All family business leaders struggle to balance tradition and innovation. That tension is vital, because it forces leaders to ask questions like, “What is our core business?,” “How can we adapt or innovate?” and “Who will lead the next phase of our enterprise?” One reason regular family meetings are beneficial is so that owners and family members can discuss those key questions. Whether leaders gather around dinner tables or digital tables, we need to ask these questions repeatedly. We often need expert consultants to facilitate those discussions, reinforce guidelines and provide definitions.
Innovation can be defined simply as “new ideas applied.” We innovate all the time, when we read articles or discuss strategies. We process new information and decide in a millisecond whether that idea is a risk worth taking or avoiding. But “next-level” is a vague term used by marketers and loosely applied to organizational leadership. So, let’s make this discussion meaningful for leaders who need to sustain the legacy and innovate for the future. This article provides seven examples and steps to build leadership skills in family businesses. These examples combine practical wisdom with insights from organizational psychology and leadership research.
The Imperative for Innovative Leadership
The economic stakes are familiar to readers. As the backbone of global economies, family enterprises contribute over 70% of global GDP and employment (Family Firm Institute, 2018). The largest transfer of wealth in history — estimated at $74 trillion — is underway, with much of it rooted in family-owned businesses. This transfer, like any, leads to questions about leadership succession.
Innovation is no longer optional. The rise of digital technologies has disrupted traditional business models across every industry, from retail to agriculture. The rate of disruption is slower today than it will ever be, and exponential technologies are driving countless innovations. Consider these seven examples and steps.
1. Practice a Growth Mindset
Learning agility can be measured and developed. Thankfully, there are several competencies that are uniquely human and will never be replaced by AI! My research includes the competencies of curiosity (which is the currency of learning), humility and collaboration. Research on growth mindsets repeatedly confirms that individuals and teams who believe skill and ability can be developed through deliberate effort are more likely to achieve success. This mindset is critical for NextGen leaders who are tasked with balancing tradition and innovation.
Example: One of my clients is a G3 manufacturing firm facing declining sales due to automation. The incoming leader, after attending an executive leadership program and conducting local research at similar factories, introduced a robotics division, designed to streamline production and create new revenue streams. That decision required the courage to invest in uncharted territory and a belief in personal and organizational growth.
Action Steps:
- Foster a culture of continuous learning through mentorship programs, peer groups, conference sharing and leadership development workshops.
- Implement performance feedback systems to encourage reflection and learning from both successes and failures.
2. Develop Emotional Intelligence
Emotional intelligence (EI), as defined by psychologist Daniel Goleman, includes self-awareness, empathy and social skills. Empathy is the most essential competency for managing relationships and fostering collaboration.
Example: One of my clients is a G2 financial services firm with a 30% annual growth rate. Two potential CEOs regularly disagreed with one another and had verbal arguments in the break room daily. After conducting 360 assessments on each leader, they understood what to start doing, stop doing and continue doing. They each learned how to manage their emotions, communicate better and reduce conflict. Then, we defined their succession steps.
Action Steps:
- Conduct EI assessments, such as the EQ-i 2.0 or 360 assessments, for potential leaders.
- Create or invest in peer group forums where family members can practice conflict resolution and improve interpersonal skills.
3. Balance Tradition with Innovation
Family business leaders tend to drive more innovation than leaders at publicly traded companies because they honor the past while embracing the future. “Both/And” thinking — the concept that multiple things can be true at the same time — is now taught in most MBA programs. Researchers repeatedly describe the importance of developing a shared vision that aligns multiple generational perspectives to reduce complexity. What will happen, as human lifespans grow, when we have five generations of family leaders in future meetings, instead of two or three generations?
Example: One of my clients is a G3 lighting company. They wanted to develop more integrated e-commerce strategies while maintaining their unique artisanal approach. The NextGen leader wanted to own this new technology process. She partnered with tech experts to launch a virtual showroom, which blended the brand’s heritage with cutting-edge technology. The result was a 40% increase in sales within the first year.
