Daisy Medici is managing director of Genus Resources, a family business consulting firm.
Parents are the most influential factor in unleashing the next generation's entrepreneurial development. Daisy Medici explains how parents can foster entrepreneurship by giving children permission to express their passions, experience failures and celebrate successes against a backdrop of family love, respect and core values
Leaders in family firms, for the most part, understand the importance of strategic planning and the grooming of next generation family managers. A good education, an MBA and a five-year stint in the corporate world are high on the list of best practices for family business planners. For nearly a decade experts have referred to the trillions of dollars that would be transferring from one generation to the next as the vast numbers of post second world war entrepreneurs retire and pass on either their businesses or the wealth their businesses created.
In my experience, it is easier to help a family who owns and operates a business enterprise than it is to serve the needs of a family with liquid assets. While the importance of 'family' might be of equal importance in both situations, the challenges they face can be drastically different. Families who own operating companies must often reinvest the bulk of their assets in the operating company, leaving them with comfortable but less lavish lifestyles than families who have experienced a liquidity event. On the positive side of the ledger, families whose wealth remains invested in operating companies generally share an identification with their company and a drive to preserve both family control of the company and family harmony. These dual drives can fuel both interest and commitment to solving family business issues.
Alternatively, families who have experienced a liquidity event, whose wealth is far more available to fund consumption, generally have a more difficult time carrying on their family values and fostering some of the concepts such as stewardship that ensure the preservation of their wealth for future generations. When done correctly, business-owning families have a built-in venue where their core values get played out. While they are going through the day-to-day motions of their work they are naturally modelling for their next generation. Commitment to various stakeholders, employees, customers, vendors, community, and shareholders is witnessed by their children, nieces and nephews either in the offices or by listening to stories at family gatherings.
I don't mean to imply that families of great wealth invested in relatively liquid assets can't pass on their values. Many of them do so in a variety of ways, especially through their commitment to philanthropy and community service. However, families of both types can still fall victim to the age-old phenomenon often referred to as shirtsleeves to shirtsleeves in three generations. I first heard this adage nine years ago, and I still hear it echoed at least once at every family business or family wealth conference I attend.
Many experts who have written about wealth preservation have developed guidelines and processes that attempt to circumvent this sweeping dynamic. Yet the problem endures. In his well-known book, Family Wealth: Keeping it in the Family, James Hughes Jr talks to his readers in terms of capital. He encourages families to classify their assets into three categories: human capital, intellectual capital and financial capital. Hughes believes the route to successful preservation of wealth requires careful nurturing of human and intellectual capital. He explains that families with deep core values are respectful and grateful for their good fortune and use their financial advantage to grow their more sacred assets.
Charles Collier, author of Wealth in Families, adds another dimension. He talks about the importance of social capital and how this term refers to an individual's connection with his or her communities. The question is: "Does your family as a whole care about others beyond your family?"
Jargon or jargon?
The ultimate goal for families of wealth is to create a quality of family life that nurtures enterprising family members: young people who may be not only future wealth creators, but independent adults whatever field of endeavour they may choose. Every field has its trade talk and every industry searches for new ways to say old things. The field of family business is no different. Years ago, we used to talk about the entrepreneur. Then it was the family business. Then we moved to the family enterprise to include families who are connected financially but don't own operating companies, and now we talk in terms of 'enterprising families.'
The term 'enterprising families' raises the issue of entrepreneurial drive. Whether we are entrepreneurial or not, every one of us has rubbed shoulders with classic entrepreneurs at one time or another. They come in all shapes and sizes, ranges of intellect, various ethnicities, different educational backgrounds, and more often than not, dysfunctional childhoods.
How puzzling is that? Does this mean that emotionally healthy families are unlikely to produce entrepreneurs? Are professionals who advise families on how to train and develop their next generation members while maintaining healthy relationships actually helping to thwart the core thrust of entrepreneurial drive?
When we look at the profiles of classic entrepreneurs, we usually see veterans of the post-second world war period, a time of entrepreneurial activity similar to the dot-com era beginning in the early 1990s. Would it be too much of a stretch to suggest that the mid-1990s entrepreneurs, while technologically gifted, were not driven by the same energy as their post-second world war forbears? What drove them? The need for food on the table or a Porsche in the garage?
In an attempt to look at this matter of nurturing enterprising individuals, I sat down with Dr Tom Davidow, a clinical psychologist and founder of Genus Resources. Dr Davidow believes that who we are and how we behave at any given stage of life is a result of our personal history. The presence or absence of entrepreneurial drive is not an exception. While he asserts that most entrepreneurs have come from less than model upbringings and were often emotionally deprived, he believes there are ways that healthy families can encourage creative thinking and instil a passion for discovery in their next generation members. He points out, however, that success in accomplishing this result is directly linked to the relationship between parent and child.
In a relatively healthy family system where entrepreneurial behaviour would not generally grow out of dysfunction, a parent needs to use a different approach to nurture an enterprising child. Self-esteem develops early, and is based on love, nurturing and emotional availability between parent and child. Experts believe emphatically that good self-esteem is the golden key to success. In his best selling book, Between Parent and Child, Dr Hiam Ginott puts it simply: "Talk to your children like you talk to your friends".
Accomplishment – how sweet it is!
Like most parenting techniques the key to unleashing your next generation's potential for entrepreneurship is to begin the process at birth, keeping in mind that parents are and always have been the most influential factor in a child's development. As Uri Bronfenbrenner, dean of America's experts on the family has often observed: "The social, emotional and intellectual development of children occurs in the family, in the family and in the family". There are myriad ways parents can foster creativity in their children. They can encourage curiosity, support ideas, reward successes, find good in failure, seek advice from their children, and problem solve collaboratively. They can expose their children to other cultural environments, introduce them to nature, and encourage them to explore, discover, and entertain themselves. It is parents who teach children through reward systems during their early years to appreciate the personal euphoria that comes with accomplishment.
For parents of great wealth (or any parents for that matter) adopting these practices early in the parenting cycle will put them at great advantage. Is that to say that all is lost for parents who have not applied these strategies and are now dealing with entitled, misguided, unhappy or unmotivated young adults? No. But the road to turning them around might look a little like the road to Hana, Hawaii – winding steeply upward around hairpin turns bordered by steep cliffs. However, guiding children to safety without too much handholding can unleash their greatest strengths and allow them to discover the sweet taste of accomplishment.
Communication plays a critical role during this journey of discovery. Finding one's passion can be a long process. Families in business together, by virtue of the huge amount of time they spend together, have a greater opportunity to help each other identify and connect to their passion. A family who wishes to help its members define their vision and reach their goals must not only understand the value of gathering but also commit to spending organised time together perhaps through annual or semi-annual family retreats. No matter which process they choose, families who realise the future success of the family (both professionally and personally), hinges on the individual satisfaction and success of each of their members, are ahead in the game.
Aside from love, respect and core values, the best gift that the senior generation of a business-owning family can offer its children is permission: permission to be who they are, permission to express themselves, permission to try and even to fail, permission to discover their passion in life and permission to pursue it.