2-1 Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Chapter 2 Family Business Opportunities.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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Chapter 2Chapter 2

Family Business Family Business OpportunitiesOpportunities

In the Spotlight:Five Star Food ServiceIn the Spotlight:Five Star Food Service

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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Learning Objectives: Chapter 2Learning Objectives: Chapter 2

1. Discuss the factors that make a family business 1. Discuss the factors that make a family business unique.unique.

2. Explain the cultural context of a family business.2. Explain the cultural context of a family business.

3. Outline the complex roles and relationships 3. Outline the complex roles and relationships involved in a family business.involved in a family business.

4. Identify management practices that enable a family 4. Identify management practices that enable a family business to function effectively.business to function effectively.

5. Describe the process of managerial succession in a 5. Describe the process of managerial succession in a family business.family business.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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The Overlap of Family Concerns and Business Interests

Family Concerns Business Concerns

• Nurturing• Development

• Profitability• Survival

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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Advantages of Family InvolvementAdvantages of Family Involvement

• Strength of family relationshipsStrength of family relationships

• Willingness of family members to make Willingness of family members to make sacrifices for the good of the firmsacrifices for the good of the firm

• Demonstration of high levels of concern for Demonstration of high levels of concern for employeesemployees

• Ability to plan for the long haulAbility to plan for the long haul

• Emphasis on quality and valueEmphasis on quality and value

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Cultural Configuration of a Family Firm

Business PatternPaternalisticLaissez-faireParticipativeProfessional

Family PatternPatriarchalCollaborativeConflicted

Governance PatternPaper BoardRubber-Stamp BoardAdvisory BoardOverseer Board

Cultural Configuration

of the Family Firm

Source: W. Gibb Dyer, Jr., Cultural Change in Family Firms (San Francisco: Jossey-Bass, 1986), p. 22.

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Parental Concerns About Passing the Parental Concerns About Passing the Business On to the Next GenerationBusiness On to the Next Generation

• Does my child possess the temperament and ability necessary Does my child possess the temperament and ability necessary for business leadership?for business leadership?

• How can I motivate my child to take an interest in the business?How can I motivate my child to take an interest in the business?

• What type of education and expertise will be most helpful in What type of education and expertise will be most helpful in preparing my child for leadership?preparing my child for leadership?

• What timetable should I follow in employing and promoting my What timetable should I follow in employing and promoting my child?child?

• How can I avoid favoritism in managing and developing my How can I avoid favoritism in managing and developing my child?child?

• How can I prevent the business relationship from damaging the How can I prevent the business relationship from damaging the parent child relationship?parent child relationship?

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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Insiders and Outsiders in a Family Business

Mom

Daughter-in-law

Vice President (Son)

Vice President(Daughter)

Vice President(Nonfamily)

Vice President(Son-in-law)

Daughter

Founder and CEO (Dad)

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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How to Welcome New In-Laws into the Family Business

1. Introduce them to the family business. Give them an overview, and send them to a

family business seminar.2. Act as an ambassador and show empathy with the newcomer.3. Emphasize strengths and achievements of sons- and daughters-in-law.4. Give newlyweds emotional space. Allow them to develop their own traditions.

Source: Sharon Nelton, “Marrying into a Family Business,” Nation’s Business, April 1989, p. 48.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

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Key Concepts in Family Business Management

1. Create a flexible, creative organization1. Create a flexible, creative organization

2. Require competence in family members.2. Require competence in family members.

3. Prepare successors for leadership.3. Prepare successors for leadership.

4. Attract and retain excellent managers.4. Attract and retain excellent managers.

5. Discuss plans openly.5. Discuss plans openly.

6. Avoid favoritism in personnel decisions.6. Avoid favoritism in personnel decisions.

7. Exploit unique advantages of family ownership.7. Exploit unique advantages of family ownership.

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Conditions Favoring Successful Leadership Succession in a Family Firm

• Sound, profitable business

• Stable, healthy family

• Planning for leadership succession

• Positive leadership and team-oriented management

• Presentation of career opportunities without pressure

• Open communication on family business issues

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A Model of Succession in a Family BusinessStage I

Pre-Business

Child becomes aware of some facets of firm and/or industry.

Orientation of child by family member is informal.

Stage IIIIntroductory Functional

Child works as part-time employee. Work gradually becomes more difficult.

Includes education and sometimes work for other firms.

Stage IIIntroductory

Child is exposed to business jargon, employees in the business, and the business environment.

Entry of Successor Stage IVFunctional

Potential successor begins work as full-time employee.

Includes all nonmanagerial positions.

Stage VAdvanced Functional

Potential successor assumes managerial position.

Includes all management positions prior to becoming president.

Transfer of Leadership Stage VIEarly Succession

Successor assumes presidency.

Includes period in which successor becomes de jure head of company.

Stage VIIMature Succession

Successor becomes de facto head of company.

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Active Roles Available to a Parent Who Retires

1. Ombudsman, attentive to needs of employees, customers, suppliers

2. Company historian

3. Trainer, who orients new employees and develops seminars

4. Philanthropist and civic leader

5. Director of employee relations, who develops special events to recognize employees

6. Business developer, who manages company’s acquisition program

Source: “Family Business,” Nation’s Business, June, 1989, p. 73.