In the 20th century, one good business idea tended to survive three generations. This is roughly in line with how long a UK family business or family wealth usually lasted, hence the Lancashire proverb ‘from clogs to clogs is only three generations’.

However, a car built in 1900 lasted about 16 years, which wouldn’t happen these days. The use-by dates of items, ideas and business strategies get shorter and shorter because the pace of innovation is increasing. Look at many electronic gadgets, for example. They are just about relevant for a year.

Change is happening all the time – and it’s accelerating. ‘Exponential change’, as it’s often called, is a perceived increase in the rate of technological (and sometimes social and cultural) progress throughout history, which may suggest faster and more profound change in the future. For example, it took 38 years for radio to reach an audience of 50 million, 13 years for television to achieve that and four years for the internet to get there. Staggeringly, it only took ten months for social network site Facebook to reach nearly 1 million active users in 2004; it now has more than 800 million active users. If Facebook was a country, it would have the world’s third-largest population, after the People’s Republic of China and India.

As well as ever-changing products and services, information is becoming redundant at astonishing rates. Students starting a four-year technical degree in 2011 will find that half of what they learn in the first year will be obsolete by their third year. The philosopher Confucius said ‘study the past if you want to define the future’. Maybe he was right.

‘Innovators are vital in the future family business if they are going to stay in the game in the 21st century’

How can the next generation be helped to face this exponential change? Education is vital to the future success of the family. As Hungarian psychology professor Mihaly Csikszentmihalyi said: ‘If the next generation is to face the future with zest and self-confidence, we must educate them to be original as well as competent.’

The future leaders of the family business or enterprise will need to focus on customer relationships, analyse global trends and spot opportunities. They will need to be patient, perceptive, persistent and flexible in their strategy. Yet, at the same time, they must retain the core values of the family and maintain the stewardship of the family chattels. This means the current leaders of the family business, who may be traditionalists or baby boomers, need to embrace the future generations of their families, and not restrain them.

Generation Y, as they are known, are those between 11 and 30 years old (born 1981–2000). They will make up 47 per cent of the workforce by 2014; currently it’s 25 per cent. Having grown up in an era of technology, globalisation and conflict, they desire autonomy, diversity and positivity. They have high expectations of themselves and you have to earn their respect. To them smartphones, iPads, DVDs and text messages are the norm. They will push the limits and not take ‘no’ for an answer. They are comfortable with change, entrepreneurial, tolerant, quick decision-makers and good multi-taskers.

The original entrepreneur of a family business is more centralised in their thinking, making decisions quickly and being more risk adverse. However, future generations tend to become more decentralised, specialised, focused and prepared to take risk. They tend to rejuvenate, recreate and reinvent a family business. They are innovators.

Innovators are vital in the future family business if they are going to stay in the game in this rapidly changing 21st century. Change is going to be a constant in the next generation’s lives and they must be prepared for it. There may still 24 hours in a day and seven days in a week, but the business cycle is speeding up and the next generation are going to need good strategies, key skills and flexibility if they are to be successful members of future family businesses.

Steering the next generation

Over the past five years, A H Loder Advisers has helped families deal with exponential change and implement a next-generation succession plan by developing a process that encompasses these four phases:

The first stage helps the next generation understand who they are by using psychometric analysis tools. The information shapes a bespoke development programme for them. These programmes normally involve developing their basic personal skills and business skills to prepare for them to work in or run the family business or enterprise. They may be asked to attend business school, for example, if relevant and suitable.

Traditional schooling is important, but it does not seem to cover many vital skills used in business today, such as communication skills, contact management, the value of relationships and negotiation.

For business participants, being able to manage and understand their own financial affairs as well as those of their family is necessary in a world of complex financial products and rapidly changing economic situations. By improving their financial investment awareness, the next generation become capable of handling these financial challenges.

Finally, there’s entrepreneurship, which involves an internal focus on the existing family business – taking it in new directions, as well as an external focus on new products or businesses. This stage is important in helping the next generation become entrepreneurs, like their ancestors.

Supportive role

The trusted advisor is the person the client turns to when an issue arises, often in times of great urgency: a crisis, a change, a triumph or a defeat. The trusted advisor can become like the family doctor. As Bill Gates said: ‘It is important to have someone who you totally trust, who is totally committed, who shares your vision and yet who has a little bit different set of skills and who also acts as something of a check on you. The benefit of sparking off somebody who’s got that kind of brilliance is that it not only makes business fun, but it really leads to a lot of success.’

It is a difficult role to play, but one that gets easier with experience. For the client, it becomes an impartial voice in a jungle of family emotions, jealousy, greed, fear and happiness.

The key characteristics and skills of a trusted advisor are to:

• earn the trust of your client
• give advice effectively and above all tell the truth
• have good interpersonal skills and not be forceful
• be credible, experienced and discrete
• be aligned with the client but have a fresh perspective
• be able to understand the client’s needs
• be consistent and have a fresh perspective
• be analytical and not over-emotional; and
• have a sense of humour.

aThe role of the trusted advisor is to:

• focus on the client and not themselves
• act as a key sounding-board and mentor
• act as gatekeeper to the service providers

badvise all generations of the family on:

• strategic structuring of the family assets
• key performance measuring
• governance
• succession planning and implementation
• establishing a family office, if required
• be able to listen and evaluate what you are hearing; and
• give an opinion that may not always be what the client wants to hear.