Professionalize or perish - this is the only option for a family business. As a young entrepreneur, why should you even make an effort to retain the family business?
Answers
Explanation:
founders that the answer is to professionalize, meaning that they should emulate the structures, governance, systems, and processes of a modern corporation. Yet in many cases, that approach to professionalization destroys what made the family business special in the first place. Many founders also fear, justifiably, that they will lose control of a business that is an integral part of their identity.It doesn’t have to be this way. We have a different perspective on what it means to professionalize a family business. In our view, such a business should start by determining which of its distinctive attributes—its entrepreneurial skills, its spirit, or its special strengths—have enabled the enterprise to thrive. It should then adopt the characteristics of a modern corporation that will augment those attributes and that fit with its culture. Professionalizing does not have to mean removing the family from its role in the business. But it does mean making a deliberate choice to define clear roles for the family and for professional managers. This approach will allow the business to benefit from uniqueness where it matters and prepare for scale where it is needed.
But making this happen is easier said than done. Many family businesses struggle— often for predictable reasons—to maintain their distinctiveness as they professionalize, and some even end up worse off. Below we present a four-step approach that founders can use to overcome the challenges and position their companies to continue as high-performing enterprises for generations to come.
WHEN TO PROFESSIONALIZE
In its early years, a small or midsize family business faces mainly external and market challenges: getting access to capital, defining the right strategy, and gaining a competitive advantage. Like a child, its first imperative is to survive and gain critical mass—that is, to grow. At this stage, a remarkable leader—a super-entrepreneur—guides the business with extraordinary passion and insight. The leader’s skills and values foster the growth of a distinctive, even a unique, business.
But successful growth comes at a cost. As the business grows in size and scale, it becomes increasingly hard for the leader to manage. When the company reaches this inflection point—its adolescence—it must focus on the internal struggles, conflicts, and challenges resulting from complexity and bureaucracy.Family businesses experience the pains of adolescence in different ways. The family leader may impede growth because he or she does not have time to make all the necessary decisions. A large number of people may be hired in response, which promotes the development of new cultures within the organization. New processes are defined, but few are actually implemented. Decision making tends to be delegated upwards, so management’s agenda gets cluttered with operational issues.
These symptoms indicate that the organization is feeling the strains of growth. They call for a close look at whether the time has come to professionalize.
The need for professionalization may also be triggered by the family itself. Changes in its size and composition or in the interests and preferences of its members may create the impetus to reexamine roles and bring professional managers into the organization. For example, the founder may decide that the time has come to step away from the CEO’s role in order to pursue other interests. Or the company may need a cadre of professionals to prepare younger family members for leadership roles and to bridge the leadership gap until the next generation is ready.
PROFESSIONALIZATION AND ITS PITFALLS
The professionalization of a family business typically comprises three phases.New Ways, Same Company. Initially, the company brings in a few new recruits at various levels and institutes a few new processes, typically in HR. But the company’s operations and culture remain largely unchanged.
Two Worlds. This second phase is the most complex. The company hires external talent for important positions and defines and implements several critical new business processes. But it grapples with the need to reconcile the old and the new. Many companies give up on professionalization at this point and never see its benefits.
A High-Performing Enterprise. Companies that reach this phase have succeeded in retaining the family’s “special sauce,” even as they attract top talent for positions throughout the organization. They use processes and systems to deal with scale effectively.
Although companies on the journey to professionalization can falter for many reasons, they most commonly fall into at least one of these traps: