Tuesday, February 13, 2018
It is no secret that each generation of a family owned business faces unique challenges. It is also no secret that the majority of businesses are family owned businesses. Yet, for many, the term family business can conjure up stereotypes of family squabbles, mom and pop shops, nepotism, and lack of sophistication. While there are businesses that fit some (or all) of those stereotypes, it is our experience that these stereotypes are not an accurate description of many family owned businesses. Indeed, we continue to see many family businesses that are thriving, growing, and using their family ownership as a long term competitive advantage.
Keeping the family in the family business is not easy and does not happen by chance. It requires hard work, commitment, and accountability. In our work, we have noticed several themes that are common in successful family businesses. What are some of those themes that help family businesses sustain themselves for the long haul?
1) Retention of both family and non-family talent. Retention is nurtured through a level of trust, commitment to the vision, and strong job knowledge. When a crisis occurs, regardless of prior squabbles, the team pulls together.
2) Wise financial management with patient capital. The family maintains a long-term time horizon utilizing patient capital and minimized debt. This is accomplished with a judicious approach to capital expenditures. Maintaining the concept of frugality allows the family, the business, and the ownership to be ready for the next opportunity and to weather the next downturn.
3) Openness and transparency. The family has a willingness to discuss sensitive issues with transparency and openness. Family members are willing to serve the family and business by frequently placing the needs of the family system, the business system, and the ownership system before their own personal desires.
4) Effective structures. There is commitment to systems, processes, and practices that provide the right structure for their family and business. There is a commitment to educate all family members and shareholders so there are minimal misunderstandings and minimal misaligned expectations.
5) Intentional development. Families in business that are committed to the long haul, consistently and intentionally set aside time to discuss and revisit the first four themes so they can keep up with changes in the family, the business, and the ownership. To implement these themes and subsequently revisit the themes with an unbiased eye, families in it for the long haul utilize unbiased, third party resources.
Well-run family businesses, in it for the long haul, stay focused on the things that will help them navigate the ever-changing challenges that they face.
For more information contact SKM Associates Family Business Consultants
Tuesday, January 16, 2018
Transitioning ownership of the family business can be tricky. Many times, when transitions are not successful, the root cause is the people involved, not business conditions. Having the right subject matter experts advise through the transition ensures that the family is structuring the transition for success, and having a family business advisor walking you through the process can minimize the sticking points, provide a calm for passionate emotions, and help maintain unity in both the short term and the long term.
There are some common themes in family business transitions that go awry: a senior generation that can’t let go (either business is going well and it is too much fun to let go or the business is struggling and the senior generation feels like they have to get it back on track); lack of confidence in the rising generation; indecision in selecting the next leader; avoiding difficult or awkward conversations; emotional identity in the business; or a rising generation that can’t work together.
For a successful transition, one of the critical pieces is giving voice to both spoken and unspoken concerns of those involved. For example, for an owner or founder, it is important to articulate his/her objectives in transitioning the business, plans for the next phase of life, and willingness to hand over the reins. The spouse of the owner also has concerns that need to be surfaced and addressed, which may range from a concern for financial security in the golden years to peace between the next generation to how the couple will spend their time in retirement. The rising generation consists of both those working in the business and those who have no daily interactions with the business (which in and of itself can be a source of contention) and has its own concerns that need to be addressed. There may also be blended families, or an unwillingness of one family member to take direction from another, or arguments over voting and non-voting shares, or other issues under the surface. The transition must also consider the concerns of key non-family employees in the business.
In order to navigate the pitfalls and help address the concerns of the many stakeholders, we believe it is imperative to have an independent third party family business advisor to help guide the transition journey. The team of subject matter experts that will help structure and execute the transition may consist of: a corporate lawyer who recognizes the client is the family and not one individual; a CPA who must provide the accurate numbers for current financials and future projections and tax implications for all family members; a Certified Valuation Analyst who will work with the CPA to determine the accurate value of the business; and an estate planning attorney who will make certain that senior generation’s plans are adequate and that the next generation’s estates are in position to accept the ownership.
