Dr. Jaffe, of Wise Counsel Research, uses the term ‘Generative Family’ to describe those families who have weathered the storms and navigated the challenges to mark multiple generations of continuous ownership. He posits, though most operations commonly follow the “shirtsleeves to shirtsleeves” doctrine, there are a few that represent what is possible when a family commits to clear purpose, common goals, and right effort.
Tested in the “crucible of experience” is how Dr. Dennis T. Jaffe summarizes the evolutions a family business. Whether it’s a tractor dealership, implement manufacturer, or farming operation, all go through challenges and trials on the path to multi-generational success.
In “Good Fortune: Building a Hundred Year Family Enterprise” Dr. Jaffe expounds on a number of lessons learned in his research of family businesses that have survived at least three generations or achieved over 100 years in operation. In the study he writes, “These generative families offer lessons to others, lessons tested in the crucible of experience.” Included among those lessons are:
- Each of the families created a successful business first. Then, and only then did they decide to become more family focused. As Jaffe points out, the family part is much more difficult and time consuming than business side. Early in the planning process families are often surprised when they realize business must come before family.
- Even though these families accumulated inordinate financial resources, they value the accumulation of “human capital” (skills, capabilities, and learning experiences) more with each generation. They focus on a legacy of positive impacts with their respective communities and the people around them more than monetary returns on investment.
- Over time and with experience, each has learned that prosperity is the measured in the human and social capital they’ve accumulated. With each passing generation, the families are focusing more on qualitative rather than quantitative activities, as in striving for a better life rather than more money.
- Aligned with the observation above, “values-based and socially responsible entities” become the focus of these families’ vast financial and human capital. They tend to focus more on making a positive difference in their respective communities than generating yet more money in the business.
- Like a living organism, these families value and aspire to continual improvement, by adapting to a dynamic environment, innovating as a matter of growth, and changing as opportunities come up. They respect their heritage and share a legacy of endurance in both business and family.
- The family has embraced an ownership mentality and each member accepts the mantle of responsibility. Though each business represented in the study started as a hands-on affair, the families have adopted a steward’s mindset.
Today, some members may engage in the operation on a day-to-day basis, following in the footsteps of an ancestor and working to make the business better. Still others will represent the owners group, shepherding financial decisions and guiding management personnel to make sure the operation remains relevant. And, all act responsibly to ensure the business and family unite around the values their share.
Each of these lessons contains tips for any family business, regardless of size, industry, or tenure. If good is the enemy of great, perfection is the foe of progress. None of these families realized success or reached these heights without trial under pressure. They’ve each been put to the test in the “crucible of experience” and learned to prevail, apparently strengthened by having gone through the process. In the report, Dr. Jaffe’s points to an evolutionary progression of characteristics successive generations of the family operation will assume, including from:
Generation 1 to 2: During this phase, the operation transitions from parent to sibling ownership and control. Members of the same family commit to work together and learn to communicate while maintaining family and business relationships.
Generation 2 to 3: This phase might be marked as the cousin era, in which separate and sometimes dissimilar branches of the family work together in the business. Though members may be blood relations, they come from diverse backgrounds; to last they must learn to appreciate those differences.
Generation 3 to 4: Marked as a maturation phase, the founding generations are not usually part of the picture, so next generations are learning to work together and focus on a shared mission or common goals. The business may still employ a smattering of family, however most employees are from outside the family and the business represents employment.
Beyond Generation 4: The owner group phase; family members represent a consortium of owners represented by shares and seats on a board. The era of family management is passing as members follow their passions and focus on interests particular to their generation and the opportunities family business success provides.