Many managers believe that business plans are used for only one purpose: To raise capital. While it is true that business plans are written more for this purpose than any other, it is by no means the only purpose.

An often overlooked and significant benefit of a business plan is not necessarily the Plan documentation, but rather, the process itself and its impact on the management team. A business plan requires the managers to take an objective, critical look at their business. The process can change how a business is perceived, open eyes to new opportunities or focus attention on those operations that are not adequately contributing to the overall success.

A business plan can spot potential problems before they occur.

The planning process involves setting organizational goals that are then translated into departmental goals that are then translated into goals for the smallest logical part of the business, (e.g. each individual sales representative in the case of a sales department). The textbook definition of the smallest logical part of a business is a “Strategic Business Unit.”

If you’re not concerned about impressing people, call it a Profit Center. Profit centers are organized in a manner that makes sense to the particular business. Some businesses may organize profit centers by classes of customers. Other businesses may think in terms of individual product or jobs.

Still others think in terms of lines of business. Do you have a different pricing structure for different classes of customers or for certain jobs? Do you require higher profit margins on certain products? Do certain products, customers or jobs just naturally “fit” together? Answer these questions and you will begin to think of your business, if you do not already, as a cluster of smaller enterprises.

This cluster of smaller enterprises can be thought of as an investment portfolio with each profit center representing an individual stock. Which should be invested in? Which should be liquidated? An investor has an overall goal for his portfolio. To achieve that goal he may take on higher risk investment for potentially higher return or he may accept a lower yield for proportionally lower risk.

Could your business be more profitable if some of your products, services or customers were emphasized while others were phased out?

Is each individual margin on each of your profit centers adequate to justify the risk? The answers to these questions form the basis of a business plan.

A formal business plan can help you manage your business better. Through it you can communicate your goals to others within your organization. The plan provides each manager with a common reference point. Departmental goals that are in harmony with the goals detailed in the business plan should also be in harmony with other departments.

As the business grows, it is much easier to delegate responsibility over a particular profit center when a performance target has been set. When performance is measurable, the owner can quickly identify and correct problems. The owner will also know which managers are achieving their goals and which need assistance.

Preparing a business plan is time consuming but is not difficult. Consider forming a planning team. The leader of the team should be able to remain objective, settle disputes between different departments and be a cheerleader for the plan. Often the team may be intimidated if the owner is also the team leader. Many businesses choose to hire a consultant to act in this capacity to insure objectivity and to provide motivation. Motivation and involvement are the keys. If the managers contribute to the planning process, they will be supportive of its implementation. Above all, the managers (and their staff) must feel it is “their” plan. Instilling a feeling of contribution or responsibility in the employees insures their support of the plan and contributes directly to the plan’s success. A plan without support ends up on a shelf gathering dust.

For more information about preparing a business plan for your company, please click here to contact us or e-mail us at stan@fambizdoc.com

These are just some of the more obvious communication barriers which plague companies and result in lost profits, poor morale, and needless frustration. Let’s take a look at some other, less obvious, barriers to communication:

1. Lack of cooperation
2. Silence
3. Isolationism
4. Walls
5. Good guys/bad guys
6. On/off meeting schedules
7. Job Insecurity
8. Lengthy meeting schedules
9. Process slowdown

1. Lack of Cooperation

This barrier can be insidious. It doesn’t always appear in the form of outright refusal. Instead, it can appear as forgetfulness (“I’m so sorry, it just slipped my mind”), lack of understanding (“I don’t know what you mean”), misunderstanding (“Oh, I thought you meant …”), or a difference in priorities (I’m sorry, but I won’t have time to get to it). Either way, it blocks the proper flow of information and work product.

2. Silence

This barrier is sometimes hard to detect. It can be camouflaged to look like harmony. Yet, it results in the blockage of valuable information between people and/or departments. It isn’t necessarily the deliberate destruction or discarding of information, but rather the selective filtering or complete transfer of information. For example, the purchasing department head might become aware of something that adversely affects the sales department (e.g. a major delay in product shipments). Yet, he fails to communicate that information to the sales manager. Such silence can be costly.

3. Isolationism

While team spirit and a sense of department identity can be a positive force, some managers create an “us and them” mentality among their staff. Not only is this a negative attitude, but it stifles individuals from learning more about the company’s operations. Also, it precludes staff from developing a whole team image and diminishes job satisfaction.

4. Walls

When operating departments create barriers so that attempts to provide incoming communication are thwarted (e.g. “Those guys don’t know what they’re talking about. Don’t rely on what they say.”), valuable information is lost.