A family business advisor is the constant thread throughout the process to help navigate the pitfalls, keep the expert advisors focused on the goals of the family, and help the family address the concerns of the various stakeholders. Don’t do this alone. Invite a family business advisor to help you navigate the journey.
Tuesday, January 2, 2018
To borrow from Charles Dickens’ famous opening in A Tale of Two Cities: Family businesses can be the best of times, and family businesses can be the worst of times.
When working well, family businesses can unite families, provide meaningful employment for generations, and create a tangible expression of a family’s values. Patient capital and utilizing the competitive advantage of family-ness can lead to outsized returns over generations. On the other hand, family businesses gone awry can ruin financial opportunity and tear families apart. What makes the difference? What can families do to increase their likelihood of fostering the “best of times” across generations?
Good family businesses understand and address the three systems that they face: the family system, the ownership system, and the management system. Families and family leaders that recognize and manage these three inter-connected systems have a higher likelihood of sustaining success, both as a family and as a business, over multiple generations.
These three systems are complex things, and the intersections of these interconnected systems can be daunting. For many leaders, addressing issues that impact both the business and family (for example, the need to terminate the employment of a family member) may be unsettling or uncomfortable. What is important to remember is that systems and families work because they interact in ways that are not easily quantified. Haveing the courage, as a family, to address the issues will help develop systems for sustainability.
Family businesses that survive for multiple generations need structures to help manage relationships and the inter-connectedness of the three systems. Family business leaders need to be proactive in finding ways to address the uncomfortable or difficult circumstances within all three systems. By developing healthy ways of addressing these issues, it will strengthen the potential for positive business growth. Oftentimes an outside resource can be effective in helping both the family leaders and the family in discovering ways to create positive solutions.
Figuring out what the issues are and how to address them is a challenge, but it is a healthy part of growing together.
As a family, to start the family conversation, check out 20 Questions Practical Checklists ForBusiness Families.
Monday, December 18, 2017
For some families that is a dreaded phrase and for other families that brings warm memories of family gatherings.
At a time of year when activities tend to outpace the number of hours in a day and the days keep running together, it is important to keep in mind that it is our families that make the season.
In this time of busy-ness, remember to take time for family.
May this season be one of peace, joy, and happiness as you intentionally seek family time.
From our family to yours,
Enjoy the blessings God has bestowed and may your family experience a prosperous 2018.
Steve and Aaron
Wednesday, December 13, 2017
Family businesses have many competitive advantages: strength of relationships, cultural fit of family members, shared faith and values, strong commitment of those involved, strong work ethic of family members, patient capital, shared visions, and flexibility in hard times.
Family businesses tend to grow differently than their competitors on Wall Street. A longer time horizon focuses not only on profitability but the sustainability of a legacy for the rising generations. This allows the family business to apply the concept of patient capital to projects that may not be fully realized till the next generation assumes the mantel of leadership.
However, family businesses also carry tension and baggage: tension between various levels of shareholders or baggage of the family relationships. Yet, in spite of the tensions or baggage, family businesses typically have a commitment of both family members and employees to the family and the business that non-family owned companies don’t have.
Some families live out their values more closely than others, but each family has a set of values. Every family has values. They may be spoken or unspoken. Though the world is ever changing, a family’s core values influence attitudes, drive behavior and action. It is who a business family is. Values are energizing, motivating, and inspiring. When people care passionately about something—in other words, value it—they can spur themselves to great achievements. The core values really are conscious motivators! Articulating these core values will influence a business family’s worldviews; competitiveness; beliefs about wealth and philanthropy; and how major decisions are made.
The family’s vision is the shared image of the family’s definition of success and what the family wants the business to be. Having a vision is critical for the journey to realize the goals and dreams of the family. The vision provides a future orientation to answers questions like: How do we want to utilize our resources and care about those who are important to us? Following the vision requires commitment. Commitment is best considered in the framework of the family, the business, and the ownership of the business. This means results are best achieved with not just a single event or item, but by working over time to develop the capability of the family to manage governance and decision-making. With commitment to a “visioning” process, there is built in accountability to keep everyone focused and on track.
