Family businesses that someday evolve into family offices often find their genesis in entrepreneurship. As these businesses grow from the startup phase and their life cycles unfold, more formal structures and processes become necessary — these help to ensure unhindered growth and harmonious succession.
Director of the Family Business and Entrepreneurship Program at Elizabethtown College, Pennsylvania, Petru Sandu's "
Framework of family business professionalization," demonstrates the effects professionalization can have on the family business.
The framework details how an organization's evolution is driven by the need to adapt to the challenges that present themselves in each phase of its life cycle. It also shows that throughout this process, professionalization is a vital mechanism in the growth, continuity and renewal of the family business.
Launch and survival stages
Family businesses are, for the most part, founded on entrepreneurial models. This means that they're often built on the founders' abilities to offer a product or service rather than their management skills.
According to Sandu, leadership development both within the family and among non-family members is critical during the initial stages of the business life cycle to ensure survival and transition into the growth phase.
In the early stages, the family business also requires a degree of formalization and professionalization of its financial processes. Informal advisers often play more significant roles at this juncture.
As the business prepares for growth, the development of professional relationships with key external stakeholders becomes a priority. External sources of expertise may be sought to professionalize various functions. Management development remains vital, as does the delegation of authority.
The growth stage
With organizational growth, the professionalization of structures, processes and systems intensifies. Growth brings with it new levels of competition as companies leave niche markets and enter larger, more competitive arenas. Identifying how to compete in these markets requires professional strategic planning and professional management that may encompass both family and non-family members. These disciplines become crucial as the organization heads toward the maturity-renewal stage.
Talent, both within the family and outside of it remains an integral part of the organization's success. As formal job descriptions, hiring, performance evaluations, promotion policies and compensation may emerge as sources of conflict between family members as well as non-family members at this stage, implementing professional human resource practices is vital.
Maturity-renewal
As the success and growth trajectory of family businesses continue, they eventually reach a stage in their lifecycle where the key stakeholders face a strategic choice between further growth efforts and maturity. If growth is not prioritized, pursued or achieved, these businesses remain in the maturity phase. This brings with it a heightened risk of decline, particularly if these organizations are not agile enough to adapt to the ever-changing business environment.
According to Sandu, "Research indicates that most family businesses experience delayed recognition of the necessity to reinvent themselves as they endeavor to preserve their
socio-emotional wealth."
This can be a costly oversight. Primarily because at this stage of the business life cycle, continuity often depends on organizations reinventing themselves and investing in new technologies and emerging markets. It can, however, be avoided by focusing on two integral factors.
The first involves strategically cultivating a professional culture. This facilitates strategic insight and continual evaluation. Questions like where the business is, where it is going and what is required to get there are continually asked and answered.
Answering these questions leads to the formulation of clearly defined business objectives which can then be communicated throughout the organization, along with detailed directives for each function.
The second, by adopting an agile approach that allows organizational talent to strategically address these questions and function optimally within a structurally flexible framework. This facilitates the precise and rapid communication of shifts in intents and purposes to various stakeholders as the company continues to grow. It also enables those involved to rapidly adapt to manage any threats or take advantage of opportunities that arise in meaningful ways.
Family business to family office
It is often by the maturity stage that family business interests, along with family members' portfolios grow and diversify. The company may be sold, or it may expand as it enters new markets, evolving from a family business into a family office.
Within the family office, formal structures and higher degrees of professionalization are required. These are necessary to not only manage the core family business but also the family's wealth and everything that goes with it.
Professionalize with Purpose
It is evident that professionalization fosters growth, opportunity and success within family businesses and becomes increasingly necessary as the company moves through the various stages of its life cycle. It is, however, essential to be aware of the fact that professionalization beyond certain levels can lead to bureaucracy wherein formal standards dominate.
This paralyzes the organization's agility. It can also impact family business values and practices, ultimately leading to the decline of the company.
The challenge facing family business members is to implement professionalization without affecting the business's entrepreneurial values. Doing so requires a clear definition of purpose, values and objectives. Maintaining agility should be a focus when professionalization efforts are made. This will allow the organization to continue to take advantage of opportunities, reinvent itself and enjoy continued growth.
This post originally appeared here.
