Entrepreneurs in Every Generation

How Successful Family Businesses Develop Their Next Leaders

Allan Cohen, Pramodita Sharma

• Publisher: Berrett-Koehler Publishers
• Year: 2016
• ISBN:
  9781626561687
• Edition: 1
• Topic: Business
• Subtopic: Auditing
• Index: Business

Discover What Makes Family Businesses Beat the Odds and Thrive over Generations Families are complicated; family businesses even more so. Like other companies, family-run enterprises must develop leadership and entrepreneurial skills. But they must also manage family dynamics that rarely mirror the best practices in the latest Harvard Business Review. Allan Cohen and Pramodita Sharma, scholars with deep professional and personal roots in family businesses, show how enterprising families can transmit the hunger for excellence across generations. Using examples of firms that flourished and those that failed, they describe the practices that characterize entrepreneurial individuals, families, and organizations and offer pragmatic advice that can be tailored to your unique situation.

Chapter 1

SECRETS OF SUCCESSFUL ENTREPRENEURIAL LEADERS

Long-term business survival depends on effective entrepreneurial leadership—not only from the founders, but equally importantly, from each subsequent generation that runs the enterprise. In this, the first of our “what it is and why it is important” chapters, we describe the essential characteristics of successful entrepreneurial leaders and the unique challenges and opportunities in building these attributes in family firms. Clarity on these points will help us to discuss in chapter 2 how next-generation members can take initiatives to grow their entrepreneurial leadership skills and how other members of their family can support such endeavors to nurture and grow entrepreneurs in every generation.

An Entrepreneurial Leader

At the core of entrepreneurial leadership is the constant willingness to seek unfilled needs and at least to consider whether it’s possible to provide a usable solution. Identifying critical elements of such leaders is harder than it sounds. It is a lot like playing golf; from a distance it looks easy, but a new player’s progress is thwarted by many hazards, only a few of which are actually visible. Just as golf is not a modified version of baseball, cricket, or soccer but a unique sport in itself, entrepreneurial leaders are also not simply entrepreneurs or leaders but a unique combination of both.

Such leaders can be introverted or extroverted, dominating or encouraging, determined or flexible. In fact some may not even be easily recognized as formal leaders even though they are highly influential. William McKnight is such an example.¹ Although his is not a household name, he is credited with laying the basic management principles for 3M. Founded in 1902 as a mining company, 3M had a rocky launch and became financially stable only in 1916. McKnight joined the company in 1907 as the assistant bookkeeper, over time rose to becoming its president, and retired in 1966 as its chairman. In 1948 he developed the following principles that helped propel this company into one of the most innovative companies in the world.

As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women, to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way.

Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs.

Management that is destructively critical when mistakes are made kills initiative. And it’s essential that we have many people with initiative if we are to continue to grow.²

Notice the essential role of delegation, initiative, and mistakes in building an enterprise that is entrepreneurial at all levels over time. Nevertheless, media and historical accounts tend to depict entrepreneurs as confident solo swashbucklers who almost mystically came up with a brilliant insight, knew exactly how to proceed, and quickly developed a successful enterprise. In generational family firms, the failures, trials, and tribulations of the founding or earlier generations often acquire a heroic coating as the stories get transmitted over time. The path to success is seldom straight, with many experiments, failures, explorations, and small discoveries before success.³ Usually success is achieved by incredible persistence, yet some very persistent entrepreneurs have doggedly marched over cliffs into the sea, ignoring the signals that they should have changed course.

Entrepreneurial leaders know that the success rate of new ventures is disappointingly low.⁴ Yet research is unequivocal: first-generation family firms enjoy better financial performance than nonfamily firms, but from the second generation onwards the results are mixed.⁵ That is, some do better while others flounder. Researchers continue to investigate why some family firms flourish over generations while others fold after the founders’ tenure. Meanwhile, enterprising families that do well past the founding generation rely on building entrepreneurial and leadership skills of every generation.⁶

The path to success is seldom straight, with many experiments, failures, explorations, and small discoveries before success.

The good news is that entrepreneurial leadership skills can be developed with mindfulness and practice. Envisioning something new and delivering value—the crux of entrepreneurship—must be seamlessly integrated with inspiring others to suspend self-interest and reach high performance to make the leaders’ vision a reality. Neither is sufficient without the other. An entrepreneurial leader needs to be equally comfortable leading and being led, staying on and changing course. Prudence lies in knowing when (and how) to lead and when (and how) to follow, when to start something new (and what this new thing should be) and when to stay on course. Often choices have to be made between two rights—such as achieving balance between the interests and dreams of the incumbent generation and those of the next generation, exploiting all possibilities of current markets while exploring future opportunities, fully engaging the most competent next-generation family and nonfamily members. Time and timing matter! Ambidexterity⁷—which literally means using both hands with equal ease—is the name of the game.

Not only must individuals at the helm of family enterprises simultaneously deploy entrepreneurial and leadership skills, but it is equally important that they prepare their organization⁸ and family to be fertile grounds that encourage the development of these skills in the next generation. While we leave the discussion of family and organizational factors that enable such skill development to later chapters, let’s turn our attention to what it takes to be an entrepreneurial leader.

Ambidexterity

Leadership effectiveness is about innovation and constant adaptation, but this is only part of the story. By definition, entrepreneurial leaders are innovative, finding new ways to fulfill unmet needs. This requires them to be flexible and intuitive. They must look closely at situations to decide whether a feasible solution exists or not. Although a combination of close observation of people and some analysis can make plain an unmet need, it often requires an intuitive leap to see the value-creating opportunity that is within the capacity of the entrepreneur and his or her resources. For family firms already in existence, exploration for new opportunities and exploitation of existing markets and products must be juggled simultaneously, requiring leaders to make judgment calls on how much time and resources to invest in each.⁹ A flexible, intuitive approach must be complemented by equally strong disciplined analysis and precision. In generational family firms, the leaders must not only be clear about their own vision for the family enterprise but must also have the courage to acknowledge that the next generation’s vision may not be fully synchronized with theirs. It is a delicate art to decide how far to pursue one’s own vision and when to “let go” so as to make room for the next generation’s vision to “take over.” Wisdom lies in being sufficiently disciplined to achieve the precise combination of commitment and detachment that good judgment demands.¹⁰

An entrepreneurial leader needs to be equally comfortable leading and being led, staying on and changing course.

To better understand the ambidexterity of entrepreneurial leaders, let’s look at two founders who grew their respective enterprises to global leadership positions before passing them to the next generation of family leaders. Both are remarkable in their own ways, influencing not just their industries but the lives of thousands of employees and customers. Notice their ambidexterity in switching between entrepreneurship and leadership and the ways their leadership styles may have changed as their enterprises grew from new ventures to global brands.

At age seventeen Fred Deluca launched what we now know as Subway Restaurants when his father’s friend and a nuclear physicist—Dr. Peter (Pete) Buck—encouraged him to open a submarine sandwich store and lent him a thousand dollars to do so. Fred’s motivation was to earn some money for medical school. In addition to Pete, Fred’s parents, sister, and wife were all critical to the launch of this new venture in 1965 and its subsequent growth. Fred died shortly after celebrating the fiftieth anniversary of his company in 2015. By this milestone anniversary, he had led this family enterprise to become the largest submarine sandwich chain in the world with over 37,000 stores in over 100 countries. His sister Suzanne Greco, who has been involved in different roles with the company since its inception, is now the president and CEO of this family business.

While Subway’s growth has been remarkable, it has not always been a smooth ride. Although apparently from the beginning Fred had the idea of offering healthier, less fattening food than existing fast-food chains and big dreams for expansion, the first two shops were not profitable. They were not in good locations, which were necessary for the success of sandwich shops. They required name changes, and the growth of the chain was much slower than the self-imposed goal of opening thirty-two stores in the first ten years. But Fred’s dogged persistence and his partner’s trust in him continued. Only when Subway finally moved to a franchise model did the company begin to expand more rapidly, achieving and often exceeding its goals.

Despite major law suits from franchisees, over the years Fred remained sufficiently hands-on to be sure that the company stayed in touch with the needs and interests of customers and that the shops maintained high quality, sanitary conditions, and excellent service.¹¹ With continuous incremental innovation, such as the addition of avocados on sandwiches, the introduction of Flatizza (a flat bread sandwich), and vegetarian Subway stores in India, this family enterprise has endured over time. An ambidextrous entrepreneurial leader, Fred could alternate between the dream and hands-on execution as needed.

Entrepreneurial leadership is not only the forte of founders in food services industry like DeLuca but also evident in other contexts. Like Subway, Lamborghini is today a world-famous brand. Might it surprise you to learn that it was only early in the 1960s that Ferruccio Lamborghini designed and manufactured his first car? While passionate about engines, he originally focused on repairing cars and motorcycles during World War II and then on designing powerful tractors to support the needs of local farmers in his native Emilia Romagna region. Only when Enzo Ferrari rebuffed him for proposing improvements to the Ferrari car did Lamborghini resolve to design and manufacture his own car. It took him nine months to design an elegant and powerful vehicle that was brought to market within two years. With a staunch belief in technical excellence and quality, Ferruccio led his enterprise through high and low times until he was in his seventies. Then one day, he is known to have unceremoniously handed over the keys and operations to his son Tonino, making himself available once a year for business-related discussions.

At the time of this unpretentious changing of the guard at Lamborghini, Tonino was a university student in his early twenties. Deeply familiar with the business because he had played in the premises as a child and worked there every opportunity he got, Tonino wanted to prove himself as an entrepreneurial leader who could build on his family’s legacy. When the family sold its car brand to the Audi Volkswagen group, he embarked into luxury watches. In an interview with Tharawat¹² he recalls that his father was not too keen on the idea of starting a fashion and luxury business. But, being a fair man with an acute sense of balancing between the needs and desires of the current and future generations, he said:

You know, I always did what I wanted to do, so why shouldn’t you get your chance?

(Tharawat, June 21, 2015)

However, the senior Lamborghini emphatically reminded his son that the family name stood for technical know-how and mechanical excellence. Today, the third generation of the Lamborghini family is determined to continue to innovate and regenerate so they can keep ahead of the curve and contribute to their family enterprise.

Founders Fred DeLuca and Ferruccio Lamborghini were both able to evolve their entrepreneurial leadership styles as their companies grew. For the endurance and longevity of organizations under their charge, they knew to simultaneously focus on exploiting current markets while exploring new directions,¹³ so as to build on the past while staying focused on the future. Without this combination, enterprises stagnate, flounder, fail to adapt to changing conditions, or slowly deteriorate beyond the tenure of such an individual. Only time will let us know if Fred DeLuca’s Subway will fare well past his time at its helm after his recent death and if each subsequent generation of the Lamborghini family will continue to build on their founders’ legacy.

The ambidextrous mind-set has been variedly referred to as “the genius of the ‘And’” in Built to Last by Collins and Porras and “the opposable mind” by Roger Martin. Based on their decades of experience with multigenerational families around the world, Amy Schuman, Stacy Stutz, and John Ward look at Family Business as Paradox.¹⁴ They conclude that the most enterprising families not only learn to manage such contradictions but find ways to turn them into secrets of success. For example, based on his forty-three years of experience leading the Murugappa Group of India, patriarch M. V. Subhiah notes that not only must they maintain a sty...