5. Good Guys/Bad Guys

Whereas isolationism pertains more to entire departments, good guys/bad guys is a form of political war games. This barrier seeks to pit members against each other – the good guys against the bad guys. This often happens between members of the sales department and members of the purchasing department. Either way, it creates a combative mentality between individuals mostly for the purpose of gaining or exercising control.

6. On/Off Meeting Schedules

Because people’s schedules don’t always conform, a frequently changing meeting schedule can increase the likelihood that one or more people will not be able to attend a given meeting. This obviously thwarts good communication.

7. Job Insecurity

Especially in today’s economy, this barrier plays havoc with good morale which in turn affects good communication. Some managers appeal to fear as a motivator and a way of controlling their staff. And while it may appear to serve a purpose to these managers, they are unwittingly impeding their staff’s performance by negatively affecting concentration, judgment and other cognitive skills which are affected by job insecurity. Creating a positive environment can greatly improve communications.

8. Lengthy Meeting Schedules

Overcooked meetings that drag on endlessly and aimlessly serve to demotivate and tune out the participants. Consequently, potentially valuable and necessary information can be filtered out or overlooked. This barrier to effective communications is probably on of the most abused.

9. Process Slowdown

This barrier is manifested by long gaps between completion of one phase and commencement of the next phase. While one might expect it to be rather obvious, it is often undetected until the resultant damage is too great to endure financially. If the purchasing department is not pleased with the warehouse staff, it is possible that the needed warehouse supplies might get ordered on time. Or perhaps, the accounting department is a little lax in processing the sales staff expense reports (“That’s what they get for not underlining the expense totals.”). If your company is experiencing productivity decreases, quality problems, and lowered staff morale, chances are you have a serious case of the communication blues.

For more information about how you can break the internal communications barriers in your organization, please click here to contact us or e-mail us at stan@fambizdoc.com

Many times the approach used to install a computer system is taken too lightly. There is more to implementation than just plugging the equipment into the wall. If you are lucky, the vendor you are working with on the hardware selection will also assist you with implementation procedures. However, this is not a service you should assume is being offered as part of “the deal.” The vendor may assume you know what you are doing or they may feel that letting you know might scare you away. It is also possible the vendor is not aware of what is involved after the sale. Still, you are responsible and unless you and your staff are prepared, the end result will not be a pleasant experience. You should be anticipating improved productivity as well as a return on your investment. Careful planning and a little bit of patience will more than likely guarantee a successful implementation. Here are a few tips to help you get started:

Tip No. 1: DO make sure the equipment purchased is supported by the vendor should something not be in working order.

It is important to have such terms as support, maintenance and warranty in writing.

DON’T purchase the computer thinking that because it’s new it is going to run perfectly or that you can easily solve the problems yourself.

You’re not buying a new car nor are you taking apart an old clock.

Tip No. 2: DO contact a registered electrician to make sure your outlets will supply the required amount of power without overloading any circuits. You could lose valuable information as well as time.

DON’T try running industrial sized extension cords to redistribute the power supply or rewire the electrical system with a do-it-yourself book.

Tip No. 3: DO take the time to prepare a layout of the work area. This includes proper lighting, plenty of “elbow room” and proper ventilation. Atmosphere is an important factor in productivity and proper use of equipment*especially during long hours.

DON’T expect outstanding results with extremely bright overhead lights in a tiny corner in the supply closet with a fan in the doorway. Tip No. 4: DO plan to start with priority projects first. A well-planned strategy will help avoid frustration which can cause a negative and overwhelming effect on everyone.

DON’T insist on automating everything at once or a “little of this and a little of that.” The smorgasbord approach will not work.

Tip No. 5: DO assess training needs for the staff as well as yourself in both the hardware and application area.

DON’T assume the tutorial is going to get you up and running in an hour. Reality will not allow any of us to use the “follow the bouncing ball” approach.

Tip No. 6: DO designate an area where all data (diskettes, tape, cartridge) and applications/programs will be stored. This should be an area that will protect storage media from heat, excessive cold, magnetic objects, water, fire, etc. Remember, a lot of time and money has been invested in your data.

DON’T keep storage media in your desk or on a shelf in the closet unless you really want to start all over.

Tip No. 7: DO plan to evaluate all procedures as well as the anticipated benefits within the first couple of months. By this time, the learning curve will more than likely have diminished and an accurate assessment of the system implementation can be made. This is called “ironing out the wrinkles.”

DON’T consider the system evaluation a “chore” you can live without and that someone else will do it. You’ll be creating your own time bomb if you think you can “fudge it” for a while. In short, buying a system for your company and making it work for you involves more than just picking out hardware. Purchases are often made before considering what the system is really intended to achieve. The trick is to decide what kind of “work” you want the computer to do for you and your company. This will determine what software programs will be used and how the data will be stored and accessed in the system in addition to what supplies are needed (e.g. ribbons, diskettes, paper). The hardware should be compatible with your software–not the other way around. This is a very simple process and often people will consult with professionals in this area to ensure all aspects in the selection process have been considered. Sometimes an “outsider” is needed in order to provide an objective view of the full scope of the project.