Keeping family in the family business is not easy and does not happen by chance. It requires hard work, commitment, and accountability. Assistance from an impartial third party can be invaluable to work through the tough times.
Keeping family in the family business can be fun and rewarding.
Tuesday, November 14, 2017
Studying Toyota’s reputation for finding the best ways to do things has been a staple at business schools. With respect to best practices, though, Toyota explained to one researcher, “we know that, even if we design a perfect process, the environment will change around that process in unknown and unknowable ways.” Best Practices Don’t Matter. Here’s What Does., The Daily Beat Blog, August 27, 2014. Toyota could very well have been describing a family business.
Best practices are not all bad. A best practice is a method or technique that has been generally accepted as better than alternatives because it has been shown to produce results that are superior to those achieved by other means or because it has become an acceptable way of doing things. Some families, in search of best practices, are looking for pre-made templates to apply to their organizations. However, as one leader put it: “…[B]est practices are a misnomer. Often what we call best practices were at one point good or smart business moves, but we seldom do the work to determine how long they stay the ‘best’ or whether they’re universally applicable.” The Problem With Best Practices, Fast Company, October 15, 2015. In other words, sometimes what works as a best practice in one organization is not always applicable to another business family’s needs. What’s more, needs change over time, and practices must adapt over time.
Best practices are better understood as frameworks for thinking about how other family businesses have been successful. Instead of something being a “best” practice, it is better be thought of as a smart practice that successfully addressed certain issues in other family business contexts. As the saying goes (and we have observed to be true): when you’ve seen one family business, you’ve seen one family business. Family business are unique. It is not about applying a plug-and-play formula of the same “best practices” to every family business. The key is learning from how others have found success, crafting solutions that will best suit your family business, and adapting those solutions as the business changes and the family changes.
A family business advisor can be invaluable to this process. Not only can an adviser help you understand what practices and frameworks have helped other business families, but a family business advisor can help you build the right solutions to drive your family business towards long term success.
Looking for a simple template of best practices that others have used, and thinking that will be best for your family, is a fool’s errand. At best, cookie cutter “[b]est practices don’t make you the best. They make you the average of everyone else who follows them.” The Problem With Best Practices, Fast Company, October 15, 2015. At worst, misapplied best practices can foster division and failure. Learn to know the smart practices other business families are using and, with guidance, implement what will best fit your family and your business. It’s not about the best practices for someone else’s business; it’s about developing the best solutions for your business family.
Tuesday, October 24, 2017
The New York Times chronicled the story of Larry and Helene Donley under the banner, When Mom and Pop Can’t Sell the Farm (Or in This Case, the Theme Park). According to the NYT, 43 years ago, Larry and Helene Donley began running what has now become a wild west theme park outside of Chicago. Now in their eighties, Larry and Helene might be ready to retire. But, neither of their two sons, who are both in their sixties and have helped manage the business over the years, are interested in taking over, and their grandchildren are off doing other things with no interest in the family theme park. Meanwhile, markets are changing: kids are more attracted to virtual reality and video games than old-time theme parks; vacation habits of American families are changing; kids and families are busier with organized sports and activities. The list of challenges for a small theme park goes on.
The real estate where the theme park sits, however, may hold significant value to a developer. The business also comes with a restaurant and a liquor license that could be extremely valuable for other commercial uses. But, there is a hitch: Larry and Helene want whoever takes over the business to continue operating the theme park exactly as they have, down to some of the smallest details. It’s more than just a business to Larry and Helene. It is who they have been for many years. The kids say it taps into Larry’s inner child. They refuse to cash out to the highest bidder, knowing that bidder will likely knock down the park for new commercial use.
What is a family to do? How does a family business owner avoid being eighty-plus years old and working as hard as they did for the past 43 years with no plan for transition or letting the business innovate as the world changes? It starts with the three basic questions: where are we now, where are we going, and how do we get there. As owners of a business, families need to chart out their plan for success and be willing to adapt as they go.
First, the family needs a vision. What will success look like for the business? What does success look like for the family? Are family members willing to let go and let new people innovate to keep maximizing the use of the family’s resources? Part of this includes talking about who you are. Your identity and core values are bigger than the business and bigger than its success or failure.
