Tag Archives: innovation

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.

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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.

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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.

 

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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?

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The Power of Mistakes

Stephanie Brun de Pontet
Stephanie Brun de Pontet

Nobody likes to make mistakes – but avoiding mistakes at all costs may be a big mistake…

First, everyone will make mistakes – you cannot realistically avoid this. 

Living in a bubble, making no decisions and generally staying away from life will still lead to countless errors of missed opportunities.  Don’t forget – there are mistakes of ‘commission’ (things you should not have done) like accidently insulting a key supplier, or making an error in your financial analysis – these you can avoid by taking no actions and making no choices.  Yet, there are also mistakes of omission (things you should have done, but failed to do) like not returning the call from your brother because he is difficult, or not following up on a sales lead  – and living on the sidelines trying to avoid any responsibility will lead to those mistakes every time.

Second, most successful businesses are built on a trail of mistakes. 

By that I mean most entrepreneurs failed many times before arriving at their current success.  It is not that entrepreneurs are wild risk takers – rather they do not see risk in the same way others do, and they are very skilled at learning from their mistakes.  In order to break new ground, truly innovate and bring a new product or service to market, the entrepreneur has to be willing to engage in a lot of experimentation, trial and error, and mistakes. The best advice I have heard on entrepreneurial mistakes is to ‘fail fast’ – that is, commit to a path or idea – be willing to make a big mistake, but then know quickly when to pull the plug, learn from the mistake and make the needed adjustments to try again.

Third, mistakes will help you uncover your path and full potential.

If, like many people, you are not clear about your path in life, trying a range of paths and ideas will help you to uncover first what you don’t want to be doing (the mistakes) which will help inform your understanding of what you should be doing.  If you are unwilling to try new things for fear of failing or making mistakes, you will never have the opportunity to discover what truly energizes you.  Note that even if you are clear on the path to success you want to follow, you cannot really reach your potential without making mistakes as you take the hard turns on that path.  If you never make a mistake – it isn’t that you are particularly gifted, it is rather more likely that you are on the path of least resistance and not taking the risks you need to reach your full potential.

These quick reminders of the value of mistakes can be important for families in business together because once a family and business have experienced great success and stability – it can be hard to remember the journey of failure and mistakes that lead to this outcome, and easy to fall into the trap of playing defense and striving only ‘not to fail.’  Both the business and family members need to continue to be willing to make mistakes to grow, evolve, and find their full potential.

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Family Business Innovation: Doing Less; Doing it Better

by John Ward

A recent academic article[1] explored what’s known about innovation in family firms. My conclusion is: Family firms do it less and do it better.  (The article focused on technological innovation – not ownership or leadership or management innovation where one might find the more special family business particularities.)

Family firms innovate for diversification and long-term security.  They do less R&D and less globalization.  They do less because of an aversion to risk, because there may be family-owner conflicts of investments in innovation, and because they see fewer outside opportunities due to their more internal perspective.

On the other hand, family firms do what they do better and more successfully.  Family ownership provides stronger and more long-term oriented project leadership and more solid commitment of resources. There is also a more long-term patience for the benefits of innovation. And, because of inherent frugality, there is more productivity from innovation initiatives. Further, family firms assess innovation opportunities faster and with the perspective of the greater good — altruism – rather than local selfishness.

One particular capability of family firms is their managerial “ambidexterity.” All these advantages are stronger if ownership is more concentrated.

Much more research is called for in other forms of innovation – such as administrative and ownership innovation.


[1] “Research on Technological Innovation in Family Firms: Present Debates and Future Directions”, Alfredo De Massis, Federico Frattini and Ulrich Lichtenthaler, Family Business Reivew, March 2013

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Using History as a Leadership Tool

By John L. Ward

Business historians John Seaman and George David Smith wrote a superb article for Harvard Business Review (December 2012) that has particularly great value for family business leaders. Wise leaders can use their company’s history for many benefits:

  • Create a stronger sense of identity for employees ‐ ‐ they are affected with something larger than themselves
  • Show the need and capacity to adapt illustrating such from the past
  • Argue that successful change is possible and that adversity can be overcome with examples from before
  • Promote the enduring values that shape the culture ‐ ‐ especially drawing on stories from before
  • Learn the obstacles to change from understanding the history and culture
  • Broaden perspective when making significant decisions by exploring analogies from before and now

We find family businesses have an especially acute appreciation for history from which they can particularly benefit as outlined above.

