From legacy to longevity: Future-proofing family businesses

ILLUSTRATION BY RUTH MACAPAGAL

Whenever the end of the year comes around, it’s that busy time when we assist a lot of our clients with their corporate strategic planning. In the intricate tapestry of the business world, family businesses stand as unique entities, weaving together blood ties with professional ambitions. However, this fusion of personal and professional aspects often brings forth a set of challenges, particularly when it comes to planning for the future.

We see that a lot of family businesses face special hurdles in long-term planning. We will explore some of these hurdles here, drawing insights from our clients and provide practical solutions on how to steer toward sustained success.

Short-term focus vs long-term vision

One of the foremost challenges family businesses encounter is the struggle between short-term gains and long-term vision. In many cases, the immediacy of day-to-day operations takes precedence over strategic planning. This shortsighted focus can impede growth and hinder the establishment of a robust foundation for the future.

A client of ours, a European family-owned manufacturing company, approached us because they wanted us to help them pivot to a successful long-term vision. They had faced stagnation due to a focus on immediate profitability. Family members had been too content with the status quo. As long as the checks kept coming in, they were resisting investments in technology and innovation. As a result, the company had lost its competitive edge over time.

When we stepped in, we engaged family members in a collaborative visioning process to ensure that everyone’s perspectives were considered, fostering a sense of unity and purpose.

This led to a shared vision that encompasses both short-term goals and long-term aspirations.

Nintendo: From playing cards to video games

Nintendo, founded in 1889 as a playing card company by Fusajiro Yamauchi, faced a pivotal moment in the 20th century that showcased the tension between short-term focus and long-term vision. In the 1960s, Nintendo was struggling in the playing card business due to increased competition. Yamauchi’s grandson, Hiroshi Yamauchi, took over the company and recognized the need for a strategic shift.

In the short term, Nintendo could have continued focusing solely on playing cards and attempted to compete in a saturated market. This would have involved incremental changes to their existing business model, aiming for immediate profits within the confines of the declining playing card industry.

Hiroshi Yamauchi, however, had a broader vision. Instead of fixating on short-term gains, he saw the potential in the emerging electronic entertainment industry. In the 1970s, Nintendo began experimenting with various ventures, including toy manufacturing and arcade games. The turning point came in the early 1980s when they entered the home video game console market. The rest is history.

Establishing a clear vision

Titles like Super Mario Bros. and The Legend of Zelda revolutionized the gaming industry. By shifting focus from playing cards to video games, Nintendo not only survived but became a leading force in the global gaming market, showcasing the power of prioritizing long-term vision over immediate gains.

This illustrates how a family business, by embracing a long-term vision and adapting to industry shifts, can transform itself and achieve sustained success. It also highlights the importance of strategic decision-making in the face of short-term challenges.

Divergent visions among family members vs governance structures

I see every day that family businesses are often a melting pot of diverse personalities, each with their own ideas and visions for the company’s future. These conflicting perspectives often create internal friction, stalling the decision-making process and impeding progress.

Another client of ours, the Smith family, owners of a successful retail chain, faced a critical juncture when the second generation took over. While one sibling advocated for aggressive expansion, another preferred a conservative approach, leading to a deadlock that hindered strategic decision-making.

Implementing a robust governance structure with clearly defined roles and responsibilities can help mitigate conflicts. Family businesses should consider forming a board of advisors or directors, including external professionals who bring impartial expertise. This structure provides a platform for constructive discussions and ensures that decisions align with the company’s long-term vision.

Proactive succession planning

Navigating the delicate process of succession planning is a significant challenge for many family businesses. Balancing the aspirations and capabilities of the next generation with the needs of the business is a complex task. Inadequate preparation for leadership transitions often leads to instability and a loss of institutional knowledge.

Another one of our clients, American proprietors of a successful chain of restaurants, faced turmoil when the founder retired. The lack of a clear succession plan resulted in internal power struggles, damaging business reputation and customer loyalty.

Most family businesses start too late, never plan for succession at all, or at best, on a very superficial level. Not even the world’s greatest CEOs have a lease on life! The earlier you start, the better.

Family businesses should implement a well-defined succession plan that identifies and nurtures potential leaders within the family. This involves assessing the skills and interests of family members, providing them with the necessary training and mentorship, and gradually transitioning responsibilities. A phased approach to succession planning ensures a smooth transition without disrupting operations.

Two of our clients in South East Asia have successfully mastered survival into the fifth and eighth generation, becoming multibillion-dollar giants. How? Among many tools and insights they have applied, their unique secret to longevity is a rigorous selection process among the family members. Nobody is automatically entitled to anything.

There is no force-fitting, a beloved practice by many other family businesses around the world. Only the best will lead—even if that means hiring from outside the family. One of our clients said it best, “It would be presumptuous to assume that one single family, even as large as we are, can produce the entire gene pool necessary to fill all the top leadership positions in our conglomerate.”

Embracing a culture of innovation

Family businesses must also foster a culture that values innovation and continuous learning. Encouraging collaboration with external experts, investing in research and development, and staying abreast of industry trends are crucial steps. Additionally, family businesses should be open to hiring nonfamily professionals with specialized expertise to inject fresh perspectives and ideas. They can often see opportunities lying within easy reach. INQ

Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email [email protected].