Growth Strategies for Family-Owned Business: Transitioning to a Process- and Technology-Driven Model

Author: Eric Kimberling

I'm Eric Kimberling, the CEO of Third Stage Consulting. Today, we're delving into the challenges family-owned businesses face, particularly when transitioning from generation to generation, and exploring sustainable growth and success strategies.

What is Considered a Family-Owned Business?

A family-owned business refers to a commercial enterprise where members of a single-family control the ownership and often the management. The defining characteristics of these businesses include:

1. Family Control and Leadership: One or more family members hold significant ownership, decision-making power, or leadership roles within the company. This can extend across multiple generations.
2. Intergenerational Transfer: There's typically an intention or practice of passing the leadership and ownership of the business from one generation of the family to the next. This transfer of control is a critical moment for such businesses.
3. Cultural and Value Influence: Family values and culture often play a significant role in business operations and ethos. These businesses tend to reflect the family's beliefs, practices, and priorities.
4. Unique Challenges and Strengths: Family-owned businesses face distinctive challenges such as balancing family dynamics with business needs, succession planning, and professionalization. At the same time, they can benefit from strong loyalty, shared vision, and long-term stability.
5. Various Sizes and Sectors: These businesses range from small, local shops to large international corporations. They exist in virtually all sectors of the economy.
6. Emotional Attachment: A strong emotional component is often tied to the family's legacy and reputation, which can impact business decisions.

Family-owned businesses are crucial to the global economy, contributing significantly to job creation and economic growth; however, implementing standardized practices and new technology in this unique cultural environment can be challenging.

Family-Owned Business Can Resist Change

Integrating new technology in family-owned businesses can be particularly challenging due to several factors unique to these organizations:

1. Resistance to Change: Family-owned businesses often have a strong sense of tradition and a certain way of doing things established over generations. This can lead to resistance to new technologies, as they may be seen as a departure from the tried and tested methods.
2. Cultural and Generational Differences: Different generations within a family business might have varying levels of comfort with technology. While younger members may be more tech-savvy and open to innovation, older members may prefer traditional methods.
3. Limited Resources: Smaller family-owned businesses may have limited budgets for investing in new technology. The cost of purchasing, implementing, and training staff on new systems can be significant.
4. Lack of Expertise: Family businesses might not always have access to or prioritize hiring individuals with the necessary technical expertise. This can hinder the effective evaluation, selection, and implementation of new technology.
5. Concerns About Security and Privacy: Family businesses might be apprehensive about the security and privacy risks associated with new technologies, especially if the business handles sensitive information.
6. Fear of Disrupting Existing Business Processes: There can be a concern that implementing new technology could disrupt well-established business processes, leading to a temporary decline in productivity or service quality.
7. Difficulty in Aligning Technology with Business Goals: Family businesses might struggle to see how new technology aligns with their long-term goals and values. This is especially true if the technology requires a significant company operational model shift.
8. Succession Planning: In family-owned businesses, succession planning can often precede technological advancement, especially when a leadership transition is imminent.

To overcome these challenges, family-owned businesses need to foster a culture that values continuous learning and innovation, invest in education and training for all generations, and develop a strategic plan for technology integration that aligns with their business goals and respects their values.

Family-Owned Business Growth Strategies

Growth needs to be intentional and effectively planned within this unique business environment. The steps below can help scale the business within the family dynamic.

Early Strengths and Later Challenges

Family-owned businesses often thrive initially due to a shared vision and close-knit team dynamics, typically driven by the founding family. Fueled by passion and personal commitment, this people-focused approach lays a strong foundation. However, as the business expands and transitions to future generations, shifting from a people-driven to a process and technology-driven model becomes crucial. This transition is often where family-owned businesses stumble.

From People-Focused to Process-Oriented

As family businesses grow, reliance solely on the knowledge and dynamics of the founding family becomes insufficient for scaling up. Developing repeatable processes and implementing technology solutions that maintain the company's core values while enabling expansion becomes vital. This shift, while essential, can be challenging as it may seem to undermine the initial people-driven culture that contributed to early success.

Navigating Cultural Changes

Introducing more structured processes and technologies can disrupt the existing culture of a family business, leading to resistance or a sense of loss. Effective communication is key in this phase, emphasizing how these changes will contribute to long-term success and preserving the company's core values. The goal is to complement, not replace, the people-driven culture with process and technology enhancements.

Organizational Change Management

Family-owned businesses must focus on organizational change management, especially because these changes might impact the company culture more deeply than other businesses. Strategies include clear communication about the reasons and benefits of the transition, involving employees in the change process, and ensuring that the new processes and technologies align with the company's original values and vision.

Ensuring Internal Alignment

Maintaining alignment within the organization as it grows and evolves is vital. This means ensuring everyone understands and is committed to the company's direction and goals, from family members to new hires. As family businesses grow and diversify their teams, aligning new members with the company's core values and objectives is crucial to avoid diluting the original vision.

Conclusion

The transformation from a family-oriented to a process and technology-driven business is complex but essential for long-term success and scalability. This requires carefully preserving the initial people-focused culture while embracing the necessary processes and technological advancements. For more insights on managing growth and digital transformation in family-owned businesses, I recommend exploring my YouTube channel and reading my books, "The Final Countdown" and "Lessons from 1000 Digital Transformations", for in-depth strategies and advice.

I hope you found this information helpful. For more insights and assistance in navigating your ERP journey, don't hesitate to get in touch with me at Eric.Kimberling@Thirdstage-consulting.com or explore our resources at Third Stage Consulting. I am happy to be an informal sounding board for your transformation journey.

I also highly recommend downloading our 2024 Digital Enterprise Operations Report and following our weekly podcasts or YouTube channel for more on the holistic approach to business technology.