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Family groups starting new businesses.-The new trend

We live in a turbulent world. Economic crisis, regional wars, drugs and terrorism, co-exist with fascinating technological, communications and scientific developments.

Our preconceived notions about family structures, work , learning and socializing have been shattered in the last decades. We live, as professor Charles Handy mentioned, in an “Age of Unreason” and either we adapt ourselves to constant revolutionary changes or we will stagnate and ultimately be drawn and fail in our lives. Time will only accelerate the changes.

This situation has had enormous effects in the traditional, patriarchal and rigid family owned and managed business and their members, especially in regions where culture and customs are deeply ingrained , like Latin America. There is no question that the founders of these companies have suffered throughout this period in a variety of forms and the succession process has been difficult, to say the least.

Families who own businesses have also experienced turmoil, since the growth of their firms has been arithmetic (one or two new companies, branches or subsidiaries per decade at most are the rule, with few exceptions), while their families have enlarged exponentially as their offspring create new families. In Latin America it is still common to have dozens of grandchildren and their spouses active in the group, involved in the family dynamics, and have several of them work in the main business .

The new trend we are foreseeing as Family Business Advisors in view of the radically different situation, are with groups of families promoting the creation of new entrepreneurial spirit among their offspring and various ways and means of starting new ventures both within and outside the main business. Simply stated, while maintaining the essence of the founder and his (her) successors in terms of their work ethics and values, we have to inject new blood, ideas and dynamism to the families in terms of new businesses.

Of course the same principle applies to those members who will continue managing the main business , helping to professionalize the company in a flexible way, but as mentioned before, it would be suicidal to have all members of each new generation working in the same business , even with rules, protocols and estate planning . Rivalries, envy and other conflicts may arise, non withstanding the enterprise ability to generate enough resources to sustain several families.

We have been working with various groups to create Family Trusts devoted to provide start up funds to those members who pass a professional and thorough review of their projects, their Business Plan, or to create New Venture divisions within the business dedicated to opportunities of interest to the group, under the supervision of an effective Board of Directors and Advisors. It is important to provide a fair and sensible path to those family members who do not want to be part of the main business or to start new ones, by means of trusts, estate plans, etc.

We feel that this trend will accelerate in the next decades and as advisors , we must be prepared and take notice to be able to help our clients grow in a logical and sustainable way. It is a multi-disciplinary task involving among others , legal, fiscal and wealth issues as well as emotional and family involvement in this common project. The creative and entrepreneurial spirit of those family members who wish to develop new ventures should be a welcome development to be encouraged by all involved.

Summarizing, this “Brave and complicated New World” requires everybody to adjust many new facets of their lives , and that includes the continuity of family businesses both present and new firms . Our role as professionals is to present our clients with alternatives for their long term growth and adapt them on a case by case basis.

Views: 20

Comment by Andrea Delucchi Borrelli on October 7, 2010 at 9:05am
I think it is a very good point of view; and in our rol of professional advisors it must be always considered when working with our clients.
But it is also important to have appropiate tools, laws must be adjusted to this "New World" in order to allow new opportunities, and to encourage family members that wish to develop new ventures to take the risk.
At least in South America, the "legal system" is not always on time with real business opportunities.
Another point is that, when one family member has a creative and entrepreneurial spirit, decisions must be very well studied and the final approval must be by general consent or at least with a very important endorsement.
Our challenge, as family business advisors must be encourage new ideas but study all the consequences (legal, economic, comercial but also -and never forget - with in the proper family). One wrong decision may not only have negative results for the business but, can also cause serious family problems.
The consequence of this is that each case must be studied very carefully and it is impossible to have "miracle solutions" that works always, it is important to work case by case.
Comment by Salo Grabinsky,MScIE, MBA on October 7, 2010 at 2:10pm
Point well taken. We are currently setting up "Entrepreneurial Funds" or trusts for family members who have new projects to be reviewed and, if accepted by both the screening committe and the Board, get financing or equity to start them.
Comment by Andrea Delucchi Borrelli on October 8, 2010 at 6:54am
Great; if it's possible I would like to be in contact with you. In Uruguay this is an area practically unexplored and I am very interested in it.


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