The art and science of business decision making

As is perhaps obvious to our regular readers, we have recently been spending a lot of time thinking about intergenerational issues. Among the issues that have demanded our attention is the management of a business when more than one generation is involved.

The assumption of power by one generation from its predecessor is the stuff of Sophocles, Freud, and the family across the street. It is also one of the most critical transition issues that faces any business which hopes to succeed beyond the life of its founder. If the transition is managed well, the business can thrive through it and into the future. If it is not managed well, both the transition period and the future can be extremely difficult.

The transition comes to every business, but it can be especially complex in a successful family business, where parent-child issues may mix with educational issues to make decision making, and all of the communications surrounding it, more than a little tumultuous.

As we have mentioned before, one of the best things a successful family business can do to support its future is to insist that the children who want to be involved in the business get outside training and experience. Not only does this approach encourage the development of real competencies, but the perspective it provides on the greater economic environment can be invaluable to the business as it moves into an ever-changing future.

However, this same education and other outside experience can create, or exacerbate, tensions between the generations. Not only are the two generations likely to have different perspectives based in their different experiences – for example, the older may value the importance of face-to-face network building for marketing purposes, while the younger may be more interested in internet-based viral marketing – but these perspectives may also be accompanied by fundamental differences in the ways the two generations approach decision making.

The founder has probably been very successful making pragmatic decisions, based on his or her own perceptions and a nearly intuitive assessment process. The younger generation, on the other hand, has probably learned analytical tools based on theories that are completely unfamiliar to the entrepreneur.

Conversations in which one party argues from experience and instinct while the other argues from analysis based in assumptions and relationships that may be counter-intuitive can be frustrating. However, well conducted, these conversations can be among the most creative and productive that any business has.

The great motivating process in science has long been the inductive development of theories that can then be deductively tested and refined. The same can be done in business: an idea that “feels” like a good one to the intuitive participants can be tested and re-worked so that implementation can be more successful than anyone might have imagined. Careful discussion and testing can also avert an implementation that might be less effective than hoped.

The critical issue in these discussions is to remember that intuition and reason, experience and analysis should be viewed as additive, not mutually exclusive. While we could argue that the onus for ensuring this kind of productive discussion falls on the younger generation as a simple matter of respect, we could equally argue that the greater experience of the older generation makes it their responsibility.

However, our own experience suggests that these conversations are most useful when all parties take seriously their responsibility to contribute, understand, and appreciate all perspectives in the decision making process. When everyone remembers that both generations are able to focus on the shared goal of the long-term good of the business, the process of testing intuition with analysis, and theory with practical reality, the conclusions can be far more robust and chances of success, much higher.

Letting children fail

The very funny pilot of ABC’s new dramedy “Dirty Sexy Money” was chock full of storylines to be but had a single triumphal moment: the pink suitcase parade of the patriarch’s younger daughter as she defiantly set off on her own. She was depressed by the knowledge that her father had bought her yet one more illusory success, and she believed she could not have a life unless her successes and failures were her own.

Early into the second episode of the season, we learned that she aspires to a freedom she doesn’t really understand. As her avowedly self-indulgent twin reminded her, she may have run away from home, but she was living in an expensive hotel suite financed by her father.

How does a successful parent help his or her children not only aspire to successful independence, but also to understand what that means?

In our last post we talked about helping children identify and develop the skills they will need to success. The program we suggested was hardly simple, but it lacked one crucial element: creating the opportunity for each child to succeed also means allowing each child to fail.

Let’s clarify a little: We are not suggesting that failure is inherently good. Successes –particularly successes that are acknowledged and applauded – are necessary for the development of self-confidence and independence.

But children who come from successful families often think success is a given, and are like the small child who hears the word “hot” and thinks it means ‘hot like a summer day when you can go swimming.’ Not until she puts her finger on the stove and discovers the real pain of that kind of heat does she understand that “hot” is something different from a general atmosphere.

