Next Generation Development Article

Sustaining Entrepreneurial Drive Across Generations

By Judy Lin Walsh and Nick Di Loreto

Whether you are a first generation entrepreneur or a later generation family business heir, most families aspire to protect their legacy and maintain their wealth across generations. Families who are most successful in that endeavor persistently promote the entrepreneurial spirit that led to their initial success. They create a culture and ecosystem that nurtures drive – a combination of ambition, sheer will, and willingness to take calculated risks – recognizing that it is integral to family’s long-term success, particularly in challenging times.

One third-generation family CEO we know recently delivered a powerful message to his teenage next generation when he said, “in times like 2008 or the Covid pandemic, a lot of companies will go bankrupt. But, because we’ve always run our family business on the tenets of entrepreneurial drive and diversification, our family business survived these crises and was positioned to prosper in the long term. Learn from this experience and think of what you can do as an entrepreneur.”

This is valuable advice, not just for the younger generation as they grow and develop as individuals, but also for the future of the family business. Inculcating entrepreneurial drive early on helps ensure the collective family business will flourish across generations. But doing that well is not easy, with multiple challenges to navigate along the way. Here, we share our best advice for how to get it right.

Many family businesses are built around the legend of the entrepreneurial founder who persevered in the face of adversity. But for some business families, it’s easier to pay lip service to the founding entrepreneurial values than it is to actually instill the drive required to nurture those values generation after generation. The senior generation in a family enterprise often struggles to distinguish the fine line between nurturing entrepreneurial talent and coddling. Some worry whether their children, nieces, and nephews have real entrepreneurial ambition and a valid business idea – or if they are just pursuing pet projects and expensive hobbies. Others may be concerned about the perception of fairness throughout the family – whose projects do you support and how much? Yet more wonder how to make sure the next generation doesn’t embarrass the family or the brand. In contrast, the next generation often wonders whether they should build their entrepreneurial ventures within the legacy business or outside of it? With family support or completely separate? And so on.

These are all valid concerns and questions. While there is no one right path to creating a sustainable entrepreneurial drive in business families, most successful families recognize the value of entrepreneurial drive and they invest across four core pillars to cultivate it. Like a professional tennis player, they develop their groundstrokes, their serve, their net game, and their conditioning together – so that when the big match comes, they’re fully prepared.

So what are the four essential pillars for entrepreneurial families?

By knowing and developing these pillars, families can avoid unintentionally triggering landmines and create a healthy sense of entrepreneurial ambition within their business family. Here’s how to build and strengthen your family’s entrepreneurial foundation.

Communicate your stories well

Many family businesses are built around the legend of the entrepreneurial founder who persevered in the face of adversity. These stories play an important role in inspiring future generations. They’re often what first sparks the next generation’s entrepreneurial flame. For example, Thierry Hermès, founder of the now- iconic luxury empire, was the sixth child of an innkeeper. Orphaned by disease and war, he went to Paris to learn the leather business, founding his own shop in 1837 making horse harnesses. His clientele grew to include French emperor, Napoléon III. Today, the sixth generation of Hermès family leaders owns a business approximately worth $50 billion. How inspiring is that? But the key in this rags-to-riches story (and many others) is not the successful outcome – it’s the fact that the story includes the hardships, struggles, and failures that came before the glory. There’s little benefit in sharing the founder’s story if you gloss over the gritty truth. Rather than raising the founder’s legacy to mythical proportions, humanize him or her so that your family can relate to and learn from their experience.

In one third-generation winemaking family, the founder made it a point to tell his children how he almost went bankrupt multiple times.* “We always had to stay one step ahead so the banks wouldn’t foreclose. Every season, one bad frost could be the difference between whether the business could survive or not.” To him, cash was king – he always made sure to have at least one year’s worth of cash on hand to weather any down cycles. Now, his children and grandchildren know the stories of the boom and bust years as well as he does. They’re proud of the family success but know it wasn’t always glamorous. Each is driven to make their own mark on the business and constantly look for new business opportunities to increase the family’s proverbial lead on the banks.

Establish structures before you need them

Once the entrepreneurial spark is lit, the next step is to grow it and sustain it. Being a part of a business family can be an advantage here. Whether you elect to set aside a financial fund to support family entrepreneurial dreams or just provide access to family resources, it’s critical to establish clear objectives for what support (if any) will be provided. Have a cross-generational dialogue about what you want the purpose of a fund to be, what the ground rules are for access and usage, and how the family and the entrepreneur will interact (e.g., what influence will the family expect to have in the process, when and how much information will be shared). Any type of family support requires clarity up front to maintain fairness and keep the peace down the line.