The article reinforces some axioms we find well practiced by successful family business leaders:

  • Embrace tradition as a way to prove that, indeed, the company has a long history of change ‐ ‐ a tradition of innovation
  • When leadership changes, emphasize the platform of values that don’t change before promoting a new vision
  • Find those authentic values of the past that will enable the new behaviors for success ‐ ‐ reinterpreting their meaning in the contemporary context

Interestingly, the primary example used to argue these principles was the 3 generations of leadership history at IBM. The values regenerated to support a new future were:

  • Focus on customer needs and
  • customer service and
  • long term relationships and pursue
  • break through innovation

The authors conclude that IBM’s leadership, “found in IBM’s history a usable past ‐ ‐ one that helped them…persuade people to embrace necessary solutions to deep–seated problems, but also grasp the nature of these problems in the first place.”

As Seaman and Smith well show, history is a leadership tool more than an anniversary with “balloons and fireworks”.

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Innovation in Family Business: Capturing the entrepreneurial spirit and ambition of the younger generation

Joe Schmieder
Joe Schmieder

Rick DeVos, a 28-year-old highly-entrepreneurial third-generation family member, wanted to create some new business ventures that did not fit into the current family business.  His parents wanted to encourage their son’s entrepreneurial spirit yet ground him in business reality.

Entrepreneurism runs in the family.  Rick is the grandson of Rich DeVos, who is the co-founder of Amway.  Rick’s father, Dick, led Amway into the international arena where the majority of the business is conducted today, and his mother, Betsy, comes from an enterprising family that developed a large auto parts company with many creative products that line the inside of cars.  Thus, with two creative blood lines coursing his veins, Rick possesses an abnormally high degree of creativity.

To harness this creative energy, the family provided a “loose leash” and seed money to create a host of ventures, including an internet film business, an entrepreneurial award business, and an open social-network art contest.  The highly-acclaimed ArtPrize (www.artprize.org) has taken the art world by storm, creating one of the most innovative ways to engage an entire community in the conversation about art while providing a great opportunity for artists to share their work.

How are you capturing the creativity of the younger generation in your family business?

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Build a better mousetrap and the world will beat a path to your door!

Joe Schmieder
Joe Schmieder

Really.  Does that happen?  Certainly.

Family businesses show a high propensity to continuously innovate.  One family business expanded its trash business to capture the methane gas in their landfills.  Energy is now nearly half the family’s business.

And some family businesses have helped shape the world we live in today. It was a family business bicycle shop, owned and operated by the Wright brothers, from which emerged the creative ingenuity for man’s first successful flight.  It was the Tuthill family who developed the first bread slicer around the time of the depression which spawned another innovation aphorism:  The best thing since sliced bread. 

Family-led inventions build stronger family businesses that endure for multiple generations.  In fact, when innovative ideas build a better family business we witness the world of customers, employees, and vendors beating a path to their door. 

So which innovations in your family business have made you stronger?

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How Innovative is Your Family Business?

Joe Schmieder
Joe Schmieder

Would you characterize your family business as innovative?  Can you think of an innovation that has helped strengthen the business or the family?

Back in 1961 a few doctors doing research at the University of Florida developed the formula for what would soon became known as Gatorade.  Applying their research to create a drink that more quickly replenished an athlete’s energy (salt and sugar) was a great “product” innovation.

But perhaps an even greater innovation was the creation of a Gatorade Family Trust to ensure ongoing distributions from drink sales regardless of who owned the brand.  Today just two shares of Gatorade yields over $500,000 per year according to Darren Rovell, author of “First in Thirst – How Gatorade Turned the Science of Sweat into a Cultural Phenomenon.”   It is not one family that is part of the trust.  It is three extended families that comprise this “family of affinity.”

The Gatorade story shows how one product innovation can endure for multiple generations, and how one ownership innovation – a group trust – can also endure for multiple generations.

What innovation in your family business can you share with us?  A product, service, process, communication technique, estate plan, governance structure —- Innovation comes in many forms for a family business.

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