CTR Family Business

A danger in any business is stagnation. As our business becomes more successful, we become more comfortable with our surroundings and less motivated to change from existing practices. Family businesses are no exception: Starting out on an entrepreneurial high, family businesses are widely recognized as a major source of technological innovation and economic progress.

But somewhere in the process we lose the drive, the desire to continually bring innovative practices and products to our organization. Owners may become more concerned about the risk of losing their business, than the prospect of growing it into a larger and more successful entity. In sports this can be compared to a coach who becomes more conservative in a game that the team is winning and instead of trying to win the game, they try and keep from losing it, usually ending up with either a very narrow win, or a loss. How can we continue to promote innovation into the lifeblood of a family business, even as the owner is aging and may be facing the prospect of turning the business over to a younger generation?

One key to this is vision. The leader in a family business must look to the future and ask themselves several questions:

* What is my vision for the future of this organization?
* Do I want this business to be a legacy to my foresight, and entrepreneurial abilities that will last for generations?
* Do I want to sell the business for the best price and leave an inheritance not tied to the business for my children and grand children?
* Do I want my business to be buried with me?

Each of these questions can spur multiple answers and will ultimately decide the current and future direction that the business takes, but the answer to the first question is really the one that will determine the future success or failure of an organization. An owner, who desires to pass their legacy on to a succeeding generation, and give them the best chance of success, will plan for the future; will prepare that company to be a success in their chosen field, and will consider all aspects of what it takes to make that company successful.

Developing a culture of innovation then becomes a key component in preparing that organization for the future. That is a lot easier said than done however, and each organization will have to find what works best for them. One factor particular to family businesses though is identifying a successor and grooming them early to take over the organization. You cannot leave this decision to the last minute. The transition from one leader to the next is difficult in any organization, but when you throw the dynamics of the family into the mix, it becomes even more precarious. Many organizations fail because the new manager (son or daughter) was not prepared for the intricacies of leadership, did not understand the business, or was simply the wrong choice for the job.

James Stephenson is an IT and Business Consultant with over 25 year of experience. He can be reached at jstephen@scc-i.com or you can visit his company's website at http://www.scc-i.com or his blog at http://www.scc-i.com/WordPress

How do you have a successful family business for multiple generations? There is no magic formula to guarantee that this can happen, but you can increase the likelihood that future members of your family will want to join your business by building a solid foundation based on seven characteristics:

Trust

Trust is a key to any successful relationship be it a business, family, or friendship. You must trust that those you work with will do the jobs they are assigned and that their focus is on the success of the organization. Those who see that you place your complete trust in will in turn develop feelings of trust for you and act accordingly.

Mutual Respect

In every relationship there must be mutual respect between the parties involved. When one party feels that they are better, or more important than others, they are taking focus away from the partnerships that can build mutually satisfying relationships. Families are about recognizing each other's strengths and building upon those of each other; it also involves recognizing each other's weaknesses and helping to overcome them or build them into strengths. This cannot be done when airs of superiority are presented among family members.

Loyalty

Loyalty is a character trait that is sadly lacking in the business world today; especially concerning is the increasing lack of loyalty among family members. Loyalty among family is more than key to its survival, it is an absolute necessity. Evidenced loyalty will provide family members with the confidence they need to trust each member of the family to do the right thing.

Love

This may seem overly trite, but there must be love between family members. You cannot succeed when those you are dependent on for your success are not close to your heart. If your goal is to keep your business within the family and build it for the benefit of future generations, you must honestly, without ulterior motives, love your family; not just those who are participating in the business, but all members. Love among members of the family will build the loyalty, mutual respect, and trust that are needed to make your business a success.

Service

Service to your customers and clients has always been a topic of discussion among successful organizations. The personal touch of offering clients service above and beyond what they might expect from an impersonal warehouse or department store type business will build a loyal customer base for every organization. In the family business another dynamic comes into play: Service to each other. You are not only striving to serve your customers, but you must serve one another. Family business is about building relationships of service to each other in order to make your business truly work as team and a family unit.

Flexibility

In any business, flexibility is key to survival and profit. It may even be more important in family businesses. As family members come and go, over the years and generations, each will bring different areas of expertise and interest. You must be able to adapt how structure your business, what products you create or offer, and how you actually conduct your business. Allowing family members the freedom and the excitement to bring their own personalities into the business may create a bond between them and the business that will become contagious to others within the organization, establishing a long lasting culture of innovation and flexibility.

