A family enterprise is a firm owned and managed by family members. A founder starts the firm. Some grow large enough to support a growing family of the founder. At an early age, it engages the children to learn and understand the family business. The next generation is prepared to take over the family business. But often, the growth of the business cannot absorb all the family members. In addition, there must be someone to replace the founder as the leader of the firm.
Usually, the succession issue leads to family misunderstandings and sometimes to ultimate break-ups. Thus, the family enterprise becomes merely an enterprise with no longer a sense of family.
There are other instances when a founder does not like the next generation to go through the same difficulties. In this case, the founder prepares the next generation to have professional lives and uses some of the proceeds of the family enterprise to send the next generation to the best schools to become salaried employees.
There is a high probability that the next generation would not want to assume the leadership of the family enterprise when the founder steps down. Under such circumstances, the enterprise may die a natural death because no one can lead it. Thus, the family enterprise becomes only family and no longer an enterprise.
Enterprising families start up just like a family enterprise. A founder starts a family business. The difference lies in how the next generation is nurtured. Instead of preparing members to take over the enterprise or lead professional lives, the founder prepares the next generation for entrepreneurial lives. Early on, the founder leads them to discover their personal vision and passion, and exposes them to situations that will inculcate and strengthen values. The founder also reinforces and rewards the practice of the inculcated family values and uses both family enterprise and non-family enterprise situations to allow the discovery of their vision, values, and passion.
The situation can range from performing tasks in the enterprise to working on a joint hobby project. Casual stories about the traditions of the family are part of the situations the founder uses. But what is important is that the founder and the next generation discuss the learning from the situations with the object of discovery.
Once they exhibit their sources of passion, the founder provides the resources to allow the members of the next generation to express their passion in an economically sustainable enterprise.
The founder accepts that it was his/her passion that made the family enterprise grow and that now provides resources for the family. It will be the passion of the next generation that will be funded by the current family enterprise. If one of the children shows passion for the current enterprise, the founder will be grateful. Otherwise, the founder can look for a non-family member who shares his/her passion. This is key to insuring the continuous generation of resources to fund the passion of the family members.
The funded passion of the next generation will provide additional resources for the family. It is also likely that each family member will have his or her own object of passion – an enterprise. Again, it is their passion that will assure the growth of their respective enterprises. When each family member has an enterprise, the succession issue, relative to the founder, becomes irrelevant. Instead, there will be many enterprises owned by passionate family members who are bonded by vision and value. Thus, the term used here is enterprising family instead of family enterprise. The focus is the family, not the enterprise.
The way to prepare for building an enterprising family is for the family to define a family constitution. The family constitution delineates the structures and policies that govern the family (not the enterprise). For an enterprise, this is like the by-laws.
There is no standard family constitution. The right one is the one the family chooses and is reflective of the previously undocumented practices and rituals of the family. This means that the family constitution is but a documentation of the practices and policies of the past. But note that all of these practices and policies are rooted in the values of the family.
The preamble of the constitution must state the values of the family or standards that the family upholds. They do not change over time nor by circumstance. They are tested during moments of truth or situation when choices must be made and there is no middle ground.
Another important step is defining the vision and mission of the family. The vision is a statement that describes a future state of the family. In one sense, it is an achievable ideal state. It provides direction – much like a guiding star.
The mission is a reason for being. It is why the family exists. It defines for whom and why. In all cases (values, vision and mission), there are no wrong or right answers. Each family will have one that is correct for itself.
What is interesting is how enterprising families use their values, vision and mission in funding or supporting the passion of family members. One enterprising family followed a process. All family members can apply for funding support for their individual enterprise. A business plan can be submitted to the family council for evaluation. The first level of evaluation is the passion test. The family council determines if the enterprise is a natural expression of the family member – proponent’s passion. If there is no match between the passion and the enterprise, it is rejected.
If it passes the passion test, the next test is consistency with the vision, mission and values of the family. If the business case is in line with the vision, mission, and values, then the family can invest as much as 100% ownership. Of course, if the proponent is not willing to have the family fully own it, the family will invest to the maximum amount only. If the proposal is not in line with the vision but is within the mission and values, the family can take a minority position. This means that less than 50% ownership is the maximum. If the proposal is only aligned with the values, the family can lend to the business proposal. If it is not aligned at all, the family will not invest or lend.
This mechanism allows the family members to create new enterprises that add to the wealth of the family. It makes succession irrelevant because a family member would rather build an enterprise around his/her passion rather than step into a position that existed in the past only to the compared to the predecessor. What is not good in the latter is that if the position is the same, the market is the same, the people are the same, the equipment is the same and only the person is different – only two things can happen here. The previous family member looks bad or the current family member looks bad. In both cases, a family member looks bad.
The best part of an enterprising family is there will be peace in the family because there is more than enough wealth to share among family members. Enterprising families increase the family wealth faster than the number of family members.
(Alejandrino J. Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: ace@aim.edu.ph. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).