Second, the family needs to work through how each family member wants to be involved (or not) in accomplishing that vision. Is anyone in the family interested in the business? Are the interested family members qualified for the roles they want? What other strengths do family members bring to the table to help maximize and manage the family’s resources?
Finally, as you go out and pursue that vision, remember to be flexible. Part of what makes a business successful is executing a plan but staying flexible to adapt as you go.
Define what success looks like and begin charting a path to get there.
Tuesday, October 3, 2017
Looking around at the fractured state of families in the world today, it is tempting to think of previous generations as the ideal time of peace and harmony. In setting up a family business for multi-generational success, traditions of yesteryear only go so far. For a family business to succeed both now and with future generations, appropriate governance is critical.
In general, corporate governance is “the system of rules, practices, and processes by which a company is directed and controlled.” For family businesses, governance should help formalize issues such as ownership, leadership structures, control, conflict resolution, and communication. For many families, the process of developing family governance can be as valuable and educational as the final product.
Governance discussions should begin with agreement on how a family will communicate, debate, resolve conflict, and hold each other accountable. These conversations take not only a high level of trust within the family, they also require grace and love. Then, the family can move to creating a family charter describing how the family will relate to each other and to the business. Along with the family charter, the family needs a strong shareholders agreement that includes, among other things, clearly defined governance structures. At that point, the family can begin to process additional issues such as management of the business, compensation, training and development of family, and qualifications for leadership roles. For families who want to build a sustainable legacy, this is just beginning to scratch the surface. Good governance also requires the discipline to execute and hold each other accountable to that which was agreed upon.
The review and development of good governance for a business family should be a normal part of the life and rhythms of the business. It is important to recognize that developing these guidelines can at times pull leaders away from daily business operations and can also surface tension between family members. That is normal, and it is a healthy part of the process of developing good governance.
As family businesses work to develop their own governance, they need to determine what will work best for their family. Best practices can provide insight and guidance, but what worked for another family may not work for yours.
Remember, the best practice is the one that works for you and your family as you strive to build your legacy.
Tuesday, September 12, 2017
For too many families in business, the easiest approach to succession planning is avoidance: do nothing. However, ignoring the inevitable doesn’t make it go away. Ready or not, the time for succession will come.
What makes planning for succession so difficult for so many business families? Reasons families do nothing run the gamut: the senior generation fears letting go; the business is going well and it is too much fun to let go; the business is struggling and the senior generation feels like they have to get it back on track; the senior generation’s belief that the rising generation is not ready or not interested; the senior generation’s indecision in choosing the next leader; the family wants to avoid difficult or awkward conversations; psychological and emotional connections to an identity connected to leading the family business.
Avoidance, or doing nothing, can seem like the easiest option, but is only going to make things more difficult in the future (and probably frustrate the rising generation in the process). Preparing for any change in season takes planning, and preparing for succession is no different. A family business should prepare for the change of the family’s season by taking steps now to prepare:
1. As a family, commit to building the family legacy and the business legacy.
2. Use the workbook: 20 Questions PracticalChecklists For Business Families as a conversation starter for all family members.
3. Draft a written plan, along with a timeline, for the transitions to the rising generation.
4. Prepare development plans for the rising generation that provide opportunities to learn about the values and vision of the family and that provide opportunities to learn about the rights and responsibilities of being an owner of the business.
Honestly discussing the critical issues facing families and family businesses in transition helps foster the objectivity and focus needed for long-term success. Successfully navigating the transition of leadership can often be the key piece in solidifying the opportunity to create a multi-generational family business legacy.
A professional family business advisor can help the family and the business function with discipline and forethought to ensure sustainability for future generations. The family business advisor can help the family achieve family goals by helping to establish the framework, boundaries, training, help with talent development, and reflective planning for the future.
It’s not too late to get started. Doing nothing is not really an option.
