The entrepreneurial test that few complete

Passing a business to the next generation seems to be an impossible challenge for many founders.

By definition, most entrepreneurs are difficult people. Their success is based on seeing and doing things differently and changing things, often in disruptive ways.

Few people like change, so entrepreneurs are generally seen as upsetting and bothersome. For entrepreneurs to be ultimately successful they must have a truly strong belief in their vision and stamina to persist until they reach their first objective. And then those people affected by the entrepreneur -- the ones who did not want to change -- finally get it.

They see what the entrepreneur saw well ahead of them and they now, sometimes reluctantly, applaud the vision and are astounded. Steve Jobs comes to mind as an example of someone with a different vision and strong persistence in making it a success.

At this time the business truly becomes the extended shadow of the founder, with a highly personalised "I" culture. The entrepreneur is loved, admired or hated, but he or she is the business. And this is when things tend to become difficult from the perspective of continuity.

Creativity and entrepreneurship are based on unconventional mindsets and methods. But when the entrepreneurial vision becomes a successful business that needs to be managed, more conventional management practices are needed.

The typical entrepreneur is not a fan of clear governance structures and five-year strategic planning with budgets. Over time, the "I" culture of the entrepreneur can become a true bottleneck for an organisation that now needs planning, predictability, delegation and true teamwork.

In over 25 years of research at IMD on successful and failed privately owned businesses, we have seen very few entrepreneurs who really grasped the incredible personal dilemma they are finally confronted with. The creation of the business needed them to be in control 24/7, but its continuity then requires them to relinquish some power to allow the business to grow by itself. In other words, the company must move from an "I" culture to an "us" culture.

Continuity needs a next generation of owners, whether family or outsiders, to develop their own vision for the long-term future of the business and adapt this to a changing environment. And continuity needs competent and strong leadership and teams -- again, either family or outsiders -- to properly manage and grow the business.

So, what happens to the entrepreneur? The vast majority tend to hang on to control, believing that the business cannot survive without them. Some entrepreneurs exit and start new ventures or do something meaningful with their lives and money. Bill Gates comes to mind.

Then there is a small group, probably less than 10%, who want to pass on their company to their children and make it a family business. They dream of shared wealth and opportunities for generations to come. And they want to do "the right thing."

They want to build a professionally and competently managed business run with human values and clear principles. They share their vision with strong outside managers who see a better future for themselves in a family business than in an anonymous public corporation.

But these are an all-too-small minority.

Joachim Schwass is Professor of Family Business at IMD and co-directs the IMD Global Family Business Center.

This is an edited version of an article reprinted with the permission of IMD Business School (www.imd.org).