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What every family-run business owner needs
to know.
by
Gene Siciliano
Family-run companies, in many respects, are the backbone of American
business. They are typically the most stable of small businesses, with a
much lower failure rate than other small business models. Some of the
largest and most successful companies in America are family owned and
operated, yet 70 percent of family-run businesses don’t make it to the
second generation, and a full 90 percent never make it to the third
generation. These statistics are not new, but they’re appalling just the
same.
So why the high failure rate? Most experts chalk it up to
poor succession planning, as if a plan would somehow make it all better.
No plan will correct fundamental weaknesses in a business unless its
managers recognize and address those weaknesses. These weaknesses
prevent many family-owned businesses from realizing much of their real
potential.
Please understand, this does not mean all family-run
businesses are fundamentally flawed; however, those that do have
problems are often emotionally unwilling to acknowledge them or, having
acknowledged them, are unwilling to make the hard decisions necessary to
fix them. While family-run companies have a far better failure rate than
the average of small businesses as a whole, this is still a pretty
dismal record given the advantages such businesses typically have:
loyalty, strong family support systems, management continuity, long
training periods for the next wave of managers, love and affection, etc.
So here are some of the problems that often occur. If you’re the founder
of a family-run business trying to groom a son or daughter to succeed
you, you don’t need to accept this list as your own; simply consider the
possibility that some of these pitfalls may apply to your company. For
example:
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Your son simply may not be a very smart business person. He
may have blindly copied your approach over the years without
developing the ability to devise and implement his own
approach to problem solving, which is not a good shortcoming
for the boss to have. All the love in the world won’t fix
this one.
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Your
daughter may have a very different management style than the
one you used to build the business, and she may be
successful only if she can adopt a style that works for her.
Of course, if you don’t trust any style but your own, that
won’t seem like a very good idea.
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Your
son-in-law may recognize that your way of doing things
successfully 30 years ago just won’t work today with more
demanding customers, more aggressive competition, Internet
options at every turn and the big-box competitor just down
the street. If he sees that clearly and you don’t, trouble
lies ahead.
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Your
daughter-in-law may not have some of the skills needed for
your type of business yet may be a very bright, alert,
communicative person who commands respect. For example, a
Phi Beta Kappa lawyer who steps into a company where she
must be the sales manager is in trouble if her brilliance is
mostly manifested at the PC keyboard or in a research
library. Worse, you may refuse to see those shortcomings,
preventing them from being addressed openly. Still worse,
you may see them only too clearly and use them as an
opportunity to prove time and time again that no one can do
it the way you did. This will invariably prove to be a
self-fulfilling prophecy.
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If anything sounds familiar here—perhaps your spouse has
mentioned it a few hundred times—and you still can’t see it, it
is possible your eyesight is not what it once was. Don’t worry;
it happens to the best of us. Here are some ideas to help
improve your ability to pass the business along intact: |
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Treat your children like any other senior manager.
Evaluate their performance formally and objectively (as you
do with your other employees), and help them work out action
plans to correct deficiencies before they become excuses to
fail. A child who thinks this is unfair may need to be
employed somewhere else for a few years to get a flavor of
life on the outside.
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Make a detailed list of the skills needed to succeed in your
business.
This list should include not only the ones you used to start
the company but also the ones that will help the company
grow in the environment in which it now does business. You
may need help from impartial but knowledgeable outsiders to
complete this one, but it’s worth it. Then, build your
would-be successor’s grooming program around that list.
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Get formal training for your children in the areas they need
strengthening.
Seminars or workshops on topics such as managing and
motivating people, business planning and managing money can
build valuable skills for your company as well as enhance
the personal growth of your children.
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Rotate the assignments your children get in the company to
give them a strong sense of the business from every
direction—not just the functional area in which they are
best or most interested.
If one of them is to become the CEO one day, he or she must
have a total company view to be successful. Each assignment
should be at least a year, so they get past the possibility
of just “riding it out” and actually get into the meat of
the job.
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Ask the honest opinion of others in assessing the
performance and potential of your children.
They may see things you can’t see despite your sincere
attempts to be objective. Consider a 360-performance-review
process (feedback is provided by subordinates, peers and
supervisors, and includes a self-assessment) as a tool that
might help your company team grow in addition to being a
good way to get others’ views of your children’s
performance.
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Your son or daughter could be a great future CEO for your business. He
or she has tools available that you didn’t have when you started. He or
she has the benefit of living in the culture of the business that you
built. And he or she has time to prepare before taking on the
responsibilities and challenges of the job. Take full advantage of all
that potential and help maximize their potential. You’ll be helping
ensure the future success of your company and a stress-free retirement
for you.
Gene
Siciliano, CMC, CPA, is an author, speaker and financial consultant who
works with CEOs and managers to achieve greater financial success in an
ever-changing economy. As “Your CFO for Rent®” and president of Western
Management Associates, Mr. Siciliano has spent more than 20 years
helping his clients build financial strength and shareholder value
through applied knowledge and process improvement. His book, “Finance
for Non-Financial Managers” (McGraw-Hill, 2003), is available nationwide
in bookstores and online. To book Mr. Siciliano for your next event,
visit
www.GeneSiciliano.com
or
e-mail
gene@CFOforRent.com.
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