Family Office – Trans-Generational Entrepeneurship
Trans-generational entrepreneurship, or interpreneurship, a term coined over 20 years ago by Ernesto J. poza, is nothing more than entrepreneurial activity across generations driven by new products, product line extensions, new markets for existing products, joint ventures, or private equity and partnership investments in new ventures. The McIlhenny family, discussed earlier, engaged in interpreneurship when they decided, in the fourth generation, to extend their product line by bringing out new sauces and condiments for Cajun cooking.
Business families engage in trans-generational entrepreneurship through their family council or family office out of recognition that each generation has to bring its own vision for the future or risk economic decline and the loss of the family’s spirit of enterprise. Without a sense of opportunity, families, like societies, become fertile ground for zero-sum or win-lose dynamics.
Family enterprises today seldom need a next generation that just serves as a placeholder. More often than not, family businesses need a younger generation that wants to be entrepreneurial in some way, whether as a company entrepreneur internal to the existing business, or as a stand-alone entrepreneur launching her/his own venture. And since children are seldom carbon copies of their parents, it stands to reason that many next generation members with an entrepreneurial orientation might like to launch a business with little if any relation to the original family business.
What enterprising families can do to nurture this very healthy development is design an application and approval process through which next generation members can get their new venture funded by the family bank.
Below are five steps that leading edge families are following to make trans-generational entrepreneurship a reality.
- The family develops a vision for the new business on the board and in family council deliberations.
- The family council assigns the next generation member as strategic planning quarterback.
- The interpreneur develops, writes, and presents a normal business plan for the new venture.
- The family’s venture review board evaluates the business plan (see details below).
- If approved, the family bank or a family venture capital company funds the venture. The next generation member becomes president of the new venture, a job that allows for plenty of feedback and learning from the responsibility for profit and loss.
The venture review board usually comprises between three and five members (an odd number is better). Board membership should preferably include two to four people who know the industry, the competitors and/or key disciplines like marketing, finance and technology, and one or two family members to ensure that the family’s interests are well represented in all deliberations. The venture review board, after reviewing the venture’s business plan, makes a recommendation to the family council, the family office, or the holding company board to fund the new venture, or not, and under what terms. Funding
may be in the form of an interest-bearing loan or in exchange for stock in the venture, with a provision for the interpreneur to buy back the stock on an installment basis. If financing is in the form of equity, best practice is to ensure that the new venture leader retains majority control (e.g., 51% or more of the stock) in order to align the incentives in favor of the risk-taking family member.
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