The Art of managing paradoxes: Key factors for the success of family businesses in Latin America

Cristina Cruz. Professor. IE Business School

5 September 2017

The most successful family businesses in Latin America are those that have achieved a balance between innovation and tradition, and between fostering entrepreneurialism and family cohesion.

If there is something that distinguishes family-run businesses from other types of firm, it is the fact that the owners of family businesses see wealth generation as being not only the creation of financial wealth but also the creation of “socio-emotional” wealth, which includes factors like preserving a legacy or strengthening a family unit. And if there is something that distinguishes family businesses based in Latin America  from other firms, it is the way they place an even greater focus on “socio-emotional wealth”, as we were able to observe in the course of a study we carried out at IE Business School, jointly with Credit Suisse, on the best practices of family businesses in Latin America.

The study, which comprised a survey of over 200 entrepreneurial families in Latin America, served to demonstrate that the most successful were those that managed to convert the socio-emotional aspects of the family into a competitive advantage for their businesses. So how did they achieve that? 

Successful entrepreneurial families have understood that the traditional aim of family businesses of keeping control of the business within the family from one generation to the next is no longer valid as a growth model. The speed at which economic cycles now move means that whereas a cycle used to span two or even three generations, now each generation is facing the challenge of reinventing the business model. This is why while the majority of family businesses are focusing on shaping successors, the most successful family-run firms are more centered on shaping the next generation of family entrepreneurs.

When preparing the next generation of entrepreneurs, successful family businesses focus on transmitting two fundamental aspects - the entrepreneurial mindset and core family values. The entrepreneurial approach fosters a family wealth growth model based on innovation, while family values serves to preserve the socio-emotional aspects that provide the family firm with a unique identity.  The right balance between these two factors is what enables successful family businesses to create value down through the generations.

Achieving such a balance is no easy task, because lines of action aimed at growth and innovation can often appear to hinder the preservation of family tradition. But when you analyze the most successful family businesses in depth, it becomes apparent that they have turned the “problem” of simultaneously managing these two aspects into the “art of managing paradoxes”, by centering on achieving a balance between between them, because although they may appear contradictory at first sight, they actually complement each other.

Hence successful family businesses manage to find the right balance between innovation and tradition, which is what differentiates their business models from those of their competitors by means of long-term vision and a business culture based on values that create loyalty among employees and build lasting relationships with key stakeholders. 

They have also achieved a balance between fostering an entrepreneurial approach and cohesion among family members, as well as transmitting this philosophy to upcoming generations, thus perpetuating the family legacy.

The sad fact is that only 15% of family businesses survive beyond the second generation, and only 4% go beyond the third generation. Hence, as the Spanish saying goes, “a businessman grandfather has a son who’s an engineer, and a grandson who’s a poet”. As more families manage to change their mindset, stop seeing a problem of family versus business, and view it as a paradox that can be converted into a competitive advantage, the survival rates of family businesses  will improve dramatically, and the Spanish saying can be changed to “a businessman grandfather (founder), has an entrepreneurial son/daughter (innovators within the family business), and millentrepreneur grandchildren (millennium generation entrepreneurs). 

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