By André Castellini and James Allen
Behind the early success of family-owned companies is a team of talented individuals who have a clear understanding of the company’s insurgent mission and passionately implement it. Family members have often been involved since founding, or they learned directly from the founders themselves. For this reason, many family businesses have an advantage when it comes to scaling.
Take Luiza Helena Trajano, chairwoman of Magazine Luiza, a leading Brazilian retailer. Luiza’s aunt and uncle founded the company in 1957. Luiza Helena started working in her aunt’s store when she was 12 and began running the company in 1991, when it had 30 stores. Magazine Luiza now has more than 800 stores and more than 26,000 employees.
Luiza Helena is a larger-than-life personality and one of the most well-known business leaders in Brazil. One of her key roles at Magazine Luiza is championing the store manager and his or her staff. This frontline obsession, a key insurgent value, was instilled in Luiza Helena from the beginning.
But what happens when the transfer of a family business doesn’t match the natural cadence of generations? Luiza was certainly ready to take over for her aunt and uncle. But the next-in-line leader may not always be prepared for their foreseen role.
Luiza’s son, Frederico Trajano, joined Magazine Luiza in 2000. He had graduated from one of Brazil’s top business schools and spent four years working as a retail analyst in investment banking. During this time, he studied leading-edge business strategy and developed a deep understanding of financial markets. But when Luiza needed someone to step in as CEO and execute the retailer’s IPO, Fred wasn’t quite ready. He still needed time to grow as a leader within the company.
In previous blogs, we’ve discussed how insurgents inevitably face a talent gap. There’s a need to increase leadership staff and add new capabilities in order to continue growing. Companies have to bring in reinforcements from the outside—often in the form of professional management.
The challenge is integrating this new talent without losing the Founder’s Mentality. Too often, insurgents hire professionals from large companies, who bring along their state-of-the-art management tools and processes. But they also bring an incumbent culture. They remain distanced from the front line, introduce bureaucratic complexity and fail to identify with the insurgent mission. In the end, they can destroy a company’s culture.
So how can family businesses such as Magazine Luiza reconcile the need to fill leadership gaps with the need to preserve their original mission?
In 2009, Magazine Luiza hired Marcelo Silva, an experienced retail executive, as CEO. His role was to prepare the company for its IPO and improve governance to help professionalize the business.
Marcelo did just that. But unlike some incumbent leaders, he acted carefully and put his ego aside. He intended to preserve and bolster the culture that made Magazine Luiza successful, rather than diminish it with bureaucracy. During Marcelo’s time as CEO, he operated with two goals: The first was to maintain Luiza’s focus on the front line; the second was to prepare his successor, Fred, for the leadership task ahead.
But Marcelo isn’t the only hero here—he didn’t achieve these goals alone. First, Luiza did her part to help the company continue its mission. She remained involved as Magazine Luiza’s president. As the company adopted a more professional management structure, she was determined to keep the store as the unit of value creation, in which the store manager has all the power and information needed to serve local customers. Her frontline obsession was a model for Marcelo.
In addition, Fred played a key role in smoothing the transition. With Marcelo in charge, Fred was able to nurture his frontline obsession and dedication to the customer. Starting in the sales department, he worked his way to the role of COO. Along the way, he gained hands-on experience with the front line, immersing himself in the company’s day-to-day operations and getting to know the people.
Marcelo’s presence also enabled Fred to explore Magazine Luiza’s next chapter. Early on, Fred recognized the importance of e-commerce. He dedicated his energy to developing the company’s digital strategy and operating model, with the goal of transforming the brick-and-mortar retailer into an omnichannel powerhouse. Through several trips to Silicon Valley, he kept up with emerging digital models and best practices. Inspired by what he saw, Fred launched initiatives such as LuizaLabs, a digital innovation laboratory. LuizaLabs has received credit for helping to increase Magazine Luiza’s e-commerce growth by 55%.
Fred’s professional development and deep understanding of Magazine Luiza’s culture earned him the role of CEO in 2016. Since he took over, Magazine Luiza has continued its upward growth. The company’s market value appreciated more than 60 times over the past two years, while its primary competitor’s value only appreciated five times.
Ultimately, the transition between professional management and family leaders requires balance and coordination on all sides. Family businesses can take away three key lessons from the success of Magazine Luiza.
- Recognize when you need help. Luiza and Fred could have forced the transition to keep Magazine Luiza under family control, but they didn’t. They acknowledged that Fred needed more time to develop and explore the business. More importantly, they found the right person to facilitate the transition.
- Preserve the insurgency. Luiza, Marcelo and Fred all shared the same goal throughout the transition years—namely, to uphold the company’s Founder’s Mentality. This demanded that all key players remained on the same page. In addition, each individual took on a critical role. Luiza guarded the company’s frontline obsession, Marcelo adopted the mindset of an owner, and Fred maintained an insurgent attitude through his digital endeavors.
- Abandon your ego. Insurgency isn’t about you. That’s a simple fact, but it’s often forgotten. All three players brought selfless leadership to the table. They knew their role in the transition, and they played it—there was no power grab.
By getting the right people into the right roles for a transition, family businesses not only can maintain their original mission but also strengthen it. They can build upon their values as they propel themselves into their next era of growth. That’s their competitive advantage.
André Castellini is a partner with Bain & Company in the firm’s São Paulo office.