Recently, I presented to a very engaged, thoughtful and curious group of family businesses and their advisors at the High Center for Family Business at Elizabethtown College in Pennsylvania. They quickly grasped the importance of managing paradoxes for both/and outcomes. But they kept pushing me to explain more specifically how they might apply these concepts, so I told them I’d use this week’s blog to explore some practical applications of the paradox insight. (Additional examples can be found in Part 1, Part 2 and Part 3 of the series “Managing unsolvable problems: Understanding paradox.” )
Let’s take a very common paradox in family business: Harvest and invest.
Many business owners — especially founders — believe that every earned dollar should be invested back in the business. Funds deployed within the enterprise outperform every other possible investment. Investing dollars in any other way appears foolish, almost crazy. Keeping all the eggs in one, closely controlled basket is the only approach that makes sense. Besides, it is often argued, individual family members have plenty of funds and rarely have a real need for more money.
However many folks — especially in G2 or G3 — disagree. They believe that a harvest event, i.e. a dividend or distribution, is essential to give them some measure of independence and self-determination. They recognize that their financial return on investment may be smaller outside the family enterprise, but they value other, non-financial returns. For example, the opportunity to move some eggs into a variety of baskets and diversify their assets, or to engage in a project all their own.
Why is it so hard for the investors to see the advantages of an appropriate harvest? Can an appreciation of paradox help them see that harvesting is not a threat to investment, in fact it generates support for investment? Paradoxically, a modest harvest to owners is probably the most powerful force for building support for future investment which will be necessary for creating future harvests.
And what about the harvesters? They must appreciate the importance of expressing support for investment as the source of their past, present and future distributions. The classic need to “protect the goose that lays the golden egg” must be made crystal clear to those who are tempted to overemphasize the benefits of harvests.
How do you unstick a situation where folks are tussling over two desirable approaches? Paradoxically, start by helping each side embrace, support and even advocate the position of the other side. It is part of how the paradox works: Expressing staunch support for your “complementary opposite” actually creates stronger conditions for the implementation of your preferred approach. In the same way, any action you take in support of your less preferred option will help create more stability and trust in the larger system.
Many family businesses do this instinctively with great success. Now that you’ve heard these ideas, give them a try — they work! Let us know what happens.
My deep thanks to Dr. Barry Johnson for his pioneering work and inspiration in this field. Please see www.polaritypartnerships.com for more on polarities and paradox.