CONSIDER THE PEOPLE

An important area which is often overlooked is the involvement of company personnel. If the staff who will use the system are not included in the actual evaluation prior to the implementation, as well as the implementation itself, you risk the possibility of resentment, frustration and lowered morale. Why should you care? In short, a negative attitude could create a wall between getting started and finishing. Therefore, training and staff involvement is essential in the beginning. You should never feel you are the only one who should learn how the system will work. Automation requires dedication and commitment from everyone in order to be successful.

“Implementing computer systems and being good at golf have something in common; experience and practice counts.” We can assist you in your implementation plans and help guide you in making automation a successful and productive investment for your business.

For more information about automation, please click here to contact us or e-mail us at stan@fambizdoc.com

1. To identify any potential maladies that are not apparent to themselves;
2. To identify opportunities for enhancing their overall physical well-being.

BUSINESS DOCTORS

Some management consultants traditionally serve as “business doctors” to their clients. As a natural part of their confidential relationship, they often diagnose problems or recognize opportunities for their clients which result in their “prescribing” treatment to “cure” a problem or enhance the well-being of their client’s operations.

Today, the management advisor calls this area of service Management Advisory Services and the physical exam is called an Operational Review.

OPERATIONAL REVIEW

Management consultants define this as the process to assess performance, identify opportunities for improvement and develop recommendations for further action.

In lay terms, it is “what top management would and should do to maximize its use of resources if it had the time and skill it needed.”

PURPOSE OF REVIEW

Assessing Performance

It is important to assess the manner in which activities are conducted as compared to established goals and objectives and other appropriate management criteria.

Identify Ways To Improve

Operational improvements such as increased economy, efficiency and effectiveness are key objectives of operational reviews.

BENEFITS

Before any manager commits the resources necessary to conduct an operational review, he or she must be satisfied that significant value will be received.

These anticipated benefits will fall into one or more of the following categories:

1. Identification of problems 2. Cost reduction 3. Revenue and profit improvement 4. Identification of undefined goals and objectives 5. Operational improvements 6. Evaluation of performance 7. Review of degree of compliance (policies, regulations, objectives 8. Assess management information/control systems 9. Identify trouble spots in future operations 10. Provide channel of communications; and 11. Provide independent, objective evaluation of operations.

CONCLUSION

Just as small people need physical examinations no less than “large” people, it is important to remember that small busi- nesses can benefit from an Operational Review just as much as larger businesses. Oftentimes, managers of small businesses are “so close to the trees” that they do not see the “forest”. Things may be “slipping through the cracks”, yet they may not hear the “creaking”.

The management advisor plays a vital role to his/her client by:

1. helping to evaluate the effectiveness and efficiency of the client’s organization;
2. helping to develop and implement their business plans or action;
3. measuring financial impact of plans and actions;
4. being an objective observer; and
5. serving as an information resource.

Management Advisory Group actively provides operational review services to its clients. For more information, please click here to contact us or e-mail us at stan@fambizdoc.com

You are probably familiar with body language and other nonverbal forms of communication. Yet, with all the knowledge we have about communication, many of us still have great difficulty communicating effectively – whether individually or as part of a group? Communication, like sports, is easier to understand conceptually than it is to execute. Just ask any golfer!

If you have suffered the slings and arrows of poor communication, then you will be interested in learning how you can help to break internal communication barriers.

Managerial Communications

To begin with, let take a look at the many dimensions of managerial communications. The table on the next page lists seventeen of these dimensions. You may already know some of them: behavioral, inferential, factual, written, and verbal. And for some, verbal communication can be the one which gets them in the most trouble. Let’s review some of the more subtle forms of communication….those messages you never hear or see.

Yet, their meaning is loud and clear! For example, you may have had personal plans to go somewhere after work. But, when your boss asks you to stay late to help with an urgent project, or if a client asks if you could please meet him for dinner, you know the real message is: “This may sound optional, but you know I’m expecting you to say yes.” This is an example of inferential communication.

In the military, in sports, and other specialized environments, there are a variety of semantic communications. For example, we are all familiar with the All-American Hot Dog. Yet, in skiing, that term refers to a certain type of skiing style.

We’re not talking about slang expressions. There are many words which have different meanings in different environments. Let’s take the word: juggle. In the accounting profession, it one juggles the books, they may find themselves in a vertical position behind steel bars. Whereas an executive who juggles his/her schedule, is considered flexible and possibly efficient. Clowns, however, do juggle balls in the air.

