Innovation is NOT a 4-letter word
By Charlie Carr, CFP®
"We know we need to come up with new ideas to grow, and we know that will involve some ideas that fail, which makes it scary. We need to remember that change is good and not a betrayal of the family’s founders. In fact, such changes often honor those founders."
Last summer, my wife and I spent a week in the Virginia mountains, including several days hiking various trails in the Shenandoah National Park. On one of those trails, three times we encountered a long, slithery critter with a noisemaker on its tail. Like Indiana Jones, I really, really do not like those animals. If I avoid thinking about them or naming them out loud, will that keep them from being real?
This analogy might over-state the degree to which many family businesses avoid innovation, but probably not by much. When we ask about it, they often pause for a long moment, hesitating to answer, then speak in hushed tones as though they were in a church or a library. Often, the younger generation is interested in innovating, while feeling constrained by the older generation who says things are working well, we’re making money, and let’s not rock the boat.
In our discussions, however, even the older generation realizes that standing still is not an option – the number of members that count on distributions is growing, the industry and market is changing, and if they want the business to thrive for another generation, they will need to innovate.
A few years ago, one client told us they were not innovative. When we pointed out five or six very innovative things they had done in the past, they shifted and eventually defined a goal to not be bleeding edge on new processes, but rather to be “fast followers.” We know we need to come up with new ideas to grow, and we know that will involve some ideas that fail, which makes it scary.
We need to remember that change is good and not a betrayal of the family’s founders. In fact, such changes often honor those founders. In nearly every family story we’ve heard, the founders were innovative. Let’s make use of a mantra we heard elsewhere: new ideas, old values.
What Innovation Really Means?
Perhaps we are defining innovation in too grandiose a manner. Many people only think of innovation as large initiatives such as the way Amazon upended distribution models or Uber transformed transportation. Those were definitely innovative.
However, let’s propose a much more flexible definition. Innovation is doing things in a different way from what you have in the past to improve the experience or profitability. This might be copying something you see a competitor doing or applying practices used in a different industry. It might be tweaking the way your divisions team up on a product, adjusting your packaging or trying a new way to market your services. Sometimes it’s as simple as modifying an input form, and other times it’s experimenting with a new product line. It might even be tweaking your customer service practices to provide a higher level of client delight.
"Innovation is doing things in a different way from what you have in the past to improve the experience or profitability."
Creating a Culture of Innovation
In every business we’ve seen, there are staff with great ideas to improve processes, timing, profitability, and products. However, many businesses do not welcome new ideas, pushing such thoughts into submission. “This is the way we’ve always done it.” “It’s not broken, so don’t fix it.” “Nobody ever got fired for choosing IBM.” (Okay, that last one is getting dated.)
The problem is that complacency creeps up on you. Blockbuster didn’t see streaming coming. Taxi companies were upended by Uber almost overnight. If employees are not encouraged to experiment with smaller changes, then they will never come forward with big ideas.
Early in my career, I recall going to management with an idea of a different way to handle some technology processes, which would have saved several million dollars per year. I was dismissed as inexperienced and ridiculed for the idea. Three years later, the company was forced to make those exact changes due to industry disruptions. The business could have saved quite a bit of money in the interim and would have had the luxury of easing into the changes. Their culture was hostile to new ideas.
Let’s create a culture where innovation is welcome, even encouraged. Tell your staff you welcome new ideas for improving processes, diversifying your revenue streams and growing the business. Then follow through by actually trying out their new ideas. Celebrate new ideas (we said in a previous article: behavior that is celebrated is repeated). In fact, if you really want to encourage new ideas, celebrate the ones that failed; then your staff will know that it’s okay to experiment and they won’t need a 100% success rate.
Embracing Innovation Without Abandoning Family Values
The first step in changing your culture is acknowledging that innovation is good and that you welcome new ideas. Write this down and discuss this desire as a family and with your board and leadership team. You might even want to recognize your failure to foster ideas in the past. Eventually you’ll want to communicate to your broader company, but it’s usually best to start with the smaller circle. Get their input into how you shift your focus.
Next, acknowledge innovative ideas from the past. Think through and document the innovations that brought the business to the current stage. Begin to celebrate your innovative history. Hopefully, you can identify some recent innovations, even if very small, and acknowledge and celebrate the staff who created and fostered them. Decide how you will celebrate such innovation in the future will that be at a staff meeting, an individual note or message, some type of innovation reward, or another method?
We usually find that it works best to take at least a few months of incubating the new culture in the family and leadership team before rolling this out to the rest of the enterprise. You want to identify and change the areas where you have suppressed new ideas.
At the right time, you can then reach out to the overall enterprise and begin encouraging their participation. Let’s find something other than the much-maligned “suggestion box” to gather ideas. We want employees to feel welcome to raise ideas, to be free to experiment within parameters, and to be encouraged even if the ideas don’t work. In a few instances, we’ve worked with clients to create an Innovation Committee. These groups were really an excuse to give the next generation of family and non-family leaders an opportunity to grow and demonstrate their skills.
The committees were comprised of next generation leaders across various divisions of the family business, they met monthly, and they were intentionally focused on promoting cross-business line cooperation while seeking ways to grow revenue and profitability perhaps adding new revenue streams, improving production and growing profitability. This was not a permanent solution, but rather a means to change the culture. Such a committee doesn’t work in every situation, and the best solution is encouraging innovation across the entire company.
If you want to explore more ideas around innovation, we highly recommend Josh Linkner’s book, Big Little Breakthroughs, How Small Everyday Innovations Drive Oversized Results.
Charlie Carr, CFP® is president of
Big Canyon Advisors, LLC, which advises family businesses and family offices.