Wednesday, August 16, 2017
Surveys by the Exit Planning Institute have shown that many owners have little to no exit planning in place, even though many respondents also said that they have 80-90% of their financial assets in the business. Further, according to the Exit Planning Institute, about 4.5 million firms, which represent over $10 trillion in business value, will transition over the next 10-15 years. The coming tidal wave of baby boomer entrepreneurs looking to cash out their businesses or move into retirement has been well-documented. Yet, experts estimate that only about 20-30% of businesses that go to market end up selling. Not all businesses are saleable.
This epidemic is not isolated to any particular industry or any size organization. Anecdotally, we are already seeing this play out. A solopreneuer who was depending on the sale of his business to fund retirement now can’t find anyone willing to buy it. A manufacturing company that built a strong regional and growing national presence has some potential interested buyers, but all at a steep discount from expected value. A regional environmental services company built a rapidly growing business on unique values and customer service that is antithetical to industry practice, but now those same practices that were foundational to the company’s success diminish the company’s value in the eyes of potential buyers.
When there are no members of the next generation who are willing or able to carry on the business, what options do owners have when the business won’t sell?
1) Family ownership with professional management. For some families, developing a strong internal management team and comprehensive governance structures can open the potential for the family retaining long term ownership and oversight of the business with non-family, professional managers running the business on a day to day basis.
2) Strategic merger or partnership. If an outright sale of the business is not an option, there may be strategic partnerships or opportunities to merge with another organization that would allow the current owner to step back from the daily grind and reap financial rewards of the company’s future success.
3) Set up an ESOP. Employee stock ownership plans are not new, but a number of organizations are again considering whether this type of structure might be a good fit.
4) Go back to the starting blocks. Engage outside experts or industry professionals to advise you on the strengths and weaknesses of your organization and how you can set up your business now to be more marketable in the future. In other words, though it will take time, begin managing the business for future sale.
This list is not exhaustive, and each option has pros and cons. Certainly each option takes work. However, based on the statistics and anecdotal evidence, if your family owns a business and is looking to transition ownership in the next 10-15 years, there is a good chance that your family will need to be thinking outside the box to find the right solution. In the interim, there are a number of ways to begin managing the business to open up more of those opportunities in the future.
Tuesday, August 1, 2017
20 Questions Practical Checklists For Business Families
This workbook is designed to provide thought provoking and critical questions for families in business as they strive to build their family legacy. It is divided into two parts: Introduction and 20 Questions: Business Family Planning Checklists. The Introduction sets the stage for the primary focus of the book: the 20 Questions. These are 20 major planning topics that guide the process of self-examination for business families.
Each of the 20 major planning questions is followed by a more detailed list of discussion topics to help you determine your answer to the planning question. Prior to the exploration of each topic is an illustrative vignette or discussion related to that topic. Important terms are in bold type and defined on first use to be certain that readers understand the terms just as we, (the father and son authors) intended.
Steve has more than 35 years of leadership, coaching, and management experience. Growing up in a family business and serving as an executive in a family firm, Steve understands the complexities of maintaining family relationships and the necessity of sustaining a profitable enterprise. Steve is the principal of SKM Associates LLC Family Business Advisors and The Network of Family Businesses consulting with and assisting family firms with succession, governance, and transition.
Prior to joining his father, Aaron practiced employment law at Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania. In his practice, Aaron counseled and defended employers on a variety of employment issues. Aaron also worked on teams with corporate lawyers and other specialists providing due diligence and labor and employment advice for mergers and acquisitions.
Tuesday, July 11, 2017
“Play nice and share!” As a child growing up, this was a frequent refrain in our home. My parents were instilling in us important values. However, that egalitarian mantra can, at times, carry forward in an unhealthy way into opportunities for leadership of the family business. That egalitarianism and sharing –which can be an important value to many families and which can be important to the success of many families and organizations – is not the best way to select a leader. Sharing the mantle of leadership in the family business may not always be in the best interest of the family, the business, or the ownership.
The role of CEO brings unique challenges and complexities for which not everyone is suited. Yet, all too often, family members jockey to each have a turn as CEO. “You had your turn, now it’s my turn” is not a succession plan.
For a business family that desires to build a legacy and grow profitably well into the future, the following guidelines have proven helpful in ensuring that the most qualified individual is leading the business:
1. Develop a Family Employment Policy that encourages family members who desire a leadership role to gain work experience outside of the family business and specifically defines the objective criteria necessary for employment and leadership.