Another dimension of communication is tactile (touch). We know how important touch is for the healthy development of babies. But it is no less important a medium for communicating messages to fellow workers. A pat on the back (literally) can feel good to the person who just accomplished a difficult assignment. Sure, it’s nice to hear you’ve done a good job, but that pat on the back does feel good! When you add the dimension of touch, the message can be quite strong and genuine.

Another form of communication, often encountered by sales people, is nonverbal. Dead silence can be a powerful form of communication when you’re looking for a response from a customer who doesn’t seem pleased with your offering – whether it’s price or another selling point. A look of puzzlement isn’t a good sign when you’re explaining some of your product’s features and benefits. These nonverbal clues are just as important, if not more important, than anything that is uttered by the customer.

Organizations become victims of poor communications not only because of technical deficiencies, but also because of internal barriers. For example, personality conflicts, office politics, power struggles, policy changes, and organizational changes add fuel to the fire of poor communications.

Fear (of one’s boss or ostracism from ones peer group) is another barrier to effective communication. High stress levels, an excessive work pace, and frequent interruptions also contribute to poor communication.

To understand, the power of communication, just ponder this thought which appeared in a syndicated cartoon: “Dinosaurs could rule the world if they could organize their speech.”

Dimensions of Managerial Communication

1. Behavioral
2. Formal/Informal
3. Factual
4. Perceptual
5. Inferential
6. Technical
7. Organizational
8. Written
9. Oral
10. Nonverbal
11. Semantical
12. External/Internal
13. Directional
14. Symbolic
15. Motivational
16. Up/Down/Across
17. Tactile (touch)

For more information about how you can improve communications in your organization, please click here to contact us or e-mail us at stan@fambizdoc.com

Using automobile racing as a metaphor, the car is only as good as the driver holding the wheel and the pit crew supporting the driver and the car. If you were thinking of doing some research on the subject of leadership development, you might go into shock when you discovered how many sites were available. If you checked out the web site of a popular Internet bookstore, you will have a choice of over 6,000 books on the subject of leadership. Just picking a book that suited you could be a career in itself!

After discovering how much information existed on the subject of leadership development, it seemed best to set a goal to have you work with the information that exists, and with the traits you already have rather than trying to impart new wisdom. Practicing as a management consultant for over 30 years has enabled me to see some of the best and worst leadership. These experiences have been in the setting of privately owned businesses and during 6 years service in the Army Reserves. The list of leadership traits shown below was compiled during a “brain-storming session” with about 20 leaders who are members of the Siena Family Business Institute. The basic question posed was, “What traits would you want in a leader in order to be willing to follow that person?”

While not exhaustive, this list is worth reviewing. Your comments are invited. Some people believe leaders are born. However, many management experts believe that leaders can be made. In other words, people can be developed into leaders.

This point of view has some validity, but it may be like saying “Anyone can learn to play the piano.” A retort could be, “Not everyone can become an accomplished pianist”. Perhaps it is fair to say that if someone does not have the inherent gifts to become a great leader, all the training and development in the world will not make him/her into one.

Nonetheless, management would be well advised to consider taking a hard look at how well it is doing to provide the encouragement and support to foster leadership development within its organization. The list below may be idealistic. Some great leaders were not highly endowed with all of these traits. There may appear to be some duplication or overlap among some of these traits (e.g. industrious/high performer); however, there are some nuances that make them different that cannot be addressed at this time.

LEADERSHIP TRAITS

If you are in a leadership role, it might be enlightening to step back and take stock of yourself regarding these traits. I could suggest more formal and objective ways, but for now, I think just taking a “peek” at yourself from a distance is a good start. You will likely identify those areas that require the most attention and offer the greatest potential payback from additional development. You will find that it is difficult to focus on more than a few areas at one time. So, do not get overly ambitious.

If you have the heart for it, and if you use a competent and objective, third party (called consultants), you might even try to determine how your peers and subordinates view you. In Organizational Development circles, this is known as “360 degree feedback”. This can be an eye opener (good and bad). Supposing you do this and learn that your rating in certain areas is not to your liking? What are your options? You can say, “Nobody’s perfect!” and continue functioning at less than optimal. You can walk around feeling guilty or ashamed for being imperfect or you can decide to engage in a program of self- development.

Sometimes this takes the form of listening to cassette tapes, reading books, completing questionnaires and the like. You can also hire an executive coach to work with you one-on-one. Another option is to bring in a trainer to provide seminars and workshops intended to teach you new skills (or hone existing ones), tune up your attitude, and help you and your teammates to function better as a team. After all, who said only the leader needs development?

