Will You Succeed at Succession? Nov 4, 09

For todayWhat makes family business unique? Family Business 101The Succession ChecklistResourcesFinal exam

If you learn only two things today…Start planning now! Involve others.

Perceptions…

What is a family business? Any business where the family has effective control over the strategic direction of the business;The business contributes significantly to the family’s wealth, income, or identity; Future plans consider succession of the business to the next generation.

What makes family business unique? Presence of familyOwners dream to keep in family Overlap ofFamilyOwnershipEmploymentUnique sources of competitive advantage

Unique challenges facing family businessUnqualified family members in key positions within the company. Communication of business issues is difficult enough, however layered with challenging family matters, often communication completely breaks down. Marriage and divorce plays a key role in family business success and failure. Involvement of family members not employed by the company. Family members in ownership versus management positions.

Family business factsCONSTITUTE80–98% of businesses in U.S. and other free economiesGENERATE49% of GDP in U.S. and more than 75% in most other countriesEMPLOY 59% of private sector U.S. workforce and more than 85% of working population overseasCREATED about 80% of all new jobs in the 1980s and 1990s

CONSTITUTE80–98% of businesses in U.S. and other free economies

GENERATE49% of GDP in U.S. and more than 75% in most other countries

EMPLOY 59% of private sector U.S. workforce and more than 85% of working population overseas

CREATED about 80% of all new jobs in the 1980s and 1990s

Recent family business surveys2007 Laird Norton Tyee “Family to Family”2007 American Family Business Survey2008 Northwest Family Business Survey2009 Barclays “Family Business in Safe Hands?”2009 KPMG Family Business Australia3-9

LNT 2007 Family to FamilyFamily businesses are thrivingSuccession issues immanentPerception not realityAll in the family? Income diversification3-10

2007 American Family Business Optimistic about growthLack a sense of urgency about planningSelecting women leadersHigher ethical directionTraditional management toolkitCommon family valuesTrust of advisors3-11

2008 LNT NW Family Business SurveyIncorporating needs of stakeholders leads to greater successSuccession planning still neededLack income diversification Family business boards add value to the firm3-12

2009 Barclay’s “In Safe Hands?” Possess certain attributesPhilanthropy and close relationship with societyFamily relationships are a double edged swordExternal management can be a powerful toolPlanning for next gen is critical3-13

2009 KPMG Family Business AustraliaStructures and mechanisms in placeStrength & resilience is a “strength”Growth & progression is steady

1-15Entrepreneurs and Business Owners“Business owners make up 17.9% of the population, yet account for 25% of all income and own 56% of all wealth.”Source: Quadrini, V. (September 2, 1999). “The importance of entrepreneurship for wealth creation and mobility.” Duke University, Fuqua School of Business.

Family Business FactsMost current family businesses in the U.S. were formed after World War II. Fully 91% of family business CEO’s are age 42 or older, and 11% are 71 years or older. 42.7% of family-owned businesses will change hands-to be transferred to other family members or sold to others-in the next five years.

1-17Good news…bad news…or just news? In their first 5 years of operation, approximately 85% of entrepreneurial and family-owned companies disappear Among those that survive, only 30% are successfully transferred to the second generation of the founding-family ownersOnly 12% survive under current ownership to the third generationLess than 45% make it to the 4th generation

The Three Circle ModelVermont Family Business Initiative

The Developmental Stages of the Ownership SystemCousinConsortiumSibling PartnershipControllingOwnerVermont Family Business Initiative

The Next GenerationMore than 34 percent of U.S. family firms surveyed report that the next CEO may be a woman. 25% of senior generation family business shareholders have not completed any estate planning other than writing a will.20% of current owners are not confident of the next generation’s commitment to their business.

More than 34 percent of U.S. family firms surveyed report that the next CEO may be a woman.

25% of senior generation family business shareholders have not completed any estate planning other than writing a will.

20% of current owners are not confident of the next generation’s commitment to their business.

Women in FOB’sRoles are finally changing to allow opportunity for females to assume to roles of leadership and ownership. More than 34 percent of U.S. family firms surveyed report that the next CEO may be a woman. They do more with less….Source: The Center for Women’s Leadership at Babson College Women in Family-Owned Businesses Research Report

Why are family businesses important?Vermont is primarily made up of small businesses, many of which are started by entrepreneurial families. Family businesses are deeply embedded within the social and economic fabric of their surrounding community. Family businesses are committed to continuity.

Oldest family business in the U.S.?

Oldest family business in USOldest family business still operating in the US: Zildjian Cymbal Co., Norwood Mass. Founded in 1623 in Constantinople. Moved to the US in 1929. Currently in 14th generation of ownership. Craigie Zildjian is the first woman to lead her family’s business.

Largest family business (revenue)

1-26Examples of Family-Controlled BusinessesWal-MartNew York TimesWall Street JournalWashington PostAmerican GreetingsBigelowAnheuser-BuschL. L. BeanGapTimkenFord MotorFidelity InvestmentsMarriottHallmarkLevi Strauss KohlerNordstromPerdue FarmsSmucker’sSC Johnson

Some family businesses in Vermont

Goals – Business ownerTime line Financial consideration and realityLifestyle choicesManage the plan.

Goals – Business leaderEmployeesPartners/investorsBusiness continuity

Clearly define stage of business How does it relate to owners exit goals?Early/founder – planning toolGrