It’s a family affair

When you think of a family business, your mind likely goes to one of two places: You might think of your local corner store that’s been there forever, with the family that’s always around, quietly and consistently serving your community. Or you might think of the embattled Roy family of HBO’s Succession, each member scheming over their perceived dynastic right to run a multibillion-dollar global conglomerate.

But family businesses comprise so much more than these extremes. They come in all sizes, thrive in virtually every industry and demonstrate all degrees of ambition. If there is a common thread, it’s this: Every family business is deeply affected by how the family behind it functions.

This is where things get really interesting for Sarah Burrows, assistant professor of entrepreneurship. Her research draws on a background in psychology to better understand how what happens in the living room affects what happens in the boardroom. Here, she talks with Smith Magazine contributor Deborah Aarts.

Deborah Aarts: What interests you most about family businesses?

Sarah Burrows: The underlying theme of my research ties what goes on in the family and the dynamics among family members to the next generation: how willing they are to be an entrepreneur, how they approach the family business, and how all that influences the strategic management of the firm. Essentially, I’m very interested in understanding how what goes on in the family influences the entrepreneurial and business side of things.

Your dissertation looked at the career paths younger generations of entrepreneurial families chose. What surprised you?

There has been a lot of research to prove that, if you are a kid that comes from an entrepreneurial family, you’re significantly more likely to become an entrepreneur. One of my favourite studies is by Stockholm University professor Matthew Lindquist and colleagues from 2015. They had access to Swedish adoption data, including information about the careers of adopted kids, of their biological parents and of their adoptive parents. They found that one-third of intergenerational transmission of entrepreneurship was attributable to biology — in other words, nature. But two-thirds, twice as much, was attributable to upbringing and the work of adoptive parents — in other words, nurture.

I wanted to understand: What’s going on in these families that makes their kids so likely to follow their parents’ paths? So, my dissertation involved interviewing the parents and children of enterprising families to better understand how that’s nurtured and why one kid might choose it when another rejects it.

It can vary a great deal. For example, often the firstborn child would reject entrepreneurship because they were the ones who saw kind of the grittiest and most brutal phases of the entrepreneurship process — they might have seen Mom and Dad hustling, not having a life, and not being there, in service of building the business. Whereas their younger siblings who came later were more likely to reap the benefits and were therefore more willing to follow in their parents’ footsteps. They had a very different experience, even in the same home.

When people learn what you do, how fast do they start talking about Succession?

Pretty quickly! Here’s one thing I really like about Succession: People often have preconceived notions that family-owned businesses are small and medium- sized enterprises. But the term “family business” can also apply to publicly held, multinational corporations. So, family businesses really are everywhere.

Why do you think the succession plot lines of Succession struck such a chord?

Succession is one of, if not the, biggest challenge for all family businesses. If you’re a company on the scale of a Rogers or a Walmart, with a board of directors and other stakeholders and components at play, it’s more complicated. But with almost all family businesses, there’s intent and desire to pass things on to the next generation, and how people handle that is incredibly important.

The number of family-owned businesses that successfully transfer from first to second generation is about 30 per cent. That means that 70 per cent are not making it. And as for businesses that successfully transfer from the second to the third generation? Only 12 per cent get there.

Why is succession so tricky?

Because mixing family and business is messy. We have to remember that years, often decades, of family history are influencing the outcome as much as what’s happening in the business. The success of the succession, if you’ll pardon the wordplay, is very much influenced by the family dynamics.

Sometimes a succession plan fails because the subsequent generations don’t have a desire to take it over. Sometimes it’s because the predecessor doesn’t want to let go of the reins because the business is in many ways like a child to them. In other cases the research suggests it’s because of breakdowns in trust and issues with communication.

People think of succession as a single action that takes place when the baton is passed. But the most successful multi-generational family businesses I speak with see succession as a continuous process.

What does that look like?

The family starts having conversations about the transition well before the next gen takes over. They don’t wait until the kid is 22 years old to try to get them interested. They bring the kid to the office at a young age, maybe give them an odd job, to get them involved with the employees and with other important stakeholders. That sort of socialization helps not only form tacit knowledge of the business but also creates a sense of attachment and a kind of emotional connection to the firm.

In addition, usually the incoming generation will go out and not only get a relevant education but also work elsewhere in the industry for three to five years. And when they come back, they have to kind of work their way up. Sometimes you’ll see a non-family employee step in — someone who has been around in a senior leadership position with the family CEO or founder for a long time — to help guide the firm during the transition.

Why does it matter so much that family businesses get it right?

Because family businesses are so prevalent. Today, it’s estimated that 87 per cent of the businesses in the world are family-owned. They are a part of our communities, they contribute to our GDP, and they are what keep the economy going in many ways.

So, despite the very messiness that can come from blending families and business, the majority of business owners worldwide are choosing to do so. It is incredibly rewarding to them, and it’s incredibly important to our economy. That’s why we need to understand how they function.