You probably already use many of these tools. My only hope (not a modest one) is that by simply bringing this to your attention, you will invest the time to focus (the operative word) on your leadership development. My main premise is that everyone has some degree of leadership capacity in them. You see this during times of crisis when a non-leader takes control of the situation. This is manifested in the military through astounding acts of heroism. An astute leader recognizes when he/she is not as effective as they want and need to be. Take a moment to review the checklist above to reflect on your situation. Perhaps this will give you a clue where you need to look deepest. Good luck on your search to discover and develop the best that is within you.

For more information, please click here to contact us or e-mail us at stan@fambizdoc.com

In discussing the subject of conflict in family businesses, it is essential to point out that leading psychologists acknowledge that conflict is a normal by-product of transition in a family business and that there are proven ways to manage such conflicts in a productive (or less destructive) manner.

While this may not eliminate the conflict or underlying causes completely, sufficient gains can be realized to allow the business to function in a more productive and harmonious manner. In some cases, conflict between family members (or others) can be resolved (i.e. essentially eliminated). In other instances, it may only be possible to minimize it.

I. CONFLICT RESOLUTION

A. Negotiate for meaning – be sure you understand the issues involved; i.e. don’t fight over the wrong reasons;

B. Reverse roles – be sure you understand the other person’s perspective and feelings; i.e. their “reality”.

C. Negotiate for common goals – find the principles that all parties can agree on. Frequently, people don’t realize they want the same thing and are haggling over the “mechanics” of execution.

D. Negotiate for cooperative action – agree on what you will do – not what you won’t do; identify your degree of rigidity or flexibility on certain items (i.e., black and white vs. gray areas). Determine what you will give up and what you want in exchange.

E. Negotiate autonomy – to coin a phrase from the “hippie generation”, everyone needs “their space”. Identify how much “space” each of you needs and then develop a way to assure that everyone gets their needs satisfied. At first glance, these approaches may sound abstract, but after careful thought and introspection, almost everyone can relate them to his/her situation.

II. CONFLICT REDUCTION

If you have determined that total resolution isn’t possible or necessary and that simply reducing the amount of conflict (as some conflict may appear beneficial for other reasons), then you should consider the following steps in combination:

A. Negotiate for meaning
B. Negotiate for autonomy
C. Agree on a time period (e.g. we’ll agree to disagree and not throw rocks for the next three months”).

At times you may have a project that requires the efforts of two or more people. Here you have two options of which both are directly opposite:

1. Decrease interdependence – separate the tasks (if possible) so that each party can work independently (i.e. put them in separate “corners”) or
2. Increase interdependence – structure the tasks in such a fashion that each party will fail without the cooperation of the other (i.e. “United we stand, divided we fall”).

A simple example of this is taking two people and tying one leg of each of them together and then having them run a race together.

While they may despise each other, they know they will surely lose the race if they don’t work in unison. Who knows, maybe they’ll begin to trust and respect each other in the process?

III. CONFLICT REMISSION

SOURCES OF CONFLICT Conflicts between family members in business can often be traced to similar underlying conflicts in their personal family lives. Conflict remission requires and understanding of those dynamics; for example:

1. Differing goals for the business
2. Time management/work overload
3. Compensation/benefits disagreements
4. Different or unequal commitment to the business (hours, diligence, sense of urgency)
5. Family – non-family employee issues
6. Power/ego struggles
7. Insufficient definition of roles and responsibilities
8. Spillage between work and home life
9. Difficulties expanding the business
10. Change in the firm or breaking with tradition
11. Differing attitudes about spending or investment
12. Succession issues
13. Family dynamics interfere with communications and decision making
14. In-laws in the business
15. Personal crisis of family member employee
16. Feeling unsupported

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Business owners in this situation often assume that their only option is to sell the business. In fact, consolidators (i.e. larger national companies looking to merge smaller, local companies) will prey on companies in this situation. Consolidators recognize that these businesses are vulnerable to death, disability, or early retirement of the owners and that these businesses do not usually sell at multiples of earnings as high as comparable public companies. Therefore, they have a real incentive to chase after these companies once they smell a hint of weakness in succession planning. Some offers are so large (because of the huge difference between the “public offering” valuation and the “private” valuation) that the offer almost represents a bribe or extortion. It can be a true example of “an offer too good to refuse”.

These businesses have other options beyond an outright sale of the business. Some of these options are to:

1. Hire competent non-family managers to permanently assume leadership positions. They essentially “share custody” of the family business with family member/shareholders. This usually requires creating “golden handcuffs” so these non-family managers will remain and be loyal to the company…and the family.