Worse, children who grow up in very successful families may not understand that the way they behave has real impact on the people and world around them. If they are treated by others simply because of who they are, they learn very little about the effect they can have, and how manage their relationships to achieve positive results.

But perhaps most importantly, since we all do fail at something eventually, none of us can really develop self confidence until we have also experienced a failure and both survived and recovered from it. Choices made to avoid failure are very different from choices made to achieve success – and very few of us learn to do the latter until we have proven to ourselves that we can, indeed, ‘pick ourselves up, wipe ourselves off, and start all over again.’

The failures don’t have to be big or dire. But they do have to be real.

We have one client who gave each of his children an annual sum to pay for their college years. When one son ran out of money before paying his third quarter tuition, he had to get a job and make weekly payments on the market-rate loan his father offered as an alternative to dropping out. He paid off the outstanding loan when he got the next year’s allowance, and developed a budget that ensured he could pay all of the year’s expenses. This son had a much different relationship with money from then on and, interestingly, so did his brothers.

To have impact, not all failures have to happen. But they have to be really possible – and to matter to the child.

Another client was most concerned that her children learn about the effort that goes into achievement and the relationship between accomplishment and rewards. Her youngest child was a good but lazy swimmer, preferring to play in the pool to actual swimming. The child also wanted to go on a special outing with her scout troop at the end of the summer. Our client promised her daughter that she could go on the outing if she had been able to swim an entire mile by the end of the first session of her swimming camp. The child was a determined little girl and by the end of the camp session had not only completed the mile but was invited to join the swim team. She never became a star athlete, but she did go on her coveted outing, and she always remembered that she had earned her place on the camp’s team.

No parent can make any child succeed. At best, parents’ efforts, money, reputation can help. At worst, though, those same things can deprive the child of any real desire or drive. By allowing the child both to savor the rewards of achievement and to experience and survive failure, a parent can help a child to learn to move through the world with confidence and independence.

It’s not in the genes

Family traditions are not passed on genetically. Some kinds of motor skills and information processing are affected by biology, but whether and how a child develops them and learns to apply them are very much affected by the factors of upbringing. Too often families with successful elders limit the development of the children by assuming that they will follow the “family path” and that the children will have both the necessary skills and the necessary interest to do so successfully.

Nature does not always respond as we might hope to our assumptions. Therefore, the long-term success of any family enterprise is better served if each child is allowed to – perhaps even required to – discover his or her own skills and interests. Each can then get the training and the experience needed to develop those skills. The child can then work at the family’s business if and when qualified, or be provided assistance in finding productive ways to use other skills and interests.

This proposal is importantly two sided: If a child is interested in the business in which the family is involved, the family must set an early expectation that the development of those skills necessary to be successful in the business is the investment the child must make before getting help into the business. If the child does not have an interest in the business, there must be a similarly clear expectation that the child is required to identify other interests and will be supported in developing skills relevant to competently pursuing those interests.

The kinds of help and support parents may provide a child who wants to pursue a new path are likely to be different from the help they can offer a child who follows the family traditions. Nevertheless, this help and support can be crucial if the child is to pursue new interests seriously. They should also carry the same requirement of investment from the child as does help with an enterprise the family knows.

The children of successful parents who share their parents’ interests and skills have ready role models for their pursuits, and a strong mentor relationship may even develop between the generations. However, children of successful and often busy parents who do not share the parents’ interests and skills may have neither role models nor the bases for commanding the parents’ attention.

It is, therefore, the parents’ active participation in helping the child whose interest differ from family traditions that allows such a child to value those talents and develop them successfully. All too often a child who is not thus encouraged by family elders will try to build a life on imitating whatever parental characteristics are most visible to him or her – even when they are stepping stones to self-destruction.

In our experience, it is as big a mistake not to attend closely to the development of a child who is not suited to following the family path as it is to demand that such a child pursue the family’s traditional ventures. We have seen as many family disasters arise from the underdevelopment of children not actively involved in the family enterprise as we have seen business disasters from the involvement of insufficiently trained children in the business – and family disasters are ultimately as bad for business as business disasters are for the welfare of the family.