From family business to entrepreneurial family

It is estimated that only three out of ten newly founded family businesses are passed on to the second generation. The percentage decreases as the generation progresses. As long as the company founder is active or alive, the survival of the company is more or less guaranteed, but what next?

As family ties expand with the incorporation of new generations, it is normal for conflicts between the owning family to arise and escalate to the point where the relationship becomes untenable. There are four alternatives at this point: sell the business to a third party; reconcentration, i.e. one part of the family sells its share to the other party who decides to remain in power; the progressive destruction of the company and family, with very high emotional distress and in most cases irreversible or; most recently in order to grow from a family business to an entrepreneurial family.

for Ferran Gonzalez, Corporate governance advisor and partner of the firm Cremaden & Calvo-Sotelo, the fourth option of all given, is the most beautiful and desirable. The problem is that there is not always time to make the leap from family business to entrepreneurial family, as this expert believes that the second generation has the last chance to make the transition.

The differences

Before proceeding on the subject, it is useful to clarify what, according to González, are some of the main differences that set them apart:

management and ownership: While in the family business ownership and management, i.e. control and decision-making, is the responsibility of one or more family groups, regardless of whether they work in the company or not, in the entrepreneurial family the control bodies are also institutionalized.

The consequence in the first case is that management, ownership and family are mixed up in the same framework, transferring the problems from one side to the other, which does not happen in a family of entrepreneurs, where the governing bodies the people will be part of it, their weight , the interaction between the company and the family…

The role of the company: In a family business model, the latter drives business decisions. In other words, decisions are made before the organization to protect the family. In the entrepreneurial family, values ​​are reversed and it is the company that acts as the glue of the family once they have decided to adhere to a set of principles and values. The company is understood more as a generator of social benefits than a mere generator of wealth and personal employment.

The vision: Although there are very long-lived family businesses that have accumulated successes over many years, the truth is that this condition was not in the DNA of the organization. By the way, these are quite rare cases of entrepreneurs who implemented an original project that worked and which subsequent generations later knew how to revalidate. However, the vision of an entrepreneurial family is long-term from the start.

To do this, they lay down the “rules of the game” from the outset with the vision that one day the company might even go beyond the family. It is a cultural theme that promotes best practices for the company in which all family members, inside or outside the company, share the same values.

The perfect moment to start an entrepreneurial family

According to Ferrán González, the vision of creating an entrepreneurial family would correspond to that of the founder. The entrepreneur would be the perfect person to set the protocol by which the company will be governed from the start. The problem is that few do, as they are usually absorbed by day-to-day work.

“They say that entrepreneurs are visionaries, but the truth is that they start out with a very idealized vision of the company. You start alone or with a partner, but you no longer have to be accountable or explain the decisions made. The last thing on an entrepreneur’s mind when starting a project is that one day their children or grandchildren will be fighting over ownership of the company. But often the future comes and when the wound starts bleeding, it’s sometimes too late to heal,” says the expert.

This possibility of wound healing does not exist until the first generation is reached, because if it is extended over time, the infection spreads in an incurable way. That’s why González recommends that entrepreneurs who are starting a business in order to continue it take some time to think about how they want to shape their development in terms of management and ownership. To do this, you must arm yourself with two main tools: realism, so as not to overly idealize family relationships; and humility to seek expert advice in establishing and defining corporate governance bodies.

corporate governance

There are six factors that González believes must be considered when designing a good corporate governance board. The first two are more in the field of design. They correspond to the strategic plan, that is, where you want your company to be in 10, 20, 30… years; and the nature of the property, ie whether there is an intention to retain 100% control of it or whether it is proposed to allow access, for example, to potential investors.

In addition to these two main factors, there are four others that refine the strategy:

Gates for which government agencies are created, the role and weight of each individual within them.

-People who will belong to the Board of Directors

-The method apply to make meetings and councils work well

-Guidesomething fundamental in both the CEO and the members of the board of directors

The advantages

Although the main topic of this article is the difference between a family business and a family of entrepreneurs, González understands that corporate governance concerns any business project that is born with the vocation to grow and endure over time. Especially when you compare the positive effect that can be achieved with this approach with the disastrous consequences that not doing so can have.

Designing good corporate governance not only guarantees the development of the company free from shocks and family strife, but also always attracts capital, thereby reducing investment risk. Customers, building trust and talent.

Family business, corporate governance