Embrace or escape from legacy: how to build a (sustainable) family business

Building upon a family legacy can be a delicate process. In family enterprises, when the time comes to pass the torch to the next generation, tensions tend to come to the surface. Between innovation and tradition, change and continuity, the path forward is often bumpy.

This transition phase can strain family ties, but the business can also suffer. This was the case of the Ford family. The motor company, Ford, founded by Henry Ford in 1903, is known worldwide for its success in creating a new mass-producing technique that revolutionised the industrial sector. But what people don't know is that when his son Edsel took the helm in 1918, he wanted to take the family legacy in a new direction. He sought to replace the Model T, which he felt was outdated, with a more modern design. However, his father was not happy with this decision and undermined Edsel every step of the way. Torn apart by this power struggle, the company was on the brink of collapse in the 40s, just before the next generation took over and saved the day.

This cautionary tale should not be consigned to the history books. Even today, the struggle between generations is real. So, what are the best steps to take when building upon the success of a family business?

At the centre of it all lies the perception of family identity. While a strong sense of identity is key, the corporate vision of a family business often differs between generations. Younger generations seek purpose, adding their own touch and creating a new vision for the business: our analysis of 94 family businesses (2) shows that younger generations tend to stray further from the family story. While older generations identify more closely with the family identity and have difficulty taking a step back. Both approaches focus on the family story behind the business, but is it better to embrace the founder story or ditch it?

Make the most of your history

One way to embrace it is by seeking out role models within the family. This is the approach of one third-generation CEO, Fredo Arias-King, head of Mexican pine resin producer Pinosa Group. While lamenting the disappearance of Mexico’s ancient pine forests, he stumbled onto the published speeches of his grandfather, company founder José Antonio Arias Álvarez, who had preached environmental stewardship. He then knew that he was heading in the right direction when he decided to create Ejido Verde, a nonprofit that would later become a for-profit enterprise making no-interest loans available to the community, with pine resin as the means of repayment. By embracing his family's core identity and staying true to its values, he managed to build upon the family’s business legacy.

Another way to embrace your family history is by leveraging it as a competitive advantage, which is exactly what the Tse family did. Lily and her daughter Mabel emigrated to Manchester in the 50s and built one of Britain’s first Chinese restaurants. But, as victims of racism and Chinese gangs, the family business went bankrupt. Years later, the next generation decided to establish their own restaurant. But it was only when they published a best-selling memoir about their grandmother that the endeavour became a true success. With this narrative, they managed to connect their generation to  their grandmother’s, using their family heritage to their advantage. On the one hand, they gained acceptance outside of their own ethnic community, and on the other, they created a sense of trust and quality due to the historical nature of their founder’s backstory.

These two examples perfectly depict how the next generation managed to embrace their history, making it their own by leveraging or enhancing it. By doing this, they truly created their new purpose, and thus established a sustainable family business.

Dusting the family cupboards

But sometimes, the path is not so straightforward and can take a drastic turn. The new generation can choose to escape from the family’s identity and history to continue building the family’s business.

Moving away from your family history can, for example, mean forging a new identity beyond the founder-entrepreneur. This is what happened to the grandchildren of one of America’s richest entrepreneurs who, they had learned, was a gifted yet deeply troubled man battling mental illness. This discovery led the fourth generation of the family business to rethink their roles in the family enterprise. They shifted their vision to come forward with a new one, nudging the company’s private equity portfolio toward impact investing and helping steer its grant creation toward a newer vision. By setting themselves free of their founder grandfather’s identity, they managed to create a new purpose making them both responsible owners and stewards of their ancestor’s business.

Liberation from your family identity can even go further. Many families have skeletons in their closets and reckoning with past wrongs can be an effective way of forging a new path. This was the lesson for the Reimann family, one of Germany’s richest families and owners of conglomerate JAB Holding Company. In 2019, the grandchildren of Albert Reimann Jr commissioned research on the company exposing a dark secret: their father and paternal grandfather were ardent Nazis who abused forced labourers. The younger generation couldn’t just forget about that ghastly part of their heritage. Instead, they insisted on paying compensation to former forced labourers and their families. They then went even further by entirely refocusing their family foundation on combating antisemitism and strengthening democratic institutions. This is a perfect example of an attempt by the next generation to use lessons from their history to create a new purpose and vision for the business.

Building a family business that lasts is not as simple as perpetuating a vision and following the  footsteps of the founding generation. It is a continuous dialogue between generations to create a collective identity and renewed history. Only by doing this will the family be able to create purpose, building a sustainable path forward.

The original long version of this article, "How to Build Upon the Legacy of Your Family Business — and Make It Your Own" can be found on HBR.org

Photo by Mikita Yo on Unsplash

References

(1) How to Build Upon the Legacy of Your Family Business — and Make It Your Own, by John Seaman, Arielle Gorin, and Fabian Bernhard. HBR.org, June 9, 2023.

(2) Bernhard, F., & Labaki, R. (2021). Moral Emotions in Family Businesses: Exploring Vicarious Guilt of the Next Generation. Family Business Review, 34(2), 193-212. https://doi.org/10.1177/0894486520941944