Family Business Decisions

The good part about family business is that many of your co-workers, including management, are family members. 

The bad part about family business is that many of your co-workers, especially management, are family members.

When business decisions are made among unrelated businesspeople, there is usually discussion among senior management, and then the Boss (the CEO, the President, the Big Kahuna) makes the ultimate decision, and everyone goes along with it, if they wish to remain employed at this company.

In family businesses, the business decision-making dynamic is often blurred with the family dynamic.  Family roles were defined and ingrained long before most of the family members became part of the business team.  These roles often reveal themselves in business decisions, whether consciously or sub-consciously.

Oftentimes, there is consensus about a decision, be it a new technology, or entering a new market, or creating a new product, or moving to a new location.  But maybe it’s not a unanimous decision.  In the corporate world, such decisions are made, and if certain parties cannot abide by said decision, then maybe they look to work elsewhere.

But what if the lone dissenter is the patriarch, the owner, the founder?  Or what if the dissenting vote comes from the “favored” offspring?  Does a father tell his oldest child to find work elsewhere?  Does a daughter tell her father to get out of the way, because he’s standing in the way of progress?

These are sticky situations, for both the business AND the family.  These kinds of situations put some tough personal issues on the table.  Like, what is more important, a successful business or a unified family?

To avoid having business and family roles bleed into one another, smart businesses have an agreed-upon decision-making process in place, including what to do in the event of a divided vote.  If the resolution process of these types of issues is accepted and in place before a business decision is put on the table, then resolving them is a much smoother, less emotional ordeal.

In their 2005 paper, Ludo Van der Heyden and associates pointed out four distinct elements that should be in place to enable fair process in business decision-making:

·         Communication - Each person impacted by the decision on the table should be given an opportunity to share their views, and have their questions answered.

·         Clarity - Accurate details of what the decision entails should be provided, including perimeters and any changes it will create.

·         Consistency - A roll-out plan for each taken decision should be in place, so that when changes are made, the integration process is already familiar to the company.

·     Changeability - Flexibility around revisiting previously taken decisions and rules should be facilitated, to ensure that the business, and the rules it lives by, have the opportunity to evolve as the business climate changes.

If these four elements are the cornerstone of every business decision a family business makes, it will go a long way in making the process a smoother, more professional, less emotional one.  I believe these elements are important for all businesses, but with the additional baggage of previously-established family roles and relationships, they are imperative for the continued development of successful family businesses.

Mistaking Your Way to the Top

Last week, I read an interesting article called Common Mistakes Every Entrepreneur Should Avoid.  All of the listed pieces advice are excellent, and should be followed as best one can. I would advise you to read it.

However, keep in mind that making mistakes, and learning from them, will be the best thing that can happen to you and your business.  This is how you learn, really learn, what works and does not work in your business world.  Oftentimes, things that sound good in theory, or look good on paper, may not hold up in the cold light of reality.  

This is no sin.  This is how great businesses are built.  But...if you repeat the same mistake twice, it might be time to look for something else to do.  You shouldn't have to be hit with a hammer more than once to know that it hurts.

Family Business Transitions

I want to share a brief but informative article I recently read by Josh Patrick on Divestopedia, called "8 Issues To Think About In Family Transitions."

In the article, Mr. Patrick raises eight big matters to consider and figure out before transitioning a family business to the next generation of family members. You might think some of these are obvious, but oftentimes, as business-owners AND heads of families, we are sometimes too close to the matters at hand to see them in their proper perspective.  As the son of a small business owner, I had direct experience in this matter.

This is a good list, and I have just a couple things to add to what Mr. Patrick listed. 

Point #4 urges the owner to make sure the kids can actually grow the business, once they are leading it. However, in my view, the only way the owner can be confident of that is to allow the kids to TAKE RISKS. Many old-school business owners become more fiscally conservative as they get older, and are averse to taking calculated risks to grow the business. Don't shackle the kids with that kind of hesitancy. Most businesses do not grow by simply doing the same thing, year after year.

Point #7 urges the owner to fully let go, once the business has been handed off to the kids. This is rarely an easy thing to do, even when the owner has been pining to step away from the business for a while. My take on this is, when you leave the business, stay gone. Don't try to be the "helpful adviser." This will make it harder for you to move on to the rest of your life, and it will provide the kids a convenient crutch to use, instead of learning from their own mistakes.

Take a minute to read Mr. Patrick's article. If I can be of any help in your family business transition, please don't hesitate to call.

Some Lessons Learned about Leadership

Leadership is something like defining pornography: you know it when you see it.  (So I've been told!)

I have read umpteen articles on “What makes a Good leader”, or “Five Ways to be a Good Leader” or "7 Things Good Leaders Don’t Do.” etc., etc.  Here are my two cents in the debate.

I have owned and/or operated seven businesses in my career. I think, looking back, that I have made just about every mistake one could think of, several in the area of leadership.  Hopefully, I can save you some trouble.  Here is what I learned, in no particular order of importance:

• Sometimes your employees know more than you do. In other words, you don’t know everything - irrespective of the fact you are the boss. Therefore you must listen to your employees. They actually like it when you ask them questions and you listen to their answers. You can get some really great ideas from them, plus their buy-in to change is more enthusiastic when they've had a hand in creating that change.

• Delegate Responsibility! You can’t do everything yourself. If you think you can, you are dead wrong. Oh, and by the way, along with the delegation of responsibility goes Accountability. If you are going to give them responsibility - and you should - then they have to be held accountable for both the good and the bad.

