.

Entrepreneurship is really a life philosophy composed of attitudes and behaviors that can be applied professionally and throughout one’s life.  An entrepreneur believes that he can affect change, that there is a better way, that opportunities are everywhere and that there are no mistakes.  Failure is just about learning, and it’s important to embrace innovation, change and growth.  By persevering, pursuing opportunities and being willing to take risks the entrepreneur influences her business, family and herself.

Be an agent of change in your family business, or family office, by designing your own dream, by looking outwards and by empowering the organization to do the same.



Siblings to Cousins: Ownership Goals for Growth, Risk, Profitability and Liquidity

Amy Schuman
Amy Schuman

In the transition from siblings to cousins, families are often called to define the ownership role for the very first time. In earlier stages, a relatively small family allows for more direct involvement of family owners in business operations and tends to put issues of ownership on the back burner.

It is at the cousin stage when ownership goes – frequently for the first time – to a significant number of family members with no direct involvement with the business. It is common for cousin owners to have minimal natural contact points with the business they now own. The majority of cousin owners do not have careers in the business, and some likely live a great distance from business operations.   There is much to understand about the ownership role  – and some excellent resources exist for further reading (see below). In this post, I’d like to focus on the opportunities contained within an ownership goal setting process.

Owners need to know enough about their assets to be able to set educated goals for their performance. What level of return is reasonable to expect? How much risk would be needed to achieve different levels of return, and what is our risk tolerance as an ownership group? What is a realistic expectation for growth of our enterprise at this point in time? What returns should we expect in terms of asset appreciation and liquidity?

A few of my clients have dubbed this goal-setting process “GRPL”, based on John Ward’s suggested four ownership goals of Growth, Risk, Profitability and Liquidity (see article referenced below).

Realistic family ownership goals will vary widely according to factors such as industry of business – age of business – location of business – and many others. But grappling with the GRPL goals allows a large, potentially dispersed ownership group to have a focus for their learning and involvement in their business as owners. In fact, ownership education can provide a clear mandate for the Family Council, which tends to coordinate shareholder education.  Ensuring the ownership group develops the knowledge they need to articulate clear and achievable ownership goals is an investment in the ownership, management, and family circles of the family business system.

In my experience, Boards of Directors welcome the ownership goal setting process with enthusiasm. Written and agreed-upon goals from owners makes the Board’s task easier, especially as independent directors join the effort. They know owners’ expectations, and can conduct themselves in the boardroom accordingly.

Some management teams may initially have reservations about the owners setting these goals.  As the management team is so intimately involved in every aspect of the business, they may question ownership’s ability to set realistic, informed goals for asset performance. However, if management has a role in educating owners about their industry and the company’s competitive position in the market, they usually becomes enthusiastic supporters of the process. Instead of having to worry or wonder if their decisions and actions are aligned with ownership’s expectations, management can now more easily evaluation their actions against stated ownership objectives. I’ve had CEO’s tell me that they sleep better at night, knowing more clearly the owners’ shared goals for the enterprise they have been entrusted to lead.

There is much more to explore in this regard. Hopefully this post has whetted your appetite to learn more. Please feel free to share your questions or experiences with ownership goal setting here, and to explore the resources below.

“What do Owners Do?”, John L. Ward, Families in Business Magazine, June/July, 2003

Family Business Ownership: How to Be an Effective Shareholder, January, 2011,  John L. Ward, Craig E. Aronoff, Stephen L. McClure, Palgrave/MacMillan

“Why Family Business Owners need a Job Description”, Jennifer Pendergast, Family Business Advisor, June 2010


Innovation and Risk Taking – Everything in Moderation

Joe Schmieder
Joe Schmieder

Family businesses tend to pursue incremental opportunities rather than radical new innovations.  Growing by incremental innovation steps has proven to be more sustainable than giant leaps of change.  This incremental approach is prevalent partly because family businesses are less prone (not adverse) to taking high risks and leveraging large amounts of debt.

One finding that stands out when reviewing Family Business research is that successful, long-lasting family firms exercise moderation.  Typically, family firms do not over leverage, over risk, over plan, or over innovate.  Seldom do we read about a family firm that has discovered or developed a groundbreaking new product, like the iPod or Viagra!  These developments emerge from the heavily funded research and development departments of large public companies like Apple or Pfizer.

Whereas venture capital firms talk about burn-rate, the amount of cash a start-up venture plows through in the early stages, family businesses talk about less exciting things like self-funded developments or modifications to existing products.  This moderate approach to business, while less exciting, has for the most part served family businesses well.  The steady, moderate approach creates a more stable firm. 

Unfortunately, at times this status quo climate can be the underpinning cause of the decline of a family business.  When factors change and a family business does not adapt quick enough, there can be a noticeable drop in the value of the family business.  The print media industry is one of those very visible industries, populated by many family-owned firms, that has faced rapid transformation mainly because of the delivery of content through channels very different from traditional printed formats.  The digital age, specifically the internet, has changed this industry dramatically.  Some have adapted.  Some have not, and suffered for it. 

While moderation in a family business may be admirable, is your family business adapting to new trends in today’s accelerating pace of change?