All posts by Joe Schmieder

LGBT People and the Evolving Family

 Joe Schmieder
Joe Schmieder

The definition of “family” and its members continues to evolve.  Bruce Jenner’s transition to Caitlyn has created quite a buzz. It is estimated that 700,000 Americans, 0.2% of the population, are transgender. On June 26, 2015, the U.S. Supreme Court ruled that the U.S. Constitution guarantees the right for same-sex couples to marry in all 50 states.

Lesbian, gay, bisexual and transgender (LGBT) people are and will continue seeking committed, lifelong adult partnerships and many will raise children.  These societal changes, whether you are in favor of them or against them, are a fact.  It is also a fact that many multi-generational family businesses are composed of family members who live outside the traditional “Ozzie and Harriet” family world.

Some families try to hide these facts. However, more and more are displaying open acceptance of those living differently from themselves and welcoming family members into the business. Tim Cook, CEO of Apple, is showing the business community that a gay person can lead and grow what many consider the most innovative, highest-valued enterprise on the planet.

We serve family firms with LGBT family members who are contributing to the well-being of business. We also observe family members who have not felt welcomed and therefore have chosen other career options outside the family business. While family firms tend to be more conservative and slower to accept these societal changes, those that have been more welcoming have helped their own culture evolve while developing a more tolerant and understanding value in the workplace.


How Diverse is Your Family?

 Joe Schmieder
Joe Schmieder

Every family contains some level of common background, political and religious persuasions, and perspectives on business and family life. One fourth-generation family business in the Midwest is identified with many shared interests, including Catholicism, Polish heritage, Loyola Family Business Institute, Democratic Party, Chicago White Sox and Pulaski Days!

However, there are some family members who have opted to diversify their views, lifestyles and career pursuits. The more common are family members’ interests, the more homogeneous is the group. The more diverse, the more heterogeneous is the group.

There is no right or wrong answer.

It is only natural that the larger the family grows, the more diverse it becomes.  Spouses (in-laws) help to introduce diversity since they have often lived in different locations and been brought up in different family situations. While we find many family members still living in a rather homogeneous family group, many families are moving towards greater heterogeneity. This can be a healthy factor, but can also create tension that requires greater sensitivity, acceptance and creativity to take advantage of the greater diversity.

Acceptance and understanding of those who choose to pursue other paths can determine whether or not a family business continues for multiple generations. Celebrating diversity and learning how to take advantage of the different skills and perspectives is more likely to produce a harmonious family.


Experimental tolerance

Joe Schmieder
Joe Schmieder

Family businesses are willing to experiment. A desire to try new things, particularly in the entrepreneurial stage, is a trait found in many family business leaders. That doesn’t mean they take large risks or jump blindly into innovation, but rather that they may be willing to go against CONVENTIONAL THINKING, in pursuit of new products and processes. Within public companies, this experimentation is called “intrapreneurship,” as embodied by employees who see and implement new ways of doing things.

New York-based Welch Allyn, a family business that manufactures medical devices, embodies an experimental approach to innovation by soliciting ideas from its customers, employees, and the public at large, as stated on the company website:

“At Welch Allyn, we make new devices and products come to life through innovative ideas. Our engineers are continuously developing next generation solutions, but we know that people just like you are thinking up inventive and resourceful ideas all the time too.… In order to continue the creative cycle, we encourage you to submit your ideas to help us create products that are inspired by you to be used by you – our customers and partners.”

This openness to experimentation and innovation was established by company founder William G. Allyn, and it has helped the company achieve five decades of technical advances, sales growth, and industry recognition.

How could you tap into your customer base for more innovative ideas?

innovationJoe Schmieder’s new book Innovation in the Family Business utilizes the IP from the Family Business Consulting Group team and includes case studies from successful family business ventures such as SC Johnson, Beretta, Mogi (producers of Kikoman), and others. This is the first book to focus on innovation in a family business setting.


Creating a culture of innovation

Joe Schmieder
Joe Schmieder

Innovation can be described as creative change that produces meaningful results. Family businesses that demonstrate a proactive ability to drive meaningful, value-adding change are those with the strongest cultures of innovation.

In some family firms, the notion of innovation, creativity or change is clearly stated in their values, which may be posted on the walls of the company.  S.C. Johnson, the global household cleaning company that uses the tag line “A family business,” makes its values as clear as glass freshly cleaned by its products:

  • Entrepreneurship
  • Innovation
  • Risk-taking
  • Knowledge and technology
  • Employee welfare
  • Eustomer relationship marketing
  • Vision
  • Proactivity
  • Global thinking

According to this list, the Johnson family explicitly values innovation. Supporting innovation are the complementary values of entrepreneurship and risk-taking. It takes an entrepreneurial drive and some investment risk to make innovation real and meaningful. The four generations of Johnsons have been inspired to exemplify these values by the story of founder Samuel Curtis Johnson: at age 53, he launched a flooring company and soon diversified into floor maintenance when he observed his customers needed a product to preserve their new floors.

