Will the next founders of family firms please stand up?

• The entrepreneurial DNA of family businesses must be rekindled if they want to continue to grow. 
• Succession can be less about inheriting a specific business and more about inheriting an entrepreneurial mindset.
• Some family enterprises may prefer to invest in ventures through family office vehicles –regeneration by proxy.

Family business is big business. By some estimates, companies including the likes of Walmart, LVMH and Reliance Industries account for up to 80% of global GDP and 60% of global employment. Yet the narrative around these market movers often revolves narrowly around the themes of succession and legacy. 

The reason is simple: Despite their size and dominance, family firms are not immune to the disruptions of our age. Some adapt and thrive; others sputter and decline. Take digitalisation for example. Although often perceived as a threat by incumbent leadership, digitalisation can also be a catalyst for growth and innovation.

But having a catalyst is not enough. What family enterprises need to fuel such growth and innovation is the very entrepreneurial DNA that spurred their founders. In many firms, this DNA is perhaps now stifled by layers of tradition and bureaucracy. It needs to be rekindled.

Rekindling the founder’s spirit in the age of disruption

There’s a reason succession dominates the family business discourse.

Choosing and grooming the next-generation leader from within the family is such a fraught process that some companies, like Spanish cosmetics group Puig, have all but given up. Handing the reins to able and willing outsiders is easier.

But succession can manifest in different forms. It is not just about passing the family jewels to the next generation; it is also about equipping them with the entrepreneurial tools and mindset that empowers them to create their own success and contribute to the family legacy. Teach them how to fish, to paraphrase the saying, instead of giving them fish.

In a family business context, this can be achieved in at least three ways: starting new businesses; transforming existing ones; or becoming active investors in the next generation of startups. 

Starting new businesses

In many cases, the next generation of family members may be reluctant to take over the reins of the business. What was new and exciting decades ago is likely to feel staid or archaic to millennials and Gen Zs. For instance, they may find the prospect of inheriting a plantation or factory unappealing, preferring instead to pursue digital ventures or ESG-related start-ups.

Family businesses can play a pivotal role in fostering this entrepreneurial spirit by providing resources, mentorship and financial support to their younger members. Succession, then, becomes less about inheriting a specific business and more about inheriting an entrepreneurial mindset.

Anthony Tan, co-founder of Grab, Southeast Asia’s leading superapp, is a textbook example of an entrepreneur hitting the big league by leveraging family resources.

Tan’s grandfather was the founder of Tan Chong Motor Holdings Berhad, a prominent automobile distributor in Malaysia. But instead of joining the family business, Tan co-founded a ride-hailing app while studying at Harvard Business School.

Tan’s family was initially sceptical about his venture. However, his mother, Khor Swee Wah, played a pivotal role in its early success. Not only did the well-connected businesswoman invest millions in her son’s start-up, she also introduced Tan to influential business and political figures in Malaysia, helping him gain credibility and secure crucial partnerships for both funding and regulatory approval.

With his mother’s support, coupled with his own tenacity and nose for innovation, Tan steered Grab through initial roadblocks, including fierce competition and regulatory hurdles. Soon the company began expanding rapidly, venturing into new markets across Southeast Asia and diversifying its services beyond ride-hailing to include food delivery, financial and other services used by millions every day.

Transforming existing businesses

Renewing the spirit of entrepreneurship is not just about starting new businesses. It is also about reimagining and transforming existing family enterprises in the face of external challenges.

Take Lego, Europe’s largest toymaker. Facing declining sales in the early 2000s, Kjeld Kirk Kristiansen, the grandson of the founder, spearheaded a significant venture into digital entertainment like video games as well as educational products. Now led by Kjeld’s son Thomas, the company has continued to reinvent itself by franchising hugely popular Hollywood movies and taking ambitious steps towards environmental sustainability.

Championing startups

Rather than founding and running new businesses, family enterprises may prefer to invest in promising ventures through family office vehicles. Call it regeneration by proxy.

The Mulliez family of France is well-known for this. Through their family office, Association Familiale Mulliez (AFM) and venture capital vehicle Creadev, the family invests in businesses that align with their existing interests in food, sustainable consumption and healthcare. Creadev typically invests in innovative start-ups from early to growth stage. The ventures stay relatively independent while benefiting from the Mulliez family’s expertise and resources.

The family now owns or is linked to some 130 brands that touch the everyday lives of consumers in France and many countries around the world, from supermarket chain Auchan and sports retailer Decathlon to home improvement store Leroy Merlin.

The glue holding it all together

Whether it’s starting/backing new ventures or transforming the existing business, without sound governance, cracks can quickly emerge in family enterprises. For these firms straddle two separate but overlapping spheres: the family and the business. In the family domain, harmony, fairness and loyalty predominate; in the business one, efficiency and competence reign. Reconciling and maintaining a balance between the two spheres requires constant, vigilant management.

Balagopal Vissa is a Professor of Entrepreneurship and Family Enterprise and the André and Rosalie Hoffmann Chaired Professor of Family Enterprise at INSEAD. His research focuses on the people side of entrepreneurship, such as structuring effective venture teams, building entrepreneurial networks and enhancing corporate governance – particularly in emerging economies. This is an updated version of an article that first appeared here.