In order to establish the forward vision of entrepreneurial families, first study the Structural Risk Model developed by Doctor Alberto Gimeno, world- renowned expert on this topic, professor at ESADE in Barcelona, Spain, and also at Tecnológico de Monterrey. To explain this model, I would like to show you this. As you can see in the drawing, if we were to throw a small snowball on a snowy mountain, what could happen? An avalanche, a snowslide. And, an avalanche occurs because, according to Chaos Theory, a small disturbance can generate a big problem, as a result of the instability existing in the system. In other words, the Structural Risk Model measures the level of stability of the family business system and this will determine its propensity for the avalanche. For example, the risk will be greater if the founding leader or top person in the firm is older and the business cannot function without him or her. If there are several family members in the company’s management and there isn’t a board above them, the risk is greater, or if the members of the family consider that next CEO should be a family member, even if he or she isn’t competent, or the shareholders who do not work in the business do not have information on what is happening in the same, the risk level is high. How can we estimate structural risk?, First, with the family complexity variable, which indicates the number of people and the variety of relationships that exist in a family business. Therefore, it is evident that family complexity will increase over time. A first- generation family – father, mother and children - will be less complex than a third generation that forms a cousin consortium of 20 shareholders. The second variable is business complexity, which indicates the number of components and relationships that exist in the company with its environment. For example, with a greater business, greater specialization, if the company is exporting to several countries or there is a wide variety of products, the business complexity will be greater. As can be seen on the diagram, you can locate your business depending on the firm’s level complexity level and the family’s level of complexity. The following variable is structural development, in other words, the components that provide order and orientation to the system; the structure consists of habits, norms, processes, roles and governance bodies used by the family to relate to the business; the more complex the business and the family, the greater the structural development needed. A small, remote village with 1,000 inhabitants will have a lower structural development than a large city with a population of 20 million, a subway system and a large number of services will, of course, need a well-developed structure. Therefore, we can measure the structural risk of a family business, or, in other words, its risk or propensity of disappearing over time with the following formula: family complexity, greater business complexity, less structural development is equal to structural risk. This means that if the family’s level of complexity is low, plus a low level of business complexity minus a great structural development, then the structural risk will be lower, i.e. the company’s risk of disappearing in the future. Structure provides the family business system with stability. What are its components? a) Institutionalization, meaning that there are governance bodies which also function properly, b) family-business differentiation: the roles of the family members in the business should be clear, ownership defined and the family members held accountable and not just form a part of the same; c) management practices should be professional and with an adequate information structure in place with a set of indicators; d) communication, family members should recognize their differences and there should be explicit rules to solve conflicts; and e) succession, whether or not the entrepreneurial capability of the next generations has been developed, a lower dependency on the top executive or leader of the family business, and if there is a succession plan. With this Structural Risk Model, you will be able to have a very powerful tool to complete a full diagnosis of your family business. The recommendation is to find the weak points of the structure and start to work on them, which will undoubtedly diminish the risk of the family business’s disappearance.
