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What Family Business Can Teach Social Entrepreneurs - by Tom Lumpkin and Sophie Bacq

Family businesses, as it turns out, have a number of things in common with social enterprises. Both have a need to thrive economically, but are also motivated by non-economic goals such as helping others and enriching their communities. Both must deal with short-term decisions and demands, but many are guided by a long-term orientation that also influences decision making and action. Relative to nonfamily firms, both face the challenge of aligning the varied and sometimes divergent interests of multiple stakeholders. Given these similarities, it seems social enterprises—and social entrepreneurs—could learn a lot from family firms.

In a recent article, we addressed the topic of what family business can teach social entrepreneurs by identifying a few challenges that social enterprises might be facing where family business already have substantial experience. What we learned from this exploration increased our understanding of both family businesses and social enterprises. Two of the challenges of particular interest are aligning multiple stakeholders and achieving sustainable solutions.

Just as family businesses must integrate the influence and opinions of three major players—the family, the owners, and the business managers—in the decisions and actions that move a business forward, social enterprises must also deal with multiple stakeholders. Beyond the stakeholders that businesses typically encounter, social enterprises also manage relationships with stakeholders such as donors, volunteers, beneficiaries, government officials, community members, and others. In other words, as with family businesses, the collection of entities that have a stake in what a social enterprise does is often quite complex.

What we learned is that, to help align multiple stakeholders, family businesses often strengthen their organizational identity by using strategies that integrate stakeholders’ interests, including increasing the visibility of family members’ affiliation with the business, or fostering employees’ or customers’ positive identification with the family business. Some family businesses also highlight the efficiency of their operations, or their strong focus on moral worth and ethical issues. Providing these avenues for identification with the family business can create opportunities for alignment by fostering synergies and building stakeholders’ self-esteem. To align its multiple stakeholders, social enterprises may also need to increase the visibility of their connections and affiliation with the community by employing community members as part of their workforces, or foster stakeholder identification by emphasizing the positive societal impact of their activities.

The second area we investigated revolves around achieving sustainable solutions. Family business that manage for the long run have been shown to be superior performers. How are they able to make decisions and take action with distant consequences and future generations in mind? Creating lasting solutions to persistent social problems and societal ills is one of the primary drivers of social enterprises. What, if anything, can they learn from family businesses about achieving sustainable solutions?

Family business that are motivated to seek lasting gains and sustainable solutions are driven by a long-term orientation. By adopting a long-term orientation, which involves prioritizing distant goals, family firms are able to make decisions and take actions that may only come to fruition after an extended period, and to do so in the face of pressing short-term considerations. Family firms with a long-term orientation not only forecast and plan for the future (futurity), but also understand the importance of the firm’s reputation and legacy (continuity) and the kinds of actions and discipline that are required in the present to realize future goals (perseverance). To achieve sustainable solutions, social enterprises may also need to adopt a long-term orientation.

However, there is a key difference between social enterprises and family business when it comes to their long-term perspective. Whereas social entrepreneurs are often working toward long-term positive changes in society, they often fall short when it comes to actions that would preserve the long-term viability of their organization. Family businesses, by contrast, are more focused on what is required to maintain the longevity of the family enterprise. In other words, family businesses tend to be internally focused and social enterprises are more externally focused when it comes to long-term orientation. Social entrepreneurs might benefit from focusing some of their concern for the long run on their own enterprises. Meanwhile, the surge in popularity of social entrepreneurship has recently led researchers to highlight the important role family businesses play in addressing social problems near to home and in keeping their communities vibrant and strong—yet another thing they have in common with social entrepreneurs.

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