• Communicate. Your employees, your customers, and your vendors should all be familiar with your Mission for the company, as well as your Vision. What's the difference between the two? I have always defined it like this:

• The Vision Statement is for the investors, stakeholders and/or lenders. It talks about what your business wants to do.
• The Mission statement is for the employees, customers and vendors. It talks about how your business wants to do it.
  
  
• Be Inclusive. Your employees know a lot about your business operationally, customer relations, finance, etc. Run things by them, see what they think. Listen to their responses. Allow them to be part of the team.

Try this stuff.  It really works!

Thoughts on Exit Strategies for Family Businesses

I read an interesting article the other day, discussing exit strategies for family businesses.  This led me to the following thoughts...

An exit strategy for a family business can be a very tricky undertaking. Is it the best way to preserve wealth? Will it satisfy the wants, needs and desires of the younger generation? Will bringing in a professional manager to run the business be the best thing to do?

Many family businesses started out because the founder had an idea, worked for someone else and didn't like how the employer was running the business and wouldn't listen, or he/she couldn't hold a job. Thus the beginnings of a family business.

As the family business grew and prospered, members of the next generation were welcomed in the business. Some thrived, while others did not do so well. However, the family business kept growing.

At a certain point, the founder decides it’s time for him to go. This is because of health or he/she is smart enough to realize things have changed and the next generation is many times better equipped to handle the changes. 

But other times, the founder doesn't want to give up the reigns. “What will I do every day? I hate Florida.”

There are other instances where the next generation just isn't up to the task of “taking the business to the next level.”  There are Big Issues that must be addressed sooner rather than when it’s too late.

A family business can be looked at as a vehicle to provide a lifestyle for the entire family. If there are issues/problems that cannot be solved any other way, then a sale is a serious decision to be investigated carefully.

·         Will the business go on under the present circumstances?

·         Should we bring professional management?

·         Is the value of the business as such that the family can continue on in the present lifestyle without all the stress and tension?

All valid issues that must be addressed trying to keep the emotion out of it. Not an easy task.

I have had this experience, and my final decision was to sell. 

What will your decision be?

Family Business: Which is It?

I’ve heard it said about many great businesses, that they treat their employees like family.  But in a family business, one of the best things that can be said is that they treat family like employees.

This is not just wordplay here.  This is strategy.  While businesses that treat their employees like one big happy family can be nice to work for, rest assured that they do not, as a rule, dish out the family treatment for everyone, regardless of their value to the business.  No, this type of treatment has to be earned, through dedication, loyalty, and most importantly, performance.

The same principal needs to be applied in family business.  Promotions, raises, added responsibilities should not – MUST not – be doled out based on bloodlines.  In a successful family business, all such rewards for family members must be clearly earned, utilizing whatever metrics are used to evaluate non-family members.  There must be demonstrable evidence of worthiness, otherwise company morale will fall.

Hard-headed family business owners might say, “The hell with that!  If I want to promote my kid to Manager, or VP, I will do it!  It’s my business, and if other people don’t like it, they can go work somewhere else.”

Yes, that is exactly what they will do: go work for someone else.  Taking with them everything they learned (the good, the bad, and the ugly) from your business.  Nothing like giving your competition some highly-trained employees!  Brilliant move, Dad.

Company morale is the invisible secret sauce behind most successful businesses.  With it, businesses are capable of great things.  Without it, the work is so much harder.  So when you bring in your kid with the newly-minted degree from the local college, and put him or her in charge over a group of employees with years of company service and industry experience, at least one person will be happy.  Your relationship with the kid probably got a boost.  But your business?  That hissing sound you hear is the air being let out of the tires that drive your business to success.

Having the same last name as the owner of the business may well serve a person in getting hired, but after that, he or she absolutely must be held to the same standards as every other employee.  Make that one of the guiding principles of your business, and you will have one less thing to worry about, which is the perception of nepotism. 

Look at it this way: if your kid is such a hot-shot, he or she will get to a position of responsibility within the organization based on the quality of his or her work.  Getting those kind of positions simply based on blood is not good for the rest of your employees, your customers, your vendors, or you.  And really, not for the kid, either.  (Born on third base, thinking he hit a triple.)

I know this is a sensitive issue, and it’s easy to take a hard-line stance on it when you have no skin in the game.  But therein is the value of a trusted business adviser, especially one who has run family businesses before.  Having someone that the owner can trust with such sensitive matters is invaluable in keeping the company grounded in its business mission, without the drama of the family dynamic interfering. 

Think about this a bit, and let me know if you want to talk it over.

Decision Making (or Not)

It has been my experience both when I owned my own business and while working with clients: the Decision Making Process is arduous, difficult and sometimes gut wrenching and very time consuming.

      Example: Termination of long time employee(s)

I found this to be the most difficult of all decision. People who had been with me for many years were just not able to perform as the business grew. They had reached their “Peter Principle” - the level of their incompetence. They were dragging down their co-workers, slowing growth and causing co-workers and themselves not to receive bonuses. Working with them for long periods of time, coaching them to change, were fruitless.  But you just can’t seem to terminate them.

Well, you finally decide it has to be done. When it’s over and they are gone, you look at yourself in the mirror and ask “Why didn't I do this a long time ago? Everything is running a lot smoother. My team is happier, productivity has increased dramatically and teams are receiving bonuses again! Why did I wait so long?"

You waited so long because you're human.  You weren't just dealing with numbers on a spreadsheet; you were dealing with people who you've known for years. There is no easy answer to these situations, and each situation is different. I am not advocating “pulling the trigger” too soon. However, putting off the inevitable for too long can cost you a lot on the long run. I know, I've been there.