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3 Big Differences Between Founding A High-Growth Startup And Managing A Legacy Family Business

Brad Nardick

Published

One of the biggest differences between stepping into a family business and founding a startup is the amount of friction you experience when confronting organizational change.

I am a millennial, third-generation business owner. Almost 60 years ago, my grandfather started our family’s business, The Bazaar, Inc. It was then taken over by my father, who is the company’s current CEO, with me stepping into the role of President of the company. And after working within the family, while also investing in a handful of early-stage startups and helping them get off the ground, I have experienced the significant differences between a legacy business and a brand new startup. 

The way I like to think about it is comparing the brain of a newborn baby to the brain of a parent. 

In a startup environment, for example, the company is still young, still malleable and eager to learn. Most startups are built on temporary business models that then adapt and change over time in order to survive in the world once they find product-market fit—and when a change has to be made, you talk about it for 20 minutes with the team and then the change is made, plain and simple. And it’s so simple because everyone is painfully aware of how young the company still is, and if a change isn’t made then the company won’t survive. 

A legacy company, however, has already survived, grown, matured, and settled. Our family’s business, for example, is much later in the business lifestyle lifecycle than an early-stage startup still focused on stability, repeatability, positive incremental cash flow growth, and so on. Employees that have been with the company for years, sometimes decades, tend to think less about innovation and disruption, and more about maintaining the status quo. “Everything we’ve been doing so far has been working, why would we do something different?”

There is no fault in either one of these perspectives. Early-stage startups are notorious for overreaching and haphazardly finding their footing just as much as late-stage companies are for abandoning a growth mindset. Which is why, as entrepreneurs, it’s imperative to understand the differences between these two business environments in order to navigate them effectively.

Difference #1: In startups, trust is built. In legacy companies, trust is earned.

One of the biggest misconceptions people have around family businesses is that positions are just handed to the next family member.

This couldn’t be further from the truth.

In my case, I started working in our company’s warehouse, then as a merchandise buyer, then in a retail store, and so on. I was working for managers who had been at the company for 10+ years, and their standards for work had already been well-established. I had to earn their trust based on the way they had been used to going about things. 

Within a startup, however, many of these social norms and team dynamics haven’t been set yet—or are still in their infancy. New team members build their sense of trust together, opposed to figuring out how to fit into a culture that has already existed for quite some time. And this same dynamic then applies to the way the company goes about building trust with customers. 

For example, when a new startup hits the market, there’s no company history—which means you have the advantage of being “new,” but you also have the challenge of having no track record. With a legacy company, all you have is your track record. And once that has been established, it can be very difficult to change the way the world sees your business.

Understanding which sort of dynamic you’re dealing with is crucial to successfully executing your role within the company.

Difference #2: Startups have no established turf, so change is exciting. Legacy companies have established their turfs and see change as threatening.

When you step into a family business, you are inherently going to be challenging the status quo—no matter which leadership role you have.

It’s the difference between building a new building from the ground-up and then going out and finding tenants for your new building, versus repairing the entire infrastructure of an existing building while trying not to disrupt the tenants who already live there. It’s a delicate balance between transitioning the operations and staff to a more forward-thinking approach, while still maintaining the old business model and “way of doing things” that is both proven and comfortable.

For example, our business has been running on a terribly outdated ERP software system for almost two decades. The old way wasn’t built for highly analytical thinking, which is unquestionably a point of improvement for us. But from the perspective of people who have been within the company, and even the industry, for just as long (if not longer), data doesn’t seem like a priority. 

This raises questions for employees who have never had metrics tied to the success of their job performance. All of a sudden, the company has a way of measuring an individual’s contributions within the company—and that alone can make people feel worried, skeptical, and so on. One way to navigate these changes is to create a visual road map for employees to reference when instituting changes. And, whenever possible, rework incentive plans to match the new behavior that is now being emphasized because of what the data indicates.

In startups, employees typically have some sort of equity and ownership within the company (even if it’s a very small amount). The incentive structure is extremely aligned because their equity is essentially worth nothing unless the company keeps growing/raising. In a legacy business, however, incentives tend to be incremental raises each year and maybe some sort of bonus structure. As a result, team members tend to be less enthusiastic about changes within the organization because those changes typically don’t do much for their personal situation.

There is a way to navigate this dynamic in legacy companies, but it requires a significant amount of communication and visualization on the leadership’s part.

Difference #3: High-growth startups come with a lot of external validation. Legacy companies require the same amount of work but attract far less attention.

In today’s business environment, being a founder playing the startup game is about as cool as being an up-and-coming music artist or television personality.

Founders are seen as overnight rockstars. They raise millions (or tens, or even hundreds of millions, billions (wink wink @wework ) of dollars in venture capital. The press starts to swarm and write pieces on the “big bet” being made on their industry. And then when the vast majority of them fail or fizzle out, nobody knows any different. The game just goes on.

With a legacy company, you need the same level of guts, the same level of entrepreneurial persistence in order to continue being successful, and yet you get none of the glory. The world isn’t interested in the incremental improvement you made in the business, no matter how difficult it was to implement, or how profitable it ended up being for the company. And so there is a humility that comes with realizing you are not the center of attention.

Your job is to keep the health of the company in good standing.

As a third-generation family business owner, I'm honored to be continuing the legacies of my grandfather and father. My grandfather built our business on integrity and a unique idea. When my father stepped in to lead the company, his relationship-building ability grew it to a $40M entity. Now I'm committed to continuing our growth through effective leadership, processes and technological innovation.

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