Breaking Tradition: How to Forge Your Own Path in Business Instead of Joining the Family Business

How to leverage your family jewels to take your startup’s chance of success from 1 in 500 to 1 in 8

Source: Library of Congress

If You Only Have a Minute

• Gone are the days when the next in line to take over the family business would automatically learn the ropes by being cycled through the core business’s different departments; according to a new study, about 25% of modern potential successors decide to found their own company.
• When handled correctly, this doesn’t have to be to the detriment of the family business, but rather the laying of the groundwork for a family empire with staying power.
• With 90% of startups failing, and more capital invested doing little to de-risk a startup and everything to increase the size of a statistically probable loss, how can a family empower their Next Gen founders while curtailing the risk of the venture, and maximise the probability of it becoming a valuable asset rather than a frivolous pet project?
• In this article, we will explore how working with a venture builder can solve a variety of pain points for families in this position, including the criteria for success, the ins and outs of governance, and a real-life illustration of the process in practice with one of our own ventures.

So you want to ‘start-up’…

Maybe you have that familial founder’s blood coursing a little extra strong through your veins; maybe you have ESG ambitions which can’t be all too easily achieved through your family’s core business. Whatever the reason, you are not alone; 25% of Next Generation potential successors to family businesses feel the urge to found their own company as opposed to diving straight into their birthright.

One may think that starting a business from scratch would be easier when coming from a family business background, nevertheless it can provide its own unique challenges:

• For a larger family business, the skills that are required to start-up are very different to those needed to run a corporation;
• The risk involved with starting a business can be vastly different — and unpalatable — to a family business which has spent generations pursuing stability and establishing itself in a core market;
• The economic climate in which the core family business was founded can be alien to what a Next Gen founder must work with now e.g. little-to-no competition vs a highly competitive environment with many players, launching in a market which only has interest locally vs everything being globalised from Day 1. This leaves gaps in the know-how of the family that could give their Next Gen the competitive edge to succeed in their new venture.

In instances such as these, engaging with a venture builder can be especially beneficial to fill skill gaps, mitigate risk, and provide suitable governance that ensures the Next Gen’s business fulfils both their passions and ambitions and the family’s desire that it become an addition to the family jewels and thereby an asset, not a liability.

In what cases does venture building work best for families?

Engaging a venture builder has substantial benefits to a wide variety of family business cases, however the following situations are those we know from experience who can benefit from it exceptionally well:

• For large families with multiple members of the Next Generation: those who do not carry the mantle can develop their own business kingdom, leveraging the base that was created by their family but in new ways. This will create additional value without additional friction.

An example of this would be a family with one business line (e.g. mining) and many Next Gen, where each may create ventures which focus adjacent industries or challenges (such as the decarbonisation of mining), leveraging their parent company as an initial pilot and ultimately first customer.

• If a family member wants to be tested or gain experiences outside of the privilege of entering the family business, this approach can be a way of training. By effectively building something from scratch like their parents and/or ancestors, this allows for the tackling of more complicated problems, creating improved impact and learning in the process.

An example of this would be a post-MBA family member starting a DTC or brand aggregator venture instead of joining their family perfume or fashion business. In this case, the Next Gen learns of new ways to reach customers and explores new digital competitor plays which can provide significant learning for the future of the family business.

• Families who currently have their business largely run by professionals: they can derisk building new businesses with their own family by using the core business not only as a source of funding but also as a source of an unfair advantage.

An example of this would be a family member finding a brand new angle on the industry which is out of scope of the current business (e.g. different but parallel supply chain or different extremes of the supply chain that are not served currently) and looking to leverage the industry contacts of the family business in order to build a new business.

How does this work in practice?

It’s all well and good to talk about this theoretically, so let’s instead walk through how we’ve actually done it, and to what success.

In one case, Wright Partners was approached by a Next Gen passionate about social business, giving back and making a positive difference in the lives of those who truly needed it. With a core family business in commodities in the agricultural sector, there was not as much room as they would have liked to have the social impact they imagined. The family business did however offer up access to the community which would most benefit from the competitive advantage of their insight and expertise on a silver platter: farmers.

By innovating close to home, the Next Gen could maximise their chances of success with the leveraging of non-financial assets they had to hand.

Identifying a competitive advantage and leveraging it, however, are two different things. What followed was a rigorous process of asset mapping, interviewing key stakeholders, defining the customer, hypothesising and validating pain points and product solutions, designing and executing pilots, hiring the founding team, generating first revenues, architecting a governance structure to hold it all up, and the list goes on. This is what we call our Design Phase, and, in 4 months, it will result in a risk-aligned, investable corporate venture, ready to take on the market.

For most ventures in the wild, especially for first-time founders, this process can be costly, frustrating and take up to a year, or even more. With Wright Partners, the Next Gen is flanked by a ‘founding team for hire’; two venture partners — one commercial, one product — and their venture architect counterparts, and a venture lead provide the Next Gen with the entrepreneurial experience, toolkit and motor to power through the ‘venture sandbox’ we offer. Supporting this team is our substantial network of subject matter experts, UX, UI and engineering teams ready and waiting to rapidly prototype, test and realise any idea to guarantee the new venture fails fast and learns faster.

For this Next Gen, we successfully identified and leveraged both their and their family business’s competitive advantage to solve a need no one in the market was addressing; a digital play which revolutionised financing for farmers. At each key stage, the venture cleared the family business’s investment committee and was chosen to be invested in by the core business, alongside Wright Partners.

Fast-forward through the Build Phase, and the Next Gen’s venture has raised USD$>40mil at Series A, and was recently listed among the top 50 climate tech startups in SEA.

Criteria for success? It’s more than just economic benefits

The act of venture building endows a Next Gen and the family business with cutting-edge knowledge, skills and assets they would otherwise struggle to acquire.

In this case, the Next Gen founder cited theirs as:

• Realising why digital was so essential to modern business and how the difficulties of implementing it in the core family business could be overcome: “I didn’t appreciate or understand it enough until I was starting my own tech company”
• Greater respect and an improved relationship with the older generation: “you get more respect from the family, having gone and done this on your own”
• Greater validation both externally and internally: “my family doesn’t believe in startups and crazy valuations; if you want to do it, you have to do it in your own right [without leveraging financial resources]. And that was kind of a blessing in disguise, because that allowed me to raise money from external funding, and actually it gives you validation for you personally as an entrepreneur because to take someone else’s money is a whole added responsibility.”

This Next Gen’s venture started with one ‘bet’, one venture, to test the water and understand what kind of additional venture building would be to the wider family’s toolkit.

As Wright Partners embark on our third venture with them, we like to think the results speak for themselves.

If you would like to know more about how venture building can add value to your family and its business, please don’t hesitate to contact us at contact@wright.partners

This is the second of two articles on Next Gen venture building. Click here to read the first.

Authors:

Joachim Vandaele, Founding Partner at Wright Partners

Ziv Ragowsky, Founding Partner at Wright Partners

Chelcie Poole, Venture Architect at Wright Partners

This article is written as part of EDB Singapore’s Corporate Venture Launchpad 2.0 — an expanded S$20m programme by EDB New Ventures, designed to enable companies to incubate and launch a new venture from Singapore, supported by venture studios experienced in corporate venture building.