2. Nurture mentoring and coaching between the current CEO and the next generation of leaders.
3. Clearly define, in writing, the job description for the CEO. Identify the expectations and metrics to which he/she will be held accountable. This should also include the knowledge, skills, and abilities expected in the role, as well as a commitment to the family’s values and objectives. Have the senior generation guide the process of selecting their successors before they leave.
4. Seek the support of non-biased, third party perspectives in evaluating and selecting the next CEO. This may mean soliciting input from non-family directors or members of the advisory board or from qualified advisors.
5. Be open to a non-family CEO for a season if a family member is not ready to assume leadership.
6. Set the CEO up for success. Develop a communication structure and a governance system that efficiently and effectively outlines the processes for the family, the ownership, and the business to keep focused on the correct goals and objectives.
7. Revisit these guidelines annually.
As a family, commit to a process that will find the most qualified leader for your family business.
Tuesday, June 13, 2017
Many founders of businesses who want to pass the business to their children find it difficult to actually do so. Developing a plan, crafting a process for the development of the next generation, and transitioning of the business to the next generation can feel like a foreign concept or unchartered territory.
The founder’s heart is generally in the right place in his or her desire for the next generation to take over the business. However, it is not uncommon to hear statements like the following from the senior generation: why don’t they tell me what they want to do? what do they want? why won’t they just step up and take responsibility? what do they expect of us?”
The next generation, on the other hand, is often wondering: why doesn’t Dad / Mom just tell us what they want? which one of us will be president? when will they retire? what will they do when they retire?
Too often, the next generation is not given opportunities to learn how to make critical long-term strategic decisions and is not given a chance to participate in family leadership meetings to learn how to analyze both family and business issues. In some situations, the next generation is never truly given the opportunity to learn how to operate the business.
It is critical for the senior generation to consciously help the next generation grow. The next generation needs to gain the expertise, experience, mentoring, tacit knowledge, passion, and internal drive to continue building the family legacy. The next generation needs to hear praise, encouragement, appropriate guidance, and the confidence of the senior generation. When the proper plans, processes, and guidance are in place by the senior leadership, the next generation can continue building the legacy.
A leader is best when people barely know he or she exists, not so good when people obey and acclaim him or her, worst when they despise them. But of a good leader, who talks little, when their work is done, their aim fulfilled, they will say, 'We did this ourselves.'
What are you doing to prepare the next generation?
What would the next generation say?
Tuesday, May 23, 2017
“If you don’t know where you are going, you’ll end up someplace else.”
When you start out on a journey, the goal is to arrive at the destination. On your family business’s journey, the destination is not always clear. However, for families in business, that desired destination must be tailored to the vision of the family, the organization, and the individuals. No two journeys are alike, and the destination is not the same for every family business.
The vision is the shared image of the family’s definition of success and what the family wants the business to be. Having a vision is critical for the journey to realize the goals and dreams of the family. The vision provides a future orientation to answers questions like: How do we want to utilize our resources and care about those who are important to us?
Understanding and following the vision of the family is critical to the ultimate success of the family, of the individuals, and of the business. Following the vision requires commitment. Commitment is best considered in the framework of the family, the business, and the ownership of the business. This means results are best achieved with not just a single event or item, but by working over time to develop the capability of the family to manage governance and decision-making. With commitment to a “visioning” process, there is built in accountability to keep everyone focused and on track.
Simple yet complex questions can help begin the visioning process:
1. What do we desire for our family?
2. What will be the story of our family?
3. What do we desire for the next generation?
4. What is our family’s responsibility to society?
5. How will our family values influence the vision of what we want to become?
6. What will our family business not do?
7. What is our time horizon?
8. How will the business be part of the family vision?
9. Who is leading our business? How are they leading?
10. What kind of abundance is our family and our business enjoying? What does it look like, specifically?
The goal is to create a framework to help the business operate successfully while recognizing and dealing with normal family issues. The vision will have very little impact on family unity and company performance, however, if the family doesn’t intentionally think about what steps are necessary to get there.