1. Family Business Workshop Presented by Marcus Thompson:
Contract Marketers Scotland, [email_address] Paul Dodman: Goose
Island Consulting, [email_address]
2. Workshop Aims
A workshop for 6-8 family businesses to help them learn from
each other about growing a family business.
3. Themes for the Workshop
Vision -
Reviewing the validity of the original vision and business
model as the next generation comes in.
Re-energising Business Processes -
Motivation and suitability of potential successors.
Values -
Succession planning within or outwith the family, and other
options.
Continuity
Founders planning for his or her partial retirement or
exit.
Governance -
Strategies for resolving family conflicts related to the
development of the business.
Resources
The help and resources required to ensure the continuation of
the business
4. Family Businesses Whats Special
Integrity based on vision and values of founder
Results in special characteristics and quality of products and
service
Makes the company different from its competitors
Long term perspective in business dealings
Immediate profit may not be the main concern
Results in loyalty of suppliers, employees and customers
Business is personal
So customers feel valued
Employees may be treated as extended family
or they may be treated as second class!
Continuity
Family businesses have been trading for an average of 22
years...... non-family businesses an average of just over 15 years.
(A Family Affair (Barclays 2002))
5. Whats not so Special!
Business style and strategy may no longer fit business
environment.
Management may be by decree
Planning and decisions may be taken within the family a mystery
to employees
Family members may be preferred for best jobs and perks
Managers may lack professional training and processes
Discipline of family members may be weak
Demoralises non-family employees
Disagreements within the family may paralyse operations,
critical decisions or development.
Finance may be restricted to family sources
6. Family Business Washing Machine Training and development
Management and governance New business ideas Who should take over
Availability of finance Ownership and control Family preferences
Timing Delegation and letting go
7. Theme 1. Vision
Vision is one of the distinguishing characteristics of small
growth firms.
The initial vision of the founder defines the scope and
direction of the venture.
If they are to succeed and grow, family businesses need a
vision that transcends the generations and remains relevant to
trading conditions.
Decision-making relies on having a vision and on the ability to
communicate it.
A founder needs the support of others, both inside and outside
the family, to buy into the vision.
8. Vision Questions
Is the founders vision still appropriate in terms of market
trends, customer mix and competition?
Fundamentals of what and why may need review
Personal motivation, real nature of business, market
positioning
Opportunity for review as succession approaches
What is the essence of that vision.
How is the vision communicated to other family members and
employees?
What objectives, business & commercial do each of the
involved family members have?
What do non-involved family members take or expect from the
business?
Do all family members identify with the company vision and
business methods?
Who are the other stakeholders and how are they involved or
communicated with?
How are non-family managers (if any) rewarded and how do they
see their position?
9. Your Vision Issues?
10. 2. Re-energising Business Processes
What is the best management structure for the future,
especially in terms of outside advisers and non- family
managers.
Is there a formal or informal plan for expansion?
Which areas of the business show the greatest prospects for
future growth?
11. Progressions Time Owner-manager plus employees Plus family
trainee Planned handover to 2 nd generation Owner-manager plus
employees Plus professional manager(s) Managers take minority stake
Managers take control Family gets dividend A B Family retains
control
12. Re-energising Questions
Is the business still growing, or has it plateaued?
Is it still innovative?
Is there a current Business Plan?
How and when was it put together, and for what purpose?
Is the companys market share growing, stagnant or
shrinking?
What has competition been doing in the past 3 years?
How are customers buying patterns and expectations
changing?
How have these been addressed by the company?
How do non-family managers view the performance of the company
and its control systems?
What is likely to happen in the next 3 years?
Does the company have a competitive advantage (e.g. by being a
family business, brand identity, etc.) and will this continue to be
relevant in the future market?
Will the company have adequate cash to do what is
necessary?
13. Your Re-energising Issues?
14. 4. Company Values Theme
Does the company have a way of doing things that makes it
better than others?
Whose way is that?
15. Value Questions
Who makes the decisions, and how? Does this reflect the
management structure?
Do the values, skills and ambitions of the next generation in
the family match their wishes, abilities and views?
16. Your Value Issues
17. 4. Continuity Theme
What is the company ethos, family involvement and how are
decisions delegated?