2. Hire competent non-family managers to temporarily assume leadership positions in order to develop family members who may have the potential for leadership but are simply too young, inexperienced, or lack training. This is a very viable alternative but requires careful orchestration.

3. Carefully examine the list of family members who do not work in the business (who are already successful in their careers) and determine if they might be good candidates to “recruit”. Then approach them to determine their level of interest in joining the family business. They may still require grooming from non-family managers that have the necessary experience and training, but this is an acceptable alternative if this is early enough in the succession plan.

4. Merge with a “friendly” competitor. While this may, in some instances, be tantamount to a sale, it can also be structured like “a jointure of equals” where the company with the weaker management team is integrated with the stronger company and a new management team is assembled taking advantage of the strengths of all members. Sometimes this works because there is some overlap (and cross coverage) even though the weaker team members might not have been able to carry the entire leadership load by themselves. Similarly, the stronger players may benefit from some backup (e.g. emergencies, long vacations, personal time off, illnesses, etc.).

5. Have another company, who desires participation in your industry, become a significant shareholder in your company who will also supply some management talent as well as financing. This is a common alternative when the family business has significant untapped growth potential and the shareholders desire to tap into that but simply do not have the resources to do so alone. This “gap of resources is often money as well as management talent. Simply put, the family members want to keep the goose that laid the golden egg, but are not able to care for it in a manner that maximizes egg production over the long term.

There are other ways to deal with this situation only limited by one’s imagination, time available to execute the alternative, and the risk tolerance of the family member/shareholders. The goal of this discussion is to simply let family businesses know that they do not have to view an outright sale (often under undesirable circumstances) as the only option when there appears to be no family member to take over.

Family businesses that face this situation would be well served to read the many articles and case studies that have been written on this topic. The experience of others in similar situations is invaluable.

For more information, please click here to contact us or e-mail us at stan@fambizdoc.com

DO WE HAVE THE FIREPOWER?

The concern I have is how the fewer than 150 family business institutes will ever meet the succession needs of these businesses. The only reason they are able to cope is the extremely small number of family businesses in these organizations. Because family business institutes are fairly new to the scene (the majority are under five years old), most have fewer than fifty member companies. Most can accommodate fewer than seventy companies in their current format and facilities. Therefore, they must be able to reach out on a broader scale. I believe they need to interact on a greater level with the professionals who serve these family businesses. Professionals need to increase their clients’ understanding of their environment and how best to meet the challenges family businesses face. Why? Let me quote some statistics. 2 out of 3 family businesses that are in the 2nd generation will not make it to the 3rd. And 6 out of 7 family businesses that are in the 3rd generation won’t make it to the next. Now, these statistics are somewhat biased, as I understand that the average life cycle of most small businesses is around 25 years. However, this does not lessen the importance of the issue of continuity since it is accepted that one of the leading causes of family business failure is the lack of planning given to identifying and grooming a successor.

WE NEED THE HELP OF OTHERS

Many professionals focus on the tax and financial planning aspects of business transfer between family members. While those are important aspects, it is essential that attention be given to the family-dynamics and personal issues among the family members in the business. Accountants, lawyers and other professional advisors may not be formally trained in these disciplines, but they can play an integral role as facilitators and as a resource forother advisors who can team up with them. After all, they usually know the family members and have gained their trust. This is an essential element to the process.

OWNERS MUST BECOME INFORMED

There is further evidence that these professional advisors have a great opportunity to serve their clients in this manner. Family business institutes have to vigorously market themselves to attract these family businesses to become members. Family businesses often operate under the handicap of too few people to get too much done. Owners find it almost impossible to set aside time to attend seminars, participate in self-improvement programs and the like. They are busy doing things rather than managing people. Michael Gerber addresses this point effectively in his book, The E-Myth Revisited (© 1996). Worse yet, many entrepreneurs let their egos get in the way when it comes to seeking help from others. Their pride causes them to say, “I don’t need any help from others. I can take care of my problems myself”. Even worse, they are often in a state of denial when their pride makes them say, ” I’m Ok. I don’t have a problem.” That may be what General Custer was saying before his demise.

THE MARKET FOR SERVICES IS HUGE

If only ten percent of the family businesses in the United States had a real need to learn more about how to avoid the pitfalls that cause 2 out of 3 to fail after the 2nd generation and 6 out of 7 to fail after the 3rd, then there would be over one million potential members to be served by the fewer than 150 family business institutes. Of course, common sense would tell us that 10% is far too conservative. If this is the case, and if one knows that family business institutes work hard just to attract fifty family businesses to their membership, then what does this suggest? I contend it serves as proof that most family business owners and their family members have not made succession planning and healthy family dynamics a priority for their business. This was further proven in a study sponsored by an international CPA firm and a major life insurance company which showed that fewer than 25% of small businesses had done any type of succession planning, and fewer than 50% had chosen a successor in the event of death, disability or retirement of the founder or current leader.

