© Nathan Mandell Prof. Lloyd Shefsky brings his experience as an attorney and entrepreneurship expert to his work in family business.

by Matt Golosinski

Family business is an arena where entrepreneurial MBAs can make an impact, say Kellogg School experts. But negotiating the risk, reward and relationships of family ventures demands special expertise.Good thing the Kellogg Center for Family Enterprises feels at home handling the challenge

Lloyd Shefsky thinks entrepreneurs are...well, a bit nuts.

The clinical professor of entrepreneurship and co-director of the Kellogg Center for Family Enterprises also calls them his heroes and says they are often responsible for the "quantum leaps" that lead to huge value creation. He agrees with economist Adam Smith who considered these risk takers the engines that drive the business world, including some 60 percent of the U.S. economy in terms of employment. Shefsky talks about entrepreneurs the way baseball fans revere Ruth and Koufax.

"But they're definitely crazy," insists Shefsky. "Maybe a good crazy because they're motivated by an extraordinary passion, but these are people who can do without sleep, do without friends. They're focused on their business and the dream of making it real."

In fact, this drive to "create something out of nothing," is what Shefsky believes defines entrepreneurs, whether or not they are working to establish and grow a family business. It's a passion that can blind, he says, and lead to a single-minded pursuit of the extraordinary.

"Entrepreneurs don't do balancing acts; managers do balancing acts, assessing risk and reward," says Shefsky, who, along with his colleague John Ward, Kellogg School's thought leader in family business, runs the 4-year-old Center for Family Enterprises (CFE). Both professors have seen the entrepreneurial dynamic at work in family business and are among the Kellogg faculty whose research, teaching and consulting includes analyses of how the entrepreneurial mindset impacts the family business dynamic.

© Nathan Mandell Prof. John Ward, an internationally recognized family business scholar, leads a discussion at a recent Kellogg School conference on the subject.

Ward admits that some controversy surrounds the question of whether successor generations are particularly entrepreneurial.

"Family business heirs have typically grown up in very comfortable conditions, leading some to propose that they can't have the same entrepreneurial hunger as their parents," Ward explains, acknowledging that family sponsored entrepreneurship can diminish as a business grows successful, and often more risk-averse, under strong leadership. Still, he contends that successor generations benefit greatly being around entrepreneurs most of their lives.

"I've been most impressed by the entrepreneurial drive and imagination of those Kellogg students coming from business-owning families," says Ward, clinical professor of family enterprise.

That entrepreneurial imagination, however, can lead some to focus on reward to the point of "absurd optimism," forgetting the risks, notes Shefsky.

"For entrepreneurs, the glass isn't simply half-full; there are waves crashing over the top," he says.

Expanding the entrepreneurial field
This optimism may have had something to do with the Internet boom, especially its more improbable ventures.

For much of the 1990s, in fact, many confused entrepreneurship with an activity more familiar to the inside of a Las Vegas casino. For others, the Internet was synonymous with entrepreneurship.

In reality, say Kellogg experts, entrepreneurship encompasses a wide range of initiatives — from high-tech ventures to barbershops.

At Kellogg, scholars and students are exploring family business as an arena receptive to MBAs looking to test their entrepreneurial skills. Kellogg School Dean Dipak C. Jain contends that MBAs and family enterprise leaders should capitalize on what he sees as important, and underappreciated, partnerships.

"While family businesses certainly do employ graduates of top schools like Kellogg, we believe there remains considerable untapped opportunities for each group," says Jain.

The challenge for business schools today is to create new markets attractive to MBAs, Jain says, adding that a tight economy exacerbates the plight of those looking to step into lucrative roles immediately after graduation. One way the dean believes Kellogg can meet this challenge is through renewed attention on entrepreneurship, redefining it to include sectors such as family business, whose entrepreneurial potential is sometimes disregarded by MBA graduates.

"Kellogg intends to continue developing a rapport with family business by creating custom executive education courses for their leaders," Jain says. At the same time, these firms can work with Kellogg to design project-based curricula. MBA students would engage in projects with these companies, just as they have done with larger firms.

Of course, these two groups are not total strangers to each other — especially at Kellogg where the CFE has played a major role in advancing the family business curriculum, including the Family Enterprises and Solutions offering. Shefsky notes that this class has the most participants of any family business course in any business school in the United States. In addition, according to Ward, Kellogg is home to a unique executive program called Governing the Family Business. (The next session for this offering is Oct. 8 to 11.)

Ward says the Kellogg School is in the vanguard of family business research.

© Robert A. Lisak  Cindi Bigelow '86 (right) with (left to right) sister Lori, father David, and mother Eunice.

"There is a dearth of teaching cases on family business ownership and continuity. Proudly, we have written more such cases in the past three years than any other business school in the world," says Ward, whose reputation as a family business scholar is founded by his extensive publications — some three books, an influential series of booklets and dozens of articles — on all aspects of the subject.

In addition, Ward indicates that the CFE's annual New Ideas and Best Practices Conference attracts top international family business leaders. The invitation-only event tackles a number of challenges confronting family enterprises, including managing generational transition and strategic change.

Given the achievement associated with the Kellogg Center for Family Enterprises, Dean Jain would like to see more entrepreneurial MBA candidates take a serious look at the Kellogg family business program. He also thinks family business leaders should turn more frequently to B-school graduates looking to put their managerial insights to work in an environment that's often more intimate and willing to take calculated risks.

The challenge, Jain explains, is to bring MBAs and family business professionals together so each sees past the assumptions they might hold about one another. Sometimes getting everyone to speak the same language is the first step.

