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Chapter 1 Part A
Family + The Quantum Machine
(Chapter 1 for the Hackers)
If you can’t ride the wave and transform, you’ll be crushed by it.
Nothing says quantum like “Iron Man.”1
Have you seen the Marvel movie starring Robert Downey, Jr., Terence Howard, and Gwyneth Paltrow? If not: spoiler alert!
Before there was Iron Man, there was Tony Stark. Let’s take a look at the week that changed the life of a rising leader at Stark Industries.
We’re in a Humvee cruising across the Afghan desert. The fashion-forward California tech titan looks a bit out of place here, with a glass of whiskey in hand, trash-talking his U.S. military security team. Meet twenty-something Tony Stark aboard the mothership, cocky after a successful, mega-million-dollar sales meeting. Son of a legendary weapons developer, Tony built his first circuit board at age four, his first engine at age six, was a rock star at MIT, and became CEO of Stark Industries at twenty-one, on the death of his father Howard Stark, the founder. Tony is talented and he performs above average. He knows it and he shows it.
Suddenly the convoy comes under fire. The unit takes heavy casualties. Tony’s on his own. Fleeing the scene, he’s injured in an explosion, loses consciousness, and is taken prisoner in a network of mountain caves. Tony’s fellow captive, Ho Yinsen, performs surgery to save Tony’s life. Tony regains his senses with an electromagnet embedded in his chest. Connected to a car battery, the crude device is the only thing keeping shrapnel from entering his heart. But Tony calculates it won’t last long. He knows he’s a dead man walking.
Under torture, Tony agrees to build a next-generation Jericho rocket from the Stark Industries technology that his captors have stockpiled. In despair, Tony doesn’t even want to get started. He reasons that he and Yinsen will only be executed anyway. Yinsen confronts Tony with his time horizon. Tony admits that he’s only got one week to live.
“I guess it’s a pretty important week, then,” observes Yinsen.
Now determined to survive, Tony fights back. He and Yinsen work around the clock to design and build a powerful electric generator out of palladium scavenged from Stark Industries components. It will be enough to power his heart for fifty lifetimes… “or run something big for fifteen minutes,” Stark hints to Yinsen. We realize the men are planning their escape.
So, fifteen minutes will decide their fate. If successful, Tony will have a very long horizon. His heart will never grow old.
Tony adapts his design from the large Arc Reactor built by his father. To save their lives, he lets Yinsen embed the next-generation Arc Reactor in his heart.
Now it’s a race against time to make use of the iron and other materials on hand to stage their escape before Tony and Yinsen’s betrayal is discovered.
I’ll stop here, so you can enjoy the film as much as I did. It’s enough to say that Tony Stark’s innovation is what I call a Quantum Machine. The Arc Reactor is a force multiplier of every asset Tony can deploy. It’s a Steampunk concept, integrating industrial age materials with digital age technology. Its impact is far greater than the value of any of its component parts—including Tony’s own life, since he and Yinsen face certain death unless he innovates.
And there’s one more reason why I’m telling you this story. The skills and assets Tony used to build the Arc Reactor were passed down from his dad.
It’s Imperative to Transform
The secret to longevity is the ability to transform. Change is inevitable. And in some time periods, like now, the pace of change is very fast. So, change is inevitable, but transformation is not. Transformation is intentional. If you or your organization can’t ride the wave and transform, you won’t be able to get in front of it. And you’ll be crushed.
The most talented rising leaders will not shine, create, or innovate if they just slide into the suit that senior leaders designed or laid out for them to wear. Rising leaders need to go through their own struggles, learn how to fail, and rise from the abyss to become robust leaders who gain from disorder, as described by Nassim Nicholas Taleb, the scholar and risk analyst who coined the term “antifragile” to describe this property in resilient systems.2
Make no mistake about failure, it’s a hard fall. Failure feels like getting smashed into pieces. Building yourself back up is brutal rehab. What senior leaders and other elders on the mothership can do, besides protecting rising leaders from core-shattering danger, is to give them the tools, teach them the skills, and lend them the compass from the family’s treasure chest of core values to maximize the rising leaders’ chance of success.
But rising leaders should choose their own environments and fight their own battles. That environment could be the existing family company. Or it could be a start-up, or investing for the family office, or founding a social enterprise, or taking a demanding job outside the family business, or even serving in the military. Inside or outside the family enterprise, the proving ground for rising leaders needs to be one of their own choosing. All rising leaders, especially Phoenixes, need to be the explorers and pilots of their own lives. Sammy Lee, from Hong Kong’s venerable oyster sauce company Lee Kum Kee (LKK), is such a Phoenix. We’ll meet him later in this book. He started a health products company in China to diversify the family’s business portfolio. Sammy Lee’s startup went through difficult times as most businesses inevitably do, which almost broke the family apart. Did this story end well? You’ll find out later.
Gods, Monsters, and Longevity DNA
Back in the age of gods and monsters, Hercules was tested with twelve labors. It took ten years for Odysseus to find his way home. During the struggles every rising leader faces, what’s being put to the test are the core values passed down from the family. Those values that are deeply internalized will be activated regularly in meeting challenges. Those that don’t fit the circumstances will stay “switched off,” like inactive DNA. With growing self-awareness, the rising leader learns to recognize those useful core values and their benefits. Then to strengthen them with new vigor.
By this time, after battling a few monsters, it’s clear that the rising leader has internalized the parts of family DNA that he or she thinks can help them survive and thrive, like Iron Man, who used the Stark DNA to survive, then adapted it for pursuing his own True North of doing good.