NEGLECT KEEPS THE MARKET SMALL

So, while I started out feeling that family business institutes (including the Siena Family Business Institute) had so much to do in so little time, I guess they don’t really have to be so concerned with what could be such a daunting task. As long as family businesses don’t mind living with their internal problems (which don’t exist!), then the institutes don’t have to worry about addressing them. After all, out of sight, out of mind. No, I’m not going to let family business owners off the hook that easily. I will identify and address some of the typical challenges they face with the hope that maybe this friendly reminder might cause them to rethink their commitment to seeking help from family business institutes and competent professional advisors.

FAMILY BUSINESSES-THE DIFFERENCE

But before I do that, let me briefly address one issue. People who have never worked for a family-operated business often wonder what is so unique about the challenges found in those entities. While all businesses are made up of various types of people with varying personalities, what separates family businesses from other organizations is family. One only has to think of their relationships with parents, siblings, in-laws, cousins, uncles, aunts, and grandparents to appreciate why the emotional dynamics of these relationships might be different from the emotional challenges of non-family co-workers. The real challenges surface when these individuals fail to separate their behavior and roles as family members from their roles as employee in the family business.

NOT ALL FAMILY BUSINESSES ARE SMALL

So much for making the argument that family-operated businesses are different than non-family businesses. And by the way, not all family business are small businesses (i.e. under $25 million sales according to the Small Business Administration definition). There are many family-owned companies that have sales well in excess of $25 million, are international in scope, and are not publicly traded. As for the publicly traded family-controlled businesses, many people are surprised to learn that about 30% of the Fortune 500 companies are family controlled. One fine example is the Mars Corporation (makers of M & M candies). Coors Brewing, of beer fame, and Wrigley, of gum fame, were once family-controlled companies.

THE CHALLENGES: LEADERSHIP

Now back to the challenges of a family business. The most common challenge is determining which of the children (or other family members; e.g. cousins) will be capable of leading the team. Some families, like the United Kingdom, use the “oldest-male” system to select leaders. In today’s society, it is no secret that there are many females who possess the attributes to easily win an objective contest over their male siblings (younger or older) for top leadership roles. Fortunately, the “oldest male” approach is becoming obsolete.

COMPENSATION

Another challenge for family businesses is compensation. Parents often feel compelled to show each child they are loved equally by paying them equally, despite the wide disparity in performance of each child. They fail to accept that equal is not always equitable.

LETTING GO

“They won’t let go” is a common cry among children (who are often in their 50′s and 60′s) when parents are unable to pass the reins to them for fear of loss of financial security. When the existing owner/manager refuses to transfer control, serious conflict or lack of motivation among the children can occur. I have seen near anarchy occur with children threatening to take key employees with them to start new businesses.

PROCRASTINATION

Almost as bad as not letting go is when the parents finally agree to make the move, but procrastinate in getting the paperwork done. Years can go by before they finally sign the documents necessary to effect any real change in control. This creates mistrust and bitterness.

DELEGATION

Delegating is a challenge to all managers. But lack of delegation takes on a whole new persona in family businesses. Children take it real personal (as a lack of confidence in them) and parents suffer because they feel they must carry the load alone and are under appreciated. Dumb as it may sound, this is sometimes caused by parents (immaturely) fearing their younger generation progeny. Their fear is not of physical harm, but as a reflection of their getting older, or becoming less competent than their children, or just not wanting to give up control of an activity they enjoy.

TRAINING AND MENTORING

When it came time for my wife to learn how to drive (she was a late bloomer in this area), I knew that our marriage would stay intact if I funded her driver training with a professional driving instructor. Not because I didn’t know how to teach driving, but because I knew I wasn’t the best suited to do so. First of all, I would have taught her all my bad habits. Secondly, I knew I didn’t have the patience to stay calm as she careened into the sidewalks and slammed on the brakes in the middle of the block. The moral to this story is that not all parents are best equipped to select, train and mentor their successors. However, this does not mean they must be totally excluded from the process. This is a difficult thing for them to accept; so, it becomes a problem. There are many healthy ways to address this if only they would take the time to learn about them.

FINANCIAL SECURITY

I commented earlier about parents not letting go. But I didn’t mention that this is often well founded on their part. The value of the business often represents the greatest portion of the parents’ estate. Often, it is their sole resource for financial planning. Entrepreneurs often plow every penny they earn into the business and fail to provide a nest egg outside the business. This creates great pressure on them to retain control until the last minute. There are ways to address this concern in the interest of the parents and the children.