Separation

Even though you are involved in a family business, there must be some separation between your business and family relationships. You must be able to separate the events that occur at work and those at home. Though difficult as it may be for families who are involved in a business together, their must be time to set aside the concerns of work and solely focus on building your family relationships. You cannot completely separate the family and the business because that is part of the dynamics that may make it succeed, but as much as possible you need to realize there are differences and a time and place for everything. One especially challenging part of this is when your business happens to be in your home. Having in effect a 24 hour per day business at home will make it difficult to keep the business and family separate. One way is to maintain a separate room in the home where you conduct your business. Once you leave the room, it is just as if you have left your office.

Building a successful multi-generational family business is a daunting task. Building a foundation from the above characteristics will go along way is helping achieve that goal.

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James Stephenson is an IT and Business Consultant with over 25 year of experience.

His firm specializes in helping small to medium sized businesses use their information technology and business resources effectively.

He can be reached through his websites and blogs at: http://www.scc-i.com http://www.ctrinformationmarketing.com

Running a family business comes with the joy of working with your near and dear ones, people who understand you better than anyone else. While in every other business you have to build a rapport with your employees, a family business saves you the trouble. However, a family business comes with its own share of difficulties. Saying no, for example, could be the biggest!

Although every family has its own way of dealing with difficult times, there are a couple of things that could be done to ensure workplace harmony.

Assigning responsibilities: Often, the status of being a senior member of the family is incorrectly perceived as a measure of superior skills. Likewise, the youngest is assigned lighter responsibilities without much forethought. Though it makes perfect sense to hire family in your family business, you need to think of recruiting the right person for the right job. Once in, set the same standards for your family members and other employees.

Meeting performance standards: How do you push your family to put in more effort than they already do? The pay check helps with other employees, but if it is next of kin that needs disciplining, how does one deal with it? Hence, it is important to have policies about performance measures outlined right at the outset and communicated effectively to everyone involved. This is more important when younger members are being absorbed into the firm; setting such standards will only help them achieve their potential.

Maintaining professionalism: If you have family members at different hierarchical levels within the business, then stick to working through proper channels. While you might want to run to your favorite cousin with some work, bypassing the one who is really in charge can disrupt the harmony at work and home.

Separating the turf: Keep this in mind especially when your spouse shares your workspace. Dragging domestic fights to your workplace will ruin the atmosphere at work for everyone. Maintaining this code of conduct with every family member involved is difficult, but imperative in order to run a good business. This does not, however, undo the fact that family comes first. So if a relative is going through a crisis, then tend to that first.

Go over decisions twice: Being a part of your family business becomes a great deal more difficult precisely because family is involved. You might feel pressured to do things you do not want to, and find it more difficult to implement any changes that are necessary and so on. Whatever be the problem, maintain your cool and communicate every decision only after analyzing its impact on the family; more so, If the decision has far reaching consequences.

Read about the seven must avoid mistakes in "Keep the Family Baggage Out of the Family Business: Avoiding the Seven Deadly Sins That Destroy Family Businesses" by Quentin J Fleming, available at
Whether it is recruiting your family into a new venture or working for the family business that has been around for years, when family is involved, it's a different ball game altogether. A whole lot of issues will need tending to; many more emotions will have to be taken into consideration, but at the end of the day business is still business. The challenge lies in how you blend the two to make a success story.

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"Family business" means many things to many people, from the family farm to the heirs who own business empires built by their ancestors. Millions of small businesses today are family businesses. They might be a husband-wife or father-son team, they might be family members developing former farmland into a nursery or managing their golf course. They might be siblings-turned-partners trying their hand at a new business or there might be relatives working for relatives. The variations are endless because families are unique and oppportunities for family-owned and family-run businesses come in all different sizes and shapes.

As the manager of a family business you can utilize principles gleaned from the experience of others who have walked in your shoes. Much of that experience was painful. Managing family business is "tricky business." Your stress level will be lower if you learn from the experience of others. Here are four of those learnings.

Run the family business like a business, not like a family. Base business decisions on the market, the merits of your product or service, the company's ability to fill orders and performance levels of your workers. Do not base decisions on whose feelings might get hurt, whose loyalties could be betrayed or what old scores haven't been settled.

Translation: the family members are challenged to put aside family dynamics in favor of business principles and business-like behaviors. Sometimes adult children need to supervise their parents in the business. Sometimes a family member needs to be the boss even though he or she may not be the oldest, smartest or most respected member of the family. Sometimes the family needs to hire an outside person to be the manager.