18. Continuity Themes
Owners wish for downscaling/retirement/exit
Candidates within or outwith the family, obligations, other
options
Characteristics of potential successors
Obsolescence of vision and business model
Family conflicts related to the development of the
business
19. Continuity Issues
Owners wish for withdrawal slow or quick
Candidates within or outwith the family
family obligations, real or felt
other options
Characteristics of potential successors
the right man/woman for the job
Training
Inappropriate vision or business model
Family disagreements about succession and the development of
the business
20. Stepping aside
Letting go is the final test of greatness for the outgoing
generation. If more of them could do the necessary planning for
this critical transition and honour the established process, the
inherent fragility of family companies would be transformed into
increased robustness and health - to the advantage of both the
family and its enterprise. Lank (1997)
The following are some archetypes, (originally formulated by
Sommerfeld and Spence, Family Business Review, Vol. 2, No. 4,
Winter 1989):
Monarch : refuses to depart voluntarily and typically dies on
the job
General : agrees to depart but spends his time plotting to
return to power.
Ambassador: gives up the CEO post, may stay on the board,
represents the enterprise externally in industry associations and
so on
Reborn entrepreneur: keeps contact with the company but starts
a new, noncompetitive venture
Hedonist: cuts ties with the company and spends time doing
things he or she never had time to do earlier - sports, hobbies and
so on.
Do you recognise any of these?
21. Selecting the Next Generation
The following are suggestions by Lank (2003), questions
directed at the incoming (successor) generations
What are your reasons for joining the family company?
Is it because it is the only job available?
Is it only because that is what the parents expect?
Is it because, as a manager, the person fears they will be
disinherited if they work elsewhere?
Is it because the working hours would give you more time to
play golf?
If the answer is yes to any of these questions, it may be wiser
for all concerned if the potential successor looks elsewhere.
Other questions might include:
Have you the required education for entering the business?
Have you had experience outside the family enterprise?
There are at least three good reasons for working elsewhere
before joining the family's enterprise.
It gives the individual an indication of true market
worth.
If the individual succeeds, they will be able to enter the
family enterprise, should they so desire, with a proven track
record.
If they fail, there will be less negative fall-out and the
family if it happens in someone else's company.
The final choice must be made on the basis of who has shown the
most competence to lead the family's enterprise into the
future.
This may mean that the sentimental favourite, based on kinship,
may have to give way to a non-family successor.
A full version of the article is available in Birley, Mastering
Entrepreneurship, Financial Times, 2003 p 197
22. Continuity Issues
Has any succession planning been openly discussed ?
In view of the opportunities and threats facing the company,
what skills will be required?
Are these skills possessed by family members or other existing
management?
What other options would be considered for obtaining skills? Is
it time for fresh blood? What constraints would be placed on a new
CEO?
Does the family still wish actively to control the company, or
would it be content to take a back seat but retain ownership?
What structural alternatives would be considered? MBO, sale,
partial divestment or downscaling, acquisition of complementary
business, etc.?
What effect would this have on important networks and supplier
relationships?
What effect would this have on family values business ethos,
local employment, etc.?
Are children expected to take over the business or not?
What do they really want to do?
What are their current roles?
How would they respond to greater responsibility, autonomy and
reward?
Have they worked outside the company?
Are they getting any formal business training?
23. Non-Succession Exit
The most favoured option for family businesses is for the next
generation to take the helm, with the second preferred option being
a trade sale. Flotation, management buy-out and sale to employees
are the least likely to be considered.
most family businesses do not succeed beyond the first
generation.
less than 10% of businesses succeed in passing to the third
generation
family may not have a ready, willing and able successor
Or controlling members of the family may not want further
involvement from other family members.
founders may choose to dispose of their businesses on
retirement to best protect family interests.
The business may now be too demanding (skills, time, cash)
Or it may have become less challenging
Inheritance tax concerns
Alternatively founders may introduce professional managers with
a shareholding in the enterprise.
Advantages: fresh capital and skills, business can continue to
grow, family may still receive dividend.
24. 5. Governance Themes
What strategies can be adopted by the family to avoid and
resolve conflicts.
Conflict Prevention
Conflict Resolution
25. Conflict resolution Too little conflict can be just as
destructive as too much conflict. Constructive criticism and debate
is essential for growth.
Conflict is a normal part of any family relationship
The more open a family is about handling conflict, the more
likely it is that the business will succeed because of
disagreements rather than in spite of them.