One family almost came to blows when the “golden son” seemed to get preferential treatment in his new ventures. “Dad was the mastermind behind his business – he fed him the idea, let him use family resources to develop the business on family property – and then my baby brother got all the credit AND all the profits.” Listen, it’s always tough to keep family emotions separate from family business. Setting clear expectations up front will go a long way – who has access to family funding, what other family resources may be provided, whether you need to offer your family members an opportunity to invest, and how ownership will be divvied up. There’s no one way to do it, but a good practice is to have an open, intergenerational dialogue to develop policies together, before they are needed, so that everything is transparent and follows the ground rules described above.

Calibrate your support

Great entrepreneurial families calibrate their support by leveraging external markets to test for viability, by offering benefits beyond money, and by offering boosts without micromanaging. But what does that mean in practice?

Test for viability

Financial support is not always a positive for a young entrepreneur, especially if it’s readily available from family coffers. Indulging every half-baked idea that a budding entrepreneur has will not help him in the long run. Instead, offer him the benefit of the family’s collective wisdom and experience. Ask smart questions and require well thought-out answers. Hold ideas up to a “public standard” to see if they could withstand investors’ scrutiny and attract outside interest. And if appropriate, have them pitch to outside capital – for the experience, if nothing else. If it’s a business idea only a mother could love, then ask the entrepreneur to further develop it before pulling out the family checkbook. If it has merit, then by all means, proceed.

One family prized entrepreneurship so much that every new idea was immediately approved after a quick pitch to the patriarch. He had made his fortune in variety of pursuits ranging from real estate to pharmaceuticals to restaurants. No idea was too wild or aspirational. What mattered most was that his six children follow his footsteps and dream big. Some did, with great success. Others realized that they were just trying to “be an entrepreneur for entrepreneur’s sake,” without having any real passion for the underlying business ideas. After the third yoga / wellness studio / juice bar idea tanked, the family realized they needed to raise the bar and develop real businesses concepts instead of just spinning their wheels. They set up a New Ventures Committee who would formally review and respond to every new business idea (which required a complete business case with market analysis and financial projections to be eligible for submission). The patriarch was on the committee, but so were other trusted family and non-family members who could help test for viability. The approval rate for new ventures dropped significantly, but the success rate of those who made the cut increased substantially.

Offer benefits beyond money

Instead of freely throwing money at an idea, consider what “extra benefits” your family can offer that your rising entrepreneur may not be able to get externally. Money can come from multiple sources. If an idea is good enough, there will be no shortage of financial backers trying to stake a claim. As a business family, you’re in the unique position to offer more than just money. Could your head of strategy act as a mentor as your entrepreneur develops his business plan? Could you offer connections to help with marketing, supply, or distribution? Could you structure financing as a loan so that the entrepreneur doesn’t have to surrender a large chunk of shares?

One fourth generation family in business was surprised when none of their highly entrepreneurial G5 took them up on their offer to invest family money in new ventures. Although they had set aside a dedicated fund, none of the twenty and thirty-year-olds in G5 were interested. One senior generation member lamented, “I just don’t understand Millennials. I would’ve leapt at the opportunity to have someone provide seed money when I was their age.” In contrast, his niece explained, “It’s a generous offer, but if I’m going to give up equity in my idea, I might as well go to Silicon Valley, where they can help me navigate the start-up challenges. At least then I’ll know I’ve made it on my own.” The two perspectives were both valid. Shared openly, they might have found there was an opportunity to work together. A simple loan instead of a typical venture capital structure might have allowed the next generation to preserve their “ownership” of the idea, while allowing the senior generation to contribute meaningfully to the next generation’s aspirations.

Give “boosts” without micromanaging.

One of the biggest challenges for successful entrepreneurs who have built tremendous businesses is how to mentor their next generation without taking over. How do you balance giving the next generation enough guidance so that they can learn from your mistakes – but not too much that they dismiss all advice outright? Done effectively, a transfer of knowledge can carve years off of a new business’s development time and increase its likelihood of success. Done poorly, it can damage family relations if both sides are not clear on what would be valued and well-received.

One set of siblings navigated this by setting boundaries around when they would talk about new business ventures with their uber-successful parent. “We knew Dad wouldn’t be able to resist giving us advice all the time if we let him. We really wanted his guidance, but we also wanted to be in control of our own businesses.” The family agreed to limit shop talk to their semi-annual camping trips, which became highly anticipated by both generations. Each sibling was eager for special time with each other and their parent. They brought only big issues forward for input. It was enough to give their parent a snapshot of what was happening so that he could give them prized tips, but not so much that they couldn’t stumble and learn on their own.

Give space

And finally, business families provide space to their next generation by supporting those who want to flourish on their own, by giving creative space to those who choose to work in the business, and most importantly, by allowing them to fail.