Most family businesses have not been as intentional or broad scope about innovation as the Johnsons. In other family firms, innovation may be exhibited mostly in one area of the business, or only for specific periods of time. A family firm in the adhesive coating industrial sector discovered that one of their key ingredients was going to be discontinued by its sole supplier. Understanding that this would devastate their business, a team of engineers, managers, and salespeople banded together to generate A CREATIVE solution. It turned out that one of the salespeople’s customers knew a different vendor with a similar ingredient. After some joint development with that vendor, which was also a family business, the formula was developed to suit their needs, resulting in an even better adhesive. This was just one time the family firm exhibited such joint problem-solving innovation.

Creating a culture of innovation shouldn’t be about product/service DEVELOPMENTS alone (although the next chapter discusses that topic in detail). On the one hand, there may be no greater practical way to create a “sense” of innovation than to produce a steady stream of new market-focused products. New-product introductions are exciting and highly visible to the organization and its stakeholders. On the other hand, to maximize performance, companies need to aim for innovation on multiple levels. That means long-lasting family firms also work on creative ways to:

  • Take measured risks to develop new wealth while preserving foundational or legacy wealth.
  • Blend diverse family members working in the business with capable nonfamily executives.
  • Transition ownership from one generation to the next while balancing incentive to work hard with financial security.
  • Develop the next generation into leaders who are able to reinvent the business for greater growth, building upon the founder’s legacy without trying to replicate the founder’s hero image.
  • Live family values that set the tone for business continuity while remaining focused on managing a healthy business in the short term.
  • Steward family resources in a manner that benefits customers, employees, communities, and family members.
  • Develop effective governance practices that balance the sometimes conflicting needs of the family, management, and ownership.

Together, these elements support a highly innovative family business culture.

innovationJoe Schmieder’s new book Innovation in the Family Business utilizes the IP from the Family Business Consulting Group team and includes case studies from successful family business ventures such as SC Johnson, Beretta, Mogi (producers of Kikoman), and others. This is the first book to focus on innovation in a family business setting.


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.


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?


Risk Taking in a Family Business

Joe Schmieder
Joe Schmieder

Research indicates that family firms take fewer risks compared to non-family firms. This lower risk-taking viewpoint has led to the myth that family firms are risk adverse.   Another conclusion is that family businesses take “safer” risks that are closely associated with their core business.   Since other studies indicate family firms show higher performance over the long run, it could be argued that family firms actually take more “high-probability” risks than non-family firms.  While these risk are not as exciting as what venture firms and some publicly owned firms may take, the family firms’ conservative, calculated approach to risk-taking appears to deliver stronger value over the long term.

As the New Year gets under way, what are some risks that your family business is considering for 2014?  Are you looking to expand your business?  Add more employees? Develop new products?  Acquire a business?  Open a facility in another country?  There are risks associated with each of these initiatives.  The competition could introduce an advanced product just before you go to market with your new product or the country you plan to enter could fall into an economic slump.  Regardless of these possible occurrences, family firms have a history of carefully selecting investment risk levels so they can endure these possible setbacks.  Families do take risks.  They are not adverse to risks.  They simply take measured risks that have a high probability of providing a long-term return.


Family Firms Triple Bottom Line

Joe Schmieder
Joe Schmieder

Lost in the commotion of last week’s Boston Marathon bombings on Monday, April 15, was the fact that many Americans, including family businesses, were scurrying about to sign off and send in their final tax forms for the 2012 tax year.  The season for “harried bean counters” has come to an end, or at least to a well-deserved break!  For weeks family firms, taxpayers and their supporting financial people have been buried in their offices, factories and homes adding up what we earned, spent, gained, lost and perhaps misplaced.   One thing that these tax people do very well is provide us with a quantitative tally of our financial position.  According to our family business clients, most family firms had another strong financial performance in 2012.  Yet for family businesses the financial results are not the only metric used to measure performance.  Many family firms think broader as some have developed the more encompassing concept of the triple bottom line: Economic, Environmental and Community.  Great family enterprises, while economically strong, are also stewards of the environment and often lead the development of eco-friendly products and practices.  These innovative efforts create jobs that support many families.  In addition, communities around the world benefit significantly from the philanthropy provided by these visionary family companies.  In the future the bean counters may find ways to also measure the long-term impact of these important contributions, which family firms make to society.


No Family is Without Flaws

Joe Schmieder
Joe Schmieder

Last week in the United States we witnessed the Boston Marathon bombing tragedy. We are now living through what one reporter dubbed as an “inexplicable civil breakdown of one of our immigrant families.”  The search for the reasons behind these radical behaviors has commenced.  Although the facts are not yet known, the initial assessment suggests that two brothers veered astray in their support for their adopted country. Some of their own family members have come to their defense while other family members have been quick to denounce their bloodline relatives.

As family business advisors working with many different enterprising families, we are called often to intervene in difficult situations. These can be substance-abuse issues, depression, or family cut-offs that affect a person’s constructive functioning within the family, the community and the workplace. We have observed that all families run into some challenges and each has some level of dysfunction.  No family is without flaws. The enterprising families that endure for multiple generations take responsibility to look out for other family members and raise their hand when they see family members going astray.  Whether this means asking senior generation members to relinquish the car keys to protect themselves and others around them or to conduct an alcohol intervention, we have learned that for long-term continuity of a family, it comes down to family members being vigilant of family members’ behaviors and having the courage to step up when the situation calls for it.

Do you have a family situation that needs to be addressed?