Be guided by the business plan. First be sure to have a business plan! Keep it up to date. One of the beauties of having a business plan is that it separates personal considerations from business considerations. The manager is simply following the plan. The unpopular decisions "are not personal." The mere fact that you manage according to the plan serves to emphasize that business is business, no matter how many family members might be involved.

and not at any other time. Families value peace and stability. Once decisions are made there is little desire to consider change and start debating all over again, much less risk triggering new arguments. Business, however, is not like that. There must be an openness to change in light of ever-changing factors such as competition, market trends, and labor and production costs.

One big factor triggering change is Success means growth in the business and also a need to carefully consider the best use of increased cash flow funds, tax sheltering of company profits and best use of surplus funds. Sometimes family members are tempted to view company profits as their piggy bank. The manager must take responsibility to prevent raids on the piggy bank if the business is to endure and prosper long term.

Be sure to seek appropriate professional advice. Whether it be accounting, legal, marketing or tax matters, keep informed and be guided by the best current thinking. Remember, the tendency in families is to set a course and stick with it. Decisions made in the past might not fit todays' business climate. It is the manager's responsibility to keep company policy sensitive to current business trends. To the extent that you report advice from professionals you are giving a second message as well: opinions based on family considerations must be considered differently than professional business advice.

Translation: in families the views of each member matter and should be considered. In families the goal is to promote good relationships and mutual support. But in business the goal is to succeed with the business. Family members are challenged to be good employees, good workers, good business directors and good team players while putting aside personal matters. Separating family from business opinions and decisions is neither easy nor totally achievable but it should be a goal.

Bottom line: family businesses vary greatly. All businesses vary greatly. The secret to managing is to stick with what successful businesses have in common: sound business practices. These begin with separating personal matters from business matters, following a sound and well-informed business plan, taking good advice and changing when change is merited.

Do these thing and you will have less nightmares and steady nerves!

Losoncy is a licensed therapist, an executive coach and president of three corporations. To learn about his services go to http://www.mvpseminars.com

As Penn State professor William Rothwell ominously points out in the forward to Exit Right: A Guided Tour of Succession Planning for Families in Business Together, more than 40% of the people who run the closely held operations that comprise 80% of the North American economy will retire by 2007. It makes me wonder, what is going to happen to all of those businesses? Although it is a noble gesture, passing a business down to the next generation is more often than not, unsuccessful. In fact, statistics show that only one-third of all family businesses are successfully transferred to the next generation and only 13% are transferred onto the third generation.

Many family business consultants say the primary reason for this low survival rate is the failure to develop and effectively plan for the transfer of ownership and management of the closely held family business. I agree that this is a factor, but in my dealing with family businesses I find that there are some more fundamental reasons.

The first is that the next generation has a lot different life style than the business founder and entrepreneur. They do not share the same drive and commitment that dad needed to build the business from scratch. They go to the good schools, get a taste of the good life and generally do not share the passion of the business founder. I recently was involved in selling a produce distributor. I found that most of the firms were in their second or third generation. I asked a third generation owner why this particular industry had such success with keeping the business in the family. He said, "When you are up and on the docks at 3 am and work 12 hour days, you don't have the time to spend the money."

The next generation may have a grand scheme to turn the traditional printing business into a media empire or a liquor business into an entertainment enterprise. A few years back the second generation of a well known Chicago area computer leasing and IT Services Firm tried to turn it into an Internet Venture Firm with disastrous results.

Before you just assume that your torch will be carried by the next generation, make sure that the next generation even wants to run the business. Imagine the loss in value that would have occurred if the real estate billionaire from the western suburbs had turned his empire over to his son who simply wanted to produce plays.

Are your heirs even capable of running your business? Have you held on to the reins so tightly that the kids involved in the business have not been able to develop their decision-making or leadership skills? Do they command company respect because of their personal strength and skills or are they grudgingly granted respect because they are the child of the owner? If that is the case, the odds are not good for them taking over when you retire.

Another big challenge is trying to balance fairness in employing many children or even grandchildren in a family business with various skill levels, compensation levels and ownership levels. The jealousy and in fighting can absolutely grind the company's progress to a halt.

The business owner must make some difficult decisions when he or she decides it is time for them to retire. Why did I create this business? Was it to keep this business in the family for generations or was it to provide for my family for generations? If the desire and the capability of the children are not evident and the company is large enough, it may be the right decision to first get outside board members actively involved as step one.

Step two would be to hire professional management to run the business. A second alternative is to sell the company while you are still running it and it can command its highest value. If you have children that want to remain in the business for the immediate future, incorporate that into the sale agreement with employment contracts.
Another way to think of it is, while I am running the business, the best ROI is to keep the bulk of my net worth invested in this company. If I am no longer running the company what is the best risk reward profile for my net worth?

Would my heirs be better off if the business was sold and the value converted to financial assets?

Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.