Creating Entrepreneurs For More Profit

Say "entrepreneur" and most of us picture a freewheeling go-getter who turns a handful of nickels and dimes into a million dollars by pluck and luck. That's great. Fact is, though, that even a well-established family business can make more money when mom, dad and the kids possess personality traits characteristic of enterprising self-starters.

"An entrepreneurial mind-set has always been important in family business, and these days it's critical," says Mary Cantando, president of Woman BusinessOwner.com, a Raleigh, N.C.-based consulting company. "With all of the shifts going on in the marketplace, you have to be innovative and think on your feet. That's what an entrepreneurial mind-set's all about."

The family that grows its business together will stay together. "Entrepreneurial activities can fuel the growth of your business and even create spinoffs," says Robert H. Brockhaus, director of The Brockhaus Group, a consulting firm in St. Louis. "That means more members of the junior generation, if they have the interest and ability, can participate."

Get Out Of The Way

Entrepreneurs are self-starters, passionate about their businesses and always dreaming up new ways to make more money. As a successful business owner you most likely possess those characteristics. But how about your children? Do you encourage an entrepreneurial spirit on the part of all family members?

Maybe not. For a number of reasons you may be the primary obstacle to cultivating an entrepreneurial mind-set. "First-generation family business owners tend to be poor delegators," says Brockhaus. "Very often they are involved in all of the decision making, and they only trust their own judgments."

And then there's the temptation to fly by the seat of the pants. "Very few family businesses really do strategic planning," says Brockhaus. "Instead, the owners depend on gut feels for what to do next. They do not study industry trends, nor do they study competitors and try to predict what they are likely to do in the future."

Most damaging of all, though, is that senior management can feel threatened by upstarts. Sometimes the junior generation is afraid to innovate because dad has made it clear that it is his business and he will do things his way and everyone else should know their places. That's not good for business.

"Family business owners can personalize, and take exception to, even the best ideas from another family member," says Brockhaus. "They often perceive major suggestions as threats to themselves." The patriarch may ask himself, "Why didn't I think of that?" or he might think, "If I accept your idea, I might feel I didn't do what I should have done."

Encourage Innovation

Given all those factors, it's no wonder so many family businesses lack a culture that embraces entrepreneurial efforts. That's bad because when the second generation feels shut out, they will leave for greener pastures.

"It's not unusual for members of the junior generation to want to have an impact on the organization's success," says Brockhaus. "They often chomp at the bit, and if they feel stifled they may leave the business for another where their entrepreneurial juices can flow."

The good news, though, is that you can take steps to eliminate these toxic elements from your own workplace and promote excellence. Follow these steps from Brockhaus:

Take stock. "The senior and junior generations need to discuss the family and business values that have made the business successful," says Brockhaus. "And the senior generation has to understand that the junior generation shares the same values. That builds trust."

Look ahead. "The two generations have to develop a common vision of future."

Start small. "The senior generation can allow the junior one to take small entrepreneurial risks early in their careers. This increases skills, confidence and trust."

Of course, you do not want junior to make decisions that can put the company under. That's why you start with smaller business segments and then work up.

For example, suppose your kids are still in school and they are doing summer work in your receiving area. "Make it clear that you want them to do more than just unload trucks," says Brockhaus. Instead, inform them that you want some thoughtful feedback about how to improve the process.

The important thing for parents is to communicate that they are willing to accept new ways of doing things. That shows that change is valued in the company. "Be open to the ideas of people who have a fresh pair of eyes," suggests Brockhaus. "If you reward them for innovation, that will tell them it is OK to come up with new ideas." And cut your newbie managers some slack: "Be willing for some ideas to fail and not condemn the person."

Transfer Skills

To be successful entrepreneurs, your children have to build on the knowledge of the past. But how do you transfer the skills you have honed over the decades to the next generation of managers?

"Many entrepreneurs are not able to 'teach' their styles to the next generation of leaders," notes Susan Lazar, president of her own consulting firm in Minneapolis. "That's not because they don't want to, but because they don't know how."

Rather than try to force the issue, take a gentler approach. "Often it's hard for the current leaders to articulate their thoughts," says Lazar. "So sometimes sitting and talking casually is the best way to share these insights. I suggest the members of the second generation get with the leaders and ask questions about how they make decisions."

The idea is not to duplicate the senior generation's methods as much as to take possession of their experience. How does the leader decide when to go to one bank as opposed to another for a loan? How do they decide when to make a capital investment rather than put wealth elsewhere? And as for the people they work with, who are they and who is better at what tasks?

Inspire Young People

So far we have assumed that the junior generation is eager to take over. What about that youngster who seems to dislike the business? No magic wand will transform him from a taciturn worker who shows up at work because "Mom says so" into a go-getter who creates real value.

"The first thing that needs to be said is that it is a mistake to pressure your children to join your business," cautions Joe Paul, a family-business consultant in Portland, Ore. "If a child's path to fulfillment lies outside the company, the parent should happily accept their decision."

At the same time you don't want to give up before giving the child every opportunity to get involved. And that means relating the world of business to some interest the young person already possesses.

"Working at a family business isn't every young person's dream," says Frances McGuckin, a small-business consultant based in Langley, British Columbia, "so try to create a position that capitalizes on your child's interests and talents.

"Suppose your son has a flair for art or design. Why not make him responsible for assessing merchandising and store layout and giving you a recommendation?" Does your show floor need some updating or redecorating? This is a great opportunity for your son to sharpen his skills while creating real value.

"Teenagers are young, fresh and full of creative ideas that parents lack," adds McGuckin. "Combine a creative challenge with some practical day-to-day responsibilities so your son has a balance between what has to be done and what could be done with his input. Now you have created a dream position for him along with some goals and incentives."

Lay The Groundwork

Consultants emphasize the importance of obtaining professional help in the areas of estate and financial planning. Care must be taken that the parents' retirement years are protected from any decline in the business that might result from second-generation management.

"Most parents want to provide opportunities for their children, but they also need to protect their long-term self-interests," notes Paul. "If the founders are financially secure for the long term they will be much more receptive to innovation from the next generation."

Establishing a protected retirement fund for the parents will encourage them to let the younger generation take the reins of the business. And that can only be to the good, because cultivating an entrepreneurial spirit in your children carries a rich benefit: higher profits.

"The difference between successful and unsuccessful multi-generational family businesses is mostly an intellectual one," says Paul. "The successful companies are better at recognizing opportunities, thinking creatively together and taking coordinated action - all three the traits of entrepreneurs."