Innovate or die

The challenges of innovation in a family business

Selfridges department store in London.

Harry Selfridge, founder of the iconic Selfridges department store in London, was born in Ripon, Wisconsin. He cut his teeth in the retail market by working for Marshall Field’s in Chicago. He even built a mansion on Lake Geneva during those years.

But on a trip to London, he saw an opportunity and broke the mold by creating an American-style department store named after him. It was an immense success.

Selfridges department store in London.
Selfridges department store in London.

He brought his son Gordon into the business and gave him major responsibilities in the company. Gordon had innovative ideas and objected to some of his father’s business strategies. He learned quickly his ideas were ignored.

There was added drama because his father developed a gambling problem and eventually took up with some very young starlets, to the embarrassment of the family, the board of directors and of course, Gordon himself.

This story is so riveting that PBS did an entire Masterpiece special on it.

Family businesses can be a blessing or a curse to the children of the owners.

So how do succeeding generations drive innovation in a corporation that has been wedded to the past and the genius of the founder?

The April 2015 issue of the Harvard Business Review included an article titled “Leadership Lessons from Great Family Businesses.” In it, the authors point out U.S. family businesses “employ 60 percent of workers and are responsible for 78 percent of new jobs. These are not just mom and pop shops either. In one-third of the S&P 500 companies, family members own a significant share of the equity and can influence key decisions, including the election of the chairman.”

Owners who create a business can be brilliant, talented and hard-working entrepreneurs. But they can also be guilty of conformational bias or may also have habits that make them resistant to the ideas of a new generation taking the business in new directions.

Harry Selfridge
Harry Selfridge

So what advice do family owners have for others in their shoes?

Cynthia LaConte, chief executive officer of Milwaukee-based Dohmen Co., said having the opportunity to start her own business under the umbrella of the corporate entity was invaluable. It gave her a chance to test her chops as an entrepreneur on her own terms, outside of the shadow of the family business. It also gave the family and the board a chance to measure performance and leadership capability in a neutral and objective way.

Steve Jacobus of Jacobus Co. discovered the importance of having all family members align around a shared vision and mission statement to ensure everyone is on the same page. He feels it is very helpful to have a board of advisors that can mentor younger family members and give objective review of innovation strategies.

The Boldt Co. took a different approach. Bob DeKoch, the president for the past 18 years, along with Tom Boldt, the CEO, and Oscar Boldt, the chairman, helped grow the Appleton-based company into one of the top construction firms in the country. The family then decided to sell a majority interest of the business to the employees under an approved ESOP plan. According to senior executive Jim Rossmeisel, this dramatic step will motivate employees and ensure the future vitality and growth of the business.

The paramount challenge will always be the succession plan put in place to ensure continued strong leadership at the top. The authors of the Harvard Business Review article strongly recommend the establishment of a professional board made up of a significant number of outside directors.

In choosing successor leadership, any family member under consideration should be assessed for a match in basic competencies and values, much as an outside candidate’s capability would be considered relative to the company’s goals. It is not healthy to hand company leadership to a family member unless he or she has the character, work habits and entrepreneurial spirit to lead the company.

This might not seem fair to family members, but it has to be remembered that the best interests of shareholders, customers and employees trump the feelings of any one person. It’s not fair to that son or daughter to put him or her in a position where the child could ultimately cost the company its existence.

Getting counsel through a board and outside coaches is another important tool for family businesses. These resources act as a buffer between family members, bringing experience and objectivity to decision making.

Who knows, if Harry Selfridge had followed this advice, he might have avoided his fate of standing outside his department store as an elderly gentleman, virtually penniless, observing his creation and remembering the times when he was on top of the world.

-Dan Steininger is the president of BizStarts, a lecturer on innovation and creative problem-solving at the UWM School of Continuing Education, and president of Steininger & Associates LLC, which helps companies drive new revenues through innovation. He can be reached at Dan@BizStarts.com.

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Dan Steininger is the president and founder of BizStarts. He is also the president of Steininger & Associates. The firm focuses on teaching the tools of innovation to drive growth for companies in all sectors of the economy. Steininger is a former president and CEO of Catholic Financial Life and a graduate of Marquette University and Boston University's School of Law.

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