Hold regular family meetings to discuss business issues and to
settle disagreements.
Include all family members who own stock or who play a
substantial role in the business, along with spouses, in-laws and
other members who may have decision-making influence.
Don't assume that informal meetings can do the job or that
discussions will "trickle down" to other family members. They
won't, although they will breed miscommunication and mistrust.
Create a formal, written policy that governs family
participation in the business.
Specify a decision-making process, succession rules, salary and
equity guidelines, dispute resolution and other vital points.
Don't rely entirely on lawyers or other outsiders to set a
family policy
the process of creating such a document within the family is
just as important as the end result. This is not meant to be a
legal document, but rather a reflection of the family's shared
ethics and business culture.
Performance evaluations are essential. But they're also a major
source of hurt feelings and family conflict.
Develop a formal, structured evaluation process that everyone
understands and accepts. Focus on improving family members' work
performance rather than simply pointing out their flaws and
weaknesses.
Compensation is another source of conflict in family
businesses.
Instead of completely shutting out some family members,
consider issuing both voting and non-voting stock. This gives
everyone a stake in the business while limiting decision making to
a core group. And it can also help to keep power from being spread
too thinly as succeeding generations come into the business.
See http://www.allbusiness.com/articles/content/21629.asp
26. Governance Questions
What is the role (job Description) of the leading family
member?
What sort of family business is it i.e. what proportion is
owned by the family and how many family members are involved?
Is there a formal management structure and what is it?
What are the roles of non-family members in management?
Involvement of other stakeholders?
Relationship and respective roles of Family Council and
Board
Are they involved in board meetings?
Rules to be agreed
Concerning the issue on the CEOs mind, can it be delegated? is
it crucial (consideration of succession may have to wait) or
strategic (succession may well be a related issue)?
27. Your Governance Issues
28. 6. Resources Theme
What actions, support and resources are required to maintain
the business into the future.
Professional Management
Finance & Funding
29. Professional Management Issue
The need to maintain family control can result in the exclusion
of professional managers and advisers.
Family firms appear to eschew specialist managers to a greater
degree than their non-family counterparts perhaps as a result of
employing relatives who are generalists or not feeling the need for
them.
Only 15% of family businesses employ a specialist manager of
any kind, compared to 21% of non-family firms, with around half as
many family businesses employing specialist IT, finance and sales
managers. (Barclays 2002 p12)
Family businesses may be pressured at times to employ, promote
or end employment for family members, but it can be difficult for a
CEO to deal objectively with children, parents, siblings, cousins,
nephews or nieces.
If discrimination is in favour of family members at the expense
of better-qualified non-family workers then the long-run
profitability of the business may be reduced.
The decision regarding who will run the firm can result in
conflict
30. Finance & Funding Issues
Add information
31. Resource Question
Has any public sector support been utilised?
What has the family agreed to do as a result of the
programme?
What progress has been made?
What obstacles have been encountered?
32. Issues Summary
Vision - Is the original vision still appropriate in terms of
market trends, opportunities and threats?
Re-energising - What is the best management structure for the
future, especially in terms of outside advisers and non family
managers .
Values - Do the values, skills and ambitions of the next
generation in the family match , their wishes, abilities and
views?
Continuity - What is the company ethos, family involvement and
how are decisions delegated?
Governance - What strategies can be adopted by which the family
can resolve conflicts.
Resources - What actions, support and resources are required to
maintain the business into the future.
33. Company Action Points
What issues require action?
Which issues have the greatest priority?
Rate 1 5 (one being highest)
What barriers are in your way?
What resourses or extra assistance do you require to fulfill
your vision.
34. Brainstorm
Issue
Strategy
35. Future Family Business programme
Familiarisation and building trust
Company ethos, family involvement, decision making process
Trends, opportunities, threats
Is the old vision still right?
The next generation, wishes, abilities and views
The best management structure for the future
Strategies to prevent & resolve conflicts
Following up
36. Contact
Marcus Thompson
[email_address]
Marcus Thompson works with a number of Scottish Universities
including Stirling, Edinburgh and Aberdeen where he teaches on the
post graduate business course. He describes himself as an academic
practioner, interested in matching the theory to the practice when
it comes to growing a business through good marketing
practices
This presentation was jointly prepared with Paul Dodman