'Smart risks' for families and MBAs
Cindi Bigelow, for instance, is a little suspicious of what she considers buzzwords. Like "entrepreneurship."

As senior vice president at the Connecticut-based tea company that bears her family name, Bigelow '86 is a third-generation member of a firm famous for producing premier teas and related products. Her company won the 2002 Ernst & Young Entrepreneur of the Year Award for the northeastern United States.

Bigelow says that entrepreneurship can be a "vague and scary word" that hides more than it reveals. But she also says her family's 400-employee company doesn't back away from taking the smart risks that she believes lie at the heart of good entrepreneurship. There are, however, differences between how her firm approaches change and how a traditional entrepreneur might.

"We need to make sound business decisions even as we move quickly," Bigelow explains. "A stereotypical entrepreneur might be more risk-tolerant and impulsive than we are."

Bigelow says that the key to balancing tradition and innovation within a family business — a tricky point for many — is to "ask tough questions as a group" and welcome the opinions of naysayers who force the company's leadership to examine strategy more closely.

Bigelow recalls the Sunday dinners with her grandmother Ruth — the company's founder — and knew from an early age that she wanted to be involved in the family business. Bigelow's father, David, passed along his passion for the business to her, inviting his daughter's opinion about the firm's products. ("Not that your opinion mattered much as a child," she recalls.)

Bigelow "absolutely" believes family businesses are viable arenas for entrepreneurial MBAs. But she cautions that grads must find the right family business, one practicing what she calls "new entrepreneurship," which she defines as a model that embraces flexibility, seeks fresh opportunities and isn't afraid of asking challenging questions before running with an idea.

"Finding this environment is critical," Bigelow says. "Otherwise you're going to kill your MBAs."

Avi Steinlauf '98 agrees. The vice president of revenue optimization at Edmunds.com, a venture that since 1966 has built a reputation as the leading provider of automotive pricing guides, says entrepreneurs possess a vision that most others don't have.

"They see opportunities further out in time and have an ability and interest in taking risks and making quick decisions," says Steinlauf, who along with his father, Peter, the firm's founder, are the only family members at the 160-person company based in Santa Monica, Calif.

Life at Edmunds, he says, remains very entrepreneurial, since the company is relatively young and still has the founder active in the enterprise.

Steinlauf insists that family businesses can be "a great opportunity" for MBAs interested in pursuing entrepreneurship, but says that a lot depends on an individual's career ambitions.

"If you want to be CEO at a family business, then you need to determine whether the family members have management capabilities, or whether they're looking for an outsider to run the company," Steinlauf says.

Like Steinlauf, Stephanie Gallo sees definite opportunities for MBAs in family businesses such as hers.

The 1999 Kellogg School graduate is senior marketing manager at the Sonoma, Calif.-based E. & J. Gallo Winery. She's one of the third-generation family members in the business founded in 1933 by her great-uncle Julio and great-grandfather Ernest — who she says, at age 94, still goes to work every day.

"When we recruit, we look for people who are passionate and have an entrepreneurial spirit. It's a critical part of being successful here, and one of the things we believe keeps the company fresh," says Gallo. She adds that the firm has recently hired several Kellogg School graduates whose marketing skills are adding "immense value" to the enterprise. Her brother Chris is going to Kellogg and will be part of the Class of 2005.

Gallo reveals that her grandfather always seeks diverse opinions before making important decisions, and he and others in the company especially value new insights. "Ernest will always ask the most junior person in the room their opinion and listen intently because they often have one of the freshest perspectives," says Gallo, who considers her great-grandfather an archetypal entrepreneur, though one who began his business "because he had no choice."

"It was a matter of survival," she says. "Ernest and Julio were products of the Depression, and they had enough foresight to realize that Prohibition would be repealed. They had an opportunity to sell grapes, or else turn them into a value-added product like wine."

So Ernest went to the library and found two pre-Prohibition pamphlets on wine-making, says Gallo. The rest is history.

Passing the buck
Not all founders of family businesses are lucky to live as long as Ernest Gallo. Consequently, succession represents a major challenge for family enterprises, say Ward and Shefsky. Succession is where they see clear parallels between entrepreneurship and family enterprise.

Great entrepreneurs know when to step aside and let others manage their vision, explains Shefsky. Stepping aside is not necessarily easy for such founders, but they have an easier time doing so than their family business counterparts who often have great emotional investment in an enterprise, as well as obligations as stewards from prior to future generations.

What brilliant entrepreneurs do early on, says Shefsky, is bring a talented, trustworthy partner into the venture, and then nurture that manager until the individual understands the business and the vision, and can run the company effectively. Of course, the entrepreneur should simultaneously be trained to trust and accept such succession.

How do Kellogg School experts help family businesses overcome the succession hurdle? There's no one-size-fits-all solution, according to Shefsky, but he advises clients to begin planning early.

"A lot of people hear this and think, 'I better bring my kid in every Saturday and start teaching him the business,'" says Shefsky. "But I'm not just talking about dealing with the kids. Deal with yourself and get ready for succession. Communicate your principles and define your business to your kids so they understand and are comfortable. If they're not comfortable, maybe you should pass the reins on to someone else in the family, or to an outsider."

For its part, the Kellogg Center for Family Enterprises continues to offer leadership that enables family businesses to meet these complex challenges.

"We are humbled by the realization that many of our students are certain to become CEOs of important enterprises," says Ward. "We want to help them feel prepared for that path."