• Are you the son or daughter of an entrepreneurial family?

• Is the founder starting to have health problems?

Pathway: Succession

Chapter 7

Entrepreneurial families: succession and continuity

Objectives1. To describe the importance of family businesses in the Asia–Pacific and their

unique problems2. To discuss the concept of transgenerational entrepreneurship and its

differences in mind-set and context3. To explore the unique types of family capital4. To examine some of the hallmarks of family entrepreneurship across our region5. To depict family entrepreneurship as three sometimes conflicting but

overlapping systems6. To explore the ways that climate change and family entrepreneurship may be

interrelated7. To examine the problems as well as the key factors in management succession8. To explain the steps involved in carrying out a succession plan9. To understand the contextual aspects toward developing a succession strategy10. To examine the harvest strategy for reaping the value of family business

through trade sale

But first

What are the ways you would use your family connections to secure a long-term future for your venture??

• Family is an incubator for the generation of new business ideas.

• Birthplace of entrepreneurial ventures is often the home

• Are you are ready to become a successor in your own family business.

• Entrepreneurs who have self-employed parents are more likely to start a business.

Pathway: Entrepreneuring families

Global and all sizes

• Families are actually the dominant form of business organisation worldwide.

• Not just ‘mum and dad’ operations, for example:– Wal-Mart (USA),– L’Oreal (France)– Ikea (Sweden)– Kikkoman (Japan)

• Weathered the GFC better than businesses that do not have family ownership

Transgenerational entrepreneurship

• Parents have the most influence over their children during early childhood through both parenting and genetic inheritance.

• Later, children are socially conditioned and pick up the values of their surrounding socioeconomic class.

• Normally children want fantasy occupations like an astronaut, fireman, oceanographer, or policeman, rather than wanting to directly mirror their father or mother’s occupation.

What influences a

child’s career choices?

Mind-set of entrepreneurial families• It’s all about ‘succession’. • Some families are serial entrepreneurs who

create new streams of value across generations.

• Others simply continue to maximise the founder’s product or service without innovating something new.

• 64,000 Question: How does the ‘founding father’ or ‘founding mother’ transmit his or her entrepreneurial zeal, spirit, attitudes, values and beliefs?

Arthur Klein Family, Unicycle Musicians, in 1923

Transgenerational entrepreneurship consists of . . .

Types of family capital• Family social capital – based on

relationships• Family human capital – family member

knowledge, experience, ability and energy made available to the business

• Family financial capital – sharing financial resources, and benefiting from family reputation

• Family emotional capital – the family success that unites them through consecutive generations.

Attitudes to family business in Australasia

• In Australia, half of all firms are family businesses.• India’s supercharged transformation is powered by its

entrepreneurial families.• In China, there is a perception that family businesses are

small, unprofessional and backward. • In Hong Kong, NextGens not meeting the founders’

expectations.• In Malaysia, family leadership and culture are strong and

consistent across generations.• In Taiwan, family-owned enterprises sustain competitive

advantage from generation to generation.

Challenges

Business ventures face many changes.What specific challenges would stem from being a family-owned business?

?

Challenges facing family businesses -- Three-Circles Model 

Family are concerned with reputation, dividends and family

unity.

Owners are concerned with performance and dividends

Management-Employees are concerned with reputation, career

opportunities, bonuses and performance measures

Generational curse• Only one-third of family businesses

make the leap across generations. • 70 per cent fail or are sold before

the second generation gets a chance to take over.

• Many family businesses have the same leaders for 20 or 25 years.

It is said that the first generation establishes the business, the second generation develops it and the

third one destroys it.

– Means difficulties in coping with shifts in technology, generational trends, business models and consumer behaviour.

• Most are sold or wound up after the founder’s death. • Only 5 per cent of family businesses are still creating shareholder value

beyond the third generation.

What helps family businesses succeed?• Family businesses not encumbered by

demanding shareholders who want to dictate operating strategy.

• Family members are willing to sacrifice short-term profits for long-term gains.

• Family members are more productive than other employees.

• Family firms have flexibility and can respond to challenges and opportunities. Je

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What helps family businesses succeed?

A genogram is a family business timeline

Family businesses and environmental sustainability

• Imagine taking a genogram of the impact of climate change or environmental sustainability on family business.

• Climate change can be a limitation or an opportunity.

• Family businesses may have trouble finding capital due to environmental exposure.

• Are family firms are more susceptible to climate change effects than non-family firms?

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• Are you the son or daughter of an entrepreneurial family?

• Is the founder starting to have health problems?

Pathway: Succession

• Does the founder see family members’ greedy efforts to plunder the operation for personal gain?

• Is there any sibling rivalry, fear of death, or fear of loss or abandonment?

How to overcome the barriers to success?•The owner should develop a succession plan. But choosing an heir can be like buying a cemetery plot.

•A potential successor should ask, ‘Am I truly interested in taking over?’

•Your inexperience can increase the chances that the business will fail.

Pressures

Does anyone in the class face pressures around succession coming from inside and outside the family-owned business??

Harvesting a business

What reasons could there be to consider selling the business (rather than passing it on to family)?

?

Pathway: Harvesting a business

Key concepts

(close your books)What are the challenges and advantages of establishing a family-owned business?

?