Success as a Family Business: The Generative Family Enterprise

Prosperous generative family enterprises are unbelievable generators of wealth. But, that is not all.

More importantly, in a generative family enterprise, the owning family can express its values, passions, and beliefs as it does business. Whether it is through the quality of their goods and services, relationships with employees, community involvement, or philanthropy, family values can be understood by all.

But only a small fraction of the families that create businesses are able to sustain them for more than a single generation. The few surviving enterprises are huge and have a powerful impact on the community, global commerce, and the environment. They also have a strong influence on family members and all those touched by the family’s various enterprises.

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 that though most operations commonly follow the “shirtsleeves to shirtsleeves” doctrine, a few represent what is possible when a family commits to a clear purpose, common goals, and right effort.

Tested in the “crucible of experience” is how Dr. Dennis T. Jaffe summarizes the evolutions of 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 some 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.” 

What lessons can we learn from generative family enterprise lasting three-generation plus? 

  • 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 the 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. These generative family enterprises 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 measured in the human and social capital they’ve accumulated. With each passing generation, the families focus more on qualitative rather than quantitative activities to strive 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 arise. 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, in a generative family enterprise, some members may engage in the operation daily, 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 the 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. Instead, 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 points to an evolutionary progression of characteristics successive generations of the family operation will assume.

Here we detail these aspects through generation four and beyond.

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 known as the cousin era. Different 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: By generations 3 and 4, the founding generations are not usually part of the picture. Typically this is a maturation phase where next generations learn 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 the 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.

the owning family can express its values, passions, and beliefs as it does business. Whether it is through the quality of their goods and services, relationships with employees, community involvement, or philanthropy, family values can be understood by all.

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 that though most operations commonly follow the “shirtsleeves to shirtsleeves” doctrine, a few represent what is possible when a family commits to a clear purpose, common goals, and right effort.

Tested in the “crucible of experience” is how Dr. Dennis T. Jaffe summarizes the evolutions of 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 some 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.” 

What lessons can we learn from family businesses lasting three generations plus? 

  • 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 the 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. These generative family enterprises 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 measured in the human and social capital they’ve accumulated. With each passing generation, the families focus more on qualitative rather than quantitative activities to strive 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 arise. 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, in a generative family enterprise, some members may engage in the operation daily, 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 generative family enterprise, regardless of size, industry, or tenure. If the 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. Instead, 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 points to an evolutionary progression of characteristics successive generations of the family operation will assume.

Here we detail these aspects through generation four and beyond of a generative family enterprise.

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 known as the cousin era. Different 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: By generations 3 and 4, the founding generations are not usually part of the picture. Typically this is a maturation phase where the next generations learn 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 the 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.