MAKING OBJECTIVE DECISIONS

Managers have a tough enough time disciplining or terminating key employees even when it is justified. Imagine what a tough time parents have disciplining or terminating family members when it is appropriate. I have even seen them unable to take appropriate action when a family member was caught stealing money from the business.

IDENTITY CRISIS

Entrepreneurs, by their very nature, have big egos. That doesn’t mean they are conceited or think they are omnipotent. It just means they have the personal pride and conviction to stick with their dreams when the going gets tough. Sometimes their egos (which can be tied to their personal identity) get linked to the business. That is, THEY are the business and the business is THEM. If the business becomes a failure (even if they are not working in it), then they have become a failure. This is not abstract. This is exactly how they feel and how they perceive the situation. Therefore, it is very difficult for them to “give custody of their baby” to someone else – especially the young children who could barely be trusted to clean up their rooms or come home before midnight as teenagers. You get the point.

LOSS OF STATUS

Some owners of prestigious businesses, get a sense of status and importance in the community from their business. To no longer be involved with their business represents a loss of that experience to feel prestige or status. Some even feel they are being put out to pasture.

THE MONEY TABOO

Many people raised prior to the 60′s may have had parents whose attitude was to “not talk about money.” Consequently, they are uncomfortable discussing their personal financial condition with or disclose the company’s financial condition to their children. Obviously, this “keep them in the dark” approach has many latent problems; the least of which is, “How do the kids learn to manage the finances, and how do they track the success of their efforts?”

DENIAL

And the all time favorite, of course, is the reality that only others will die or become disabled and not the owner. If they believed otherwise, they would have made the appropriate arrangements to plan succession, deal with financial planning matters, and tell the kids what they needed to know.

THE NEXT STEP

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Succession has never been a simple matter nor is it confined to top management. For example, the loss of a line supervisor can, for a time, be more critical in a highly automated manufacturing plant than a vacancy at the top management level.

Providing for succession so that trained personnel can assume authority with a minimum of confusion should not be deferred until key executives approach retirement. After all, not all executives hang on until age 65. Death, disablement, promotions, transfers, terminations or resignations are a part of the real world of business.

Closely-Held Companies

The smaller the family business, the more severe is the succession problem. When the younger generation takes over from the previous one, it is often due to an unexpected death rather than planned retirement. To make matters worse, the next in line–son, daughter or in-laws–may lack proper training or possess few qualifications

beyond the family relationship. And if that weren’t enough bad news, they might not have the desire to go on managing the company.

Transition Affects Others

Employees, suppliers, customers, competitors and bankers all have a legitimate interest. A company can become so torn with strife because of family in-fighting that if the business is put up for sale as a last resort, those who may earlier have wanted to buy it will lose interest. The company is then left to stagnate or die.

Why Successors Are Not Chosen

Let’s face it. Most managers are so busy just “doing their jobs” they have neither the time nor inclination to groom a successor. Some independent strong-minded managers may even resent having a qualified subordinate waiting in the wings to take over. Others may feel they have “plenty of time” to groom a successor. The prospect of retirement can be traumatic resulting in putting off planning for retirement and picking a replacement for as long as possible.

While a certain manager may have his/her own unique methods and strengths, unique does not mean indispensable. Another manager may have a different combination of strengths and be equally capable.

How to Plan for Succession

A long-term solution to the management succession problem requires long-term planning and there may be a need to replace a manager before those plans can be put into effect. A short-term approach would be to have an executive’s duties assumed either by his/her second-in-command or by a group of managers working together until an orderly transition to a permanent successor can be arranged.

Anticipating that every executive will ultimately retire, be promoted, become disabled, or be pirated away, a successor can be designated far in advance to work closely with the executive, assimilating the day-to-day routine and sharing the decision making.

By allowing the intended successor to work with his predecessor and familiarize himself with the routine as well as decision making processes, interest is stimulated while increasing skills.

It may not be possible to teach things like winning the confidence of bankers and making far-reaching decisions on company affairs. Practical experience must take up where management development courses end. Each company tailors a process which best fits its circumstances.

What can be done if there is no qualified successor?

Since training takes time, if there are no qualified successors to fill key vacancies (especially the CEO), it may be better to sell a company rather than trying to train a successor on short notice. This may seem like a drastic step, but it must be considered as one of the options as the company’s value and entire future may be at stake.

Summary

Key management succession should be a process, not a happening. To ignore the need for an orderly, planned transition of authority from one executive to the next is to ignore the facts of life and death.

In a closely-held company, it can mean the difference between survival and being dismantled.

For more information, please click here to contact us or e-mail us at stan@fambizdoc.com