Action Steps:
- Use an external facilitator to create a shared written document that captures the business’s core history, vision, mission, values and future goals.
- Form design teams that are cross-generational or composed entirely of NextGens and/or include members of each family branch, to co-design annual innovation initiatives.
4. Build Psychological Capital (PsyCap)
The four positive psychological capacities — hope, resilience, optimism and self-efficacy — collectively known as Psychological Capital (PsyCap), have been repeatedly shown to enhance leadership performance. PsyCap can be measured and developed. As Fred Luthans, a management professor specializing in organizational behavior, told me, “PsyCap has and continues to take off across the world … I have over 166,000 citations of my research which has been awarded in the top 1% of all researchers in all fields in the world and ranks #1 in organizational behavior textbooks. In other words, I am very happy with how PsyCap is going, especially in the global economy.” I predict that PsyCap training and metrics will drive most succession initiatives in the next decade.
Example: During the COVID-19 pandemic, a food processing family business leveraged PsyCap to pivot quickly. By focusing on optimism and resilience, the leadership team restructured operations, launched direct-to-consumer products and maintained workforce morale. All metrics are up. In our annual trainings, their PsyCap scores reflect their focus on innovation over a three-year period.
Action Steps:
- Assess PsyCap for individuals and teams annually. Include PsyCap measures in performance feedback discussions for every manager and direct report.
- Provide educational sessions and resilience training workshops.
5. Mentorship and Coaching
Mentorship and coaching have always been instrumental in leadership development. Research has highlighted that structured coaching interventions improve goal attainment, leadership confidence and performance outcomes. Family businesses should leverage both internal mentorship and external coaching expertise.
Example: In a multi-generational family office, the retiring CEO mentored his granddaughter as his desired successor. She also worked with an external executive coach to refine her strategic thinking and decision-making skills. That dual approach is likely to increase the probability of a successful succession.
Action Steps:
- Develop simple mentorship programs that invite NextGen leaders to solicit expertise from more experienced family members, owners, key vendors and board members.
- Invest in external coaches for unbiased, professional leadership development.
6. Encourage Thought Diversity
Many family business leaders are insular, and insularity kills innovation. Toxic phrases like “We’ve tried that before” need to be banned from family business leaders. Toxic behaviors, like gossip and triangulation, need to be banned. When we solicit diversity through regional initiatives, impact investments, cross-industry experiences, think tank collaborations, affiliation groups and external advisory boards, leaders can accelerate innovation.
Example: A G4 farming operation joined a regional advisory board that included different local farmers, industry experts, academics and some politicians. That initiative led to the adoption of precision farming techniques, reducing costs by 25% and improving yield quality. My client developed a “Farm Operations Playbook” to share and review those techniques every season.
Action Steps:
- Invite different types of people to join focus groups or select discussions.
- Encourage NextGen leaders to express their thoughts and feelings on important topics.
7. Use Data-Driven Decision Making
All business leaders use metrics to make decisions, but NextGen leaders are not always included in those discussions. Any spreadsheet can be inserted into Chat GPT (or any generative AI platform) with prompts like, “What are the key measures that need to be considered for our business?” Those results can then be shared with a different AI platform, like Perplexity or Claude, with the prompt, “What other measures need to be considered for our business?” Consultants have used these technique for years, and NextGen leaders can use AI to assess data sets immediately. Consider the data analytics tools you might need to assess customer behavior, market trends, and your operational efficiencies.
Example: A G3 retail chain implemented advanced customer analytics to personalize marketing campaigns. This shift increased customer retention by 30%, demonstrating the power of data-driven strategies.
Action Steps:
- Train leaders in data literacy and analytics tools, including edX and Power BI
- Celebrate data-driven decision-making frameworks into all levels of daily operations
Conclusion: Next Steps
When I close coaching or educational sessions, I typically ask, “What are you taking away from this conversation that you will do next?” I encourage readers to take notes. Pick one to two of these examples or steps. Share this article. Practice innovation. The bottom line is that leaders practice leadership, just as attorneys practice law and physicians practice medicine. Please contact me if you want to continue this conversation.