Support aspiring entrepreneurs who want to flourish on their own

Don’t be afraid to let promising talent venture outside the family business. For one, they could learn skills and lessons on the outside that they can later apply within the legacy business – either in an operational role, as a board director, or as an active shareholder. And two, the potential upside for a revolutionary new idea or business (and the personal satisfaction and fulfillment your son/daughter will have doing it) is limitless. Consider the next generation striking out on their own as a sign that you have succeeded in instilling entrepreneurial drive.

When one second-generation patriarch laid down his expectations for his son (“Your grandfather was in the radio business, I was in the radio business, therefore, you will be in the radio business!”), you can imagine the reaction he received. Beyond objections about the future of the industry, the radio business was simply not G3’s interest or passion. When his father grumbled that he had experienced the same pressure from his father, his son asked, “Why? What did you want to do back then?” This led to a breakthrough talk between father and son that had both realizing they weren’t so different after all. Entrepreneurship – the drive to take risks and succeed – was in their blood. And each had to choose his own path. The father did so in the legacy business by growing it from a few local stations to syndicated shows and expanded presence. The son applied the entrepreneurial spirit in a different media forum, streaming. In time, the father became the biggest champion for his son’s new business venture.

Allow an intrapreneur breathing room

Some of the best visionaries we know made their mark within an existing family business. Because they have the benefit of learning the lessons from the generation before them, they’re able to capitalize on that advantage by applying it to evolving market trends – putting the business at the forefront of a new market. The Hermès family innovated multiple times, expanding their business lines from horse saddles in the 1800s, to silk scarves and neckties in the 1930s, to leather belts and the infamous Birkin bag in the 1980s. Each generation re-invented the business to grow and maintain its standing in the global luxury goods market. Sixth-generation artistic director, Pierre-Alexis Dumas, once said, “My job is to keep the strong creativity of Hermès alive. To nourish the rigor and the vision to make these values vibrate.” Notably, it was not to ensure the family business kept making horse saddles, generation after generation.

If you have a promising intrapreneur, make sure to give them room to test out their ideas, to learn, and to grow – even if it’s not exactly how you would do it personally. Next generation intrapreneurs are often reacting to different market cues than what worked in prior generations. Stoke their talent and interests. It will ultimately be a boon to the family business if the next generation are engaged, driven, hungry, and enabled to create something of their own.

One patriarch dominated his niche in the entertainment industry for decades, but viewership had recently dropped as his core demographic aged up. The next generation leader, identifying a trend in the market to go behind the scenes, created a gritty, reality TV version of the core product, and captured a whole new demographic. “I couldn’t do what my dad did – it would have felt like I was playing a part instead of being me. I loved the family business, but I had to put my own spin on things.” The family was able to keep family talent under the family business umbrella, all because they allowed room to innovate and didn’t force the next gen into her father’s shoes.

Allow them to fail

Failure is only a tragedy if it’s a destination rather than a step along the journey. As tempting as it may be to have a safety net always in place, it can be more of a hindrance to individual development and entrepreneurial drive in the long-term than a benefit. Allow your next generation the space to take risks, to fall down, to fail. And if failure does occur, encourage them to learn from their mistakes, recover, and chart a new course.

For another seasoned entrepreneur we know, the idea of failure was as prized as the idea of success. He put $8M in a collective fund for his six children to invest in entrepreneurial pursuits with no rules or strings – just “live ammo.” The next generation was astonished by the degree of trust he had in them. They promptly divvied up the fund into equal $1M shares, one for each of the six, and set aside the remaining $2M for a joint venture later. Absent any structure or guidance, each stumbled in their own entrepreneurial attempt, all of which differed wildly (space rockets, surgical robots, a brew pub, and commercial real estate, to name a few). When they sheepishly reported back the loss of the first $6M to their father, instead of getting mad, he hooted and asked them what they learned in the process. Once they peeled apart the lessons they learned individually, their combined experience led them to invest the final $2M in an innovative medical device, which became a sensational success. They all agreed, “That first $6M was a spectacular failure, but it was also the best investment we ever made in ourselves.”

Conclusion

Each of these pillars highlight how important it is to find the balance between offering wisdom and dictating how something must be done so that you stoke the next generation’s entrepreneurial fire. No matter how great the founding idea or business is, it cannot last indefinitely. Business families need fresh infusions of entrepreneurial drive and passion to adapt to changing environments and continue to thrive. And individuals need to test their own mettle and be driven to succeed on their own for their own sense of self-worth.

Remember, nothing about entrepreneurship is straightforward. There is no prescribed formula or established way for developing something revolutionary. Your own family business legend will probably attest to that. While as in our example above, your road to success may be a winding path, we hope these principles help you to always keep your north star (to cultivate entrepreneurial drive) in sight.

*Some details have been disguised to protect confidentiality.

** Sam Bruehl contributed to a previous version of this article.