Hercules’ labors finally came to an end, and Odysseus eventually returned to Ithaca. The rising leader brings the reconstituted family DNA back to the mothership with new resources to guide the whole family enterprise through a transformative renewal process. There are added benefits, besides entrepreneurial success, when senior leaders at the core anchor rising leaders who gravitate toward the edge. Successful innovators always work with collaborators. What you want is for them to bring home those collaborators who can strengthen the core. They can help you build the know-how and confidence to launch another entrepreneurial venture. It’s a virtuous cycle that you can reinforce, with the proper gearing, to create a force field that continuously sucks fertile resources back into the center. This is the work of what I call centerprising, and it’s how the family enterprise evolves in ways that enable it to survive and thrive over generations.
If family companies and their fully-tested leaders can link together in meaningful ways with the tech titans of the New Digital Age, there can be enormous benefits for society. People trust family enterprise leaders. A 2014 Edelman global survey of more than 20,000 executives and “general public” respondents found that family companies and their leaders are more trusted than non-family companies, their leaders, or leaders of any other social institution.3 That’s a branding opportunity worth aiming for. So, how do you develop trusted leaders? You let them test themselves.
Encouraging rising leaders to test themselves, to battle their monsters, is the mechanism for perpetuating the Longevity DNA that gives family enterprise its enduring advantage and accounts for multigenerational success. Spot and develop trusted leaders in the family enterprise, and your organization stands a good chance that it will be more trusted and have more moral authority for generations to come.
Future-Forward: Alexandre Birman and Arezzo
Alexandre Birman, from Brazil, loves designing shoes, like his father. As a boy, he was a hard worker, always ahead of the curve. As a young teen, he made a deal with his family to convert unused property into a parking lot that he operated after school. He managed four employees and bought his first car with the profits. At fifteen, Alexandre left school for Italy (where he lived in lodgings and didn’t even speak the language) to learn shoemaking from the world’s best craftsmen. He discovered a real talent for styling women’s shoes, which grew into an all-consuming passion.
So why did Alexandre walk away from his father’s company, Arezzo, in his early twenties to start his own shoe company? He felt creatively and financially blocked by conflicts with senior managers. On his own, with a $3 million loan from his father, Alexandre designed and marketed his first collection of high-end shoes. The line took off with a distribution deal from a major retailer in New York. For the next decade, Alexandre built Schutz into a brand with worldwide recognition. In 2007, the brand was doing so well that CEO Anderson Birman invited his son to merge their two companies into a footwear powerhouse.4 It’s a good example of the quantum effects of investing in a rising leader who isn’t just thinking ahead, but throwing himself headlong into the future. Leaders like Alexandre Birman have what I call Future-Forward mindsets, combined with Longevity DNA, that the world needs more of today.
Many business families would consider a move like Alexandre’s, from the core out to the edge, to be highly risky, both for the family enterprise and for a rising leader who has been traditionally “groomed” to take over the existing business. If that’s also your assessment, I hope this book will change your mind. It is never “risky” to develop an entrepreneur; it is a necessity. The entrepreneur is not likely to change his or her type. One secret to Arezzo’s success is the relationship between Alexandre and his father, Anderson Birman. Alexandre was lucky to have a very attentive father who was convinced that backing the fashion startup was the right path, given his son’s strong entrepreneurial drive. With the founder-father’s unwavering support and strong connection, the Phoenix was able to move confidently out to the edge, and willingly back to the center, after proven success. The beauty of centerprising is that this way, family talent can more easily move back and forth between the edge and core without your losing them.
Organizations designed for innovators
To understand why Arezzo is the exception in family business, and not the rule, let’s take a look at what has shaped the popular wisdom so far.
Until now, the field of family business studies has focused primarily on the business organization. The goal was protecting the “goose that lays the golden egg.” Business families seeking expert advice on best practices learned to define and manage the drivers of the organization’s success. So, the role of family talent and its importance have been mainly viewed from the perspective of how they drive the organization’s success. If there’s no role for certain specific family talents in this schematic, little attention is paid to developing them, and they get marginalized. Marginalized talent can have breakout potential; but too often, people who have been sidelined don’t have high levels of engagement with the family business organization. And the reason is because the center of gravity has traditionally stayed in the current operating businesses. Arezzo found a way to engage family talent outside the core business.
And there’s another factor that makes Arezzo a rare success story of its kind. If your company does spark innovation in an outlying venture, it’s much rarer, but sometimes wiser, to fold the successful entrepreneur back into your core operations. But this requires the co-existence of two very different cultures in the same organization. How many organizations will rise to that challenge? And so Arezzo’s success remains, unfortunately, an outlier in the world of family business. Many breakout successes in business families never make it back to the core.
But it doesn’t need to be that way. There’s a new way to change your traditional management culture to a Future-Forward innovation culture. It’s happening more and more. Later in this book, you’ll read about the transformation of the Danish family business, Vestergaard, from apparel manufacturer to medical products developer and social enterpriser when the rising leader invented LifeStraw.
The prevalent way of thinking about family business used to be, “organizations before innovators.” It’s little wonder that family business has been conceptualized this way by the experts. Their theories worked in the past because their models mirrored the way other successful, highly stable business organizations were structured. The IBMs, GEs, Samsungs and other blue chips of the world operated with hierarchies, clear chains of command, clear and timely reporting, and clear organizational boundaries. Innovation was orchestrated from the core in large R&D departments. You could almost judge their efficiencies (thus their profits) by their organizational charts.
Those days are over. What now?
Distributed Systems Are Fuzzier
Even when examining many of the great, top-down, non-family business organizations, family busines...
