Innovation: A fundamental factor in family-owned business success
It’s no secret that there are countless challenges facing today’s family-owned businesses. In fact, less than one-third of family businesses successfully migrate from first to second generation ownership. Another 50 percent never survive the transition from second to third generation, according to Forbes.
While every organization has its own priorities and category-specific issues to manage, family businesses that fail to innovate run the risk of losing market share to competitors, losing key staff or simply operating inefficiently so that they cannot survive. Innovation is a key differentiator between market leaders and their rivals, and can ultimately ensure longevity.
IDEAL Industries, Inc., a manufacturing company based 60 miles west of Chicago, is consistently growing and expanding under four generations of family ownership, and is celebrating its centennial anniversary this year.
How has this electrical product supplier and hand tool company managed to stay relevant and produce results for 100 years? Their success story can be chalked up to their ongoing devotion to innovation and looking beyond traditional business pressures of hitting quarterly results.
Their philosophy is simple: focus on the markets that exist today, while ensuring that they are poised to serve those of tomorrow.
“The beauty of being family-owned is that we have the freedom to make executive decisions with the long-term in mind,” said IDEAL Chairman and CEO Jim James. “We think ten years ahead – how will our family, board and business be different? What are the risks that lie ahead and how can we mitigate them now? How do we put our core business out of business? Because if we don’t, someone else will.”
While IDEAL may best be known for their wire connectors, their innovations also touch the sky, as nearly every commercial jet flying today has been constructed using IDEAL wire strippers. They’ve even reached the moon, as part of the critical equipment on NASA missions. Their Audacy advanced wireless lighting system is installed at major league ballparks, college campuses and airports.
Best of all, they touch the daily lives of skilled tradesmen around the globe, who reach for IDEAL, Western Forge and SK brand hand tools to get the job done right.
However, innovation is not only about designing a new product or service to sell, but also focusing on the development of new business processes and best practices in order to improve efficiency, find new customers, cut down on waste, increase profits and keep employee retention rates up.
“At the end of the day, it’s very important for organizations to take a step back and ask themselves what is truly blocking the innovation process,” said Vicki Slomka, senior vice president of global human services at IDEAL. “Companies that constantly challenge themselves and are relentlessly focused on innovation will survive in this ever-changing globally competitive environment.”
Thus, in order to prevent becoming another failing statistic, companies have no choice but to prioritize innovation. Family stewardship must ensure their professional management team has the strategic alignment, patience and resources available to foster an innovative workplace environment – one that produces products and services that continuously cater to today’s competitive marketplace and consumer. Family-owned businesses must commit to a high reinvestment rate in order to support a robust innovative pipeline that will allow them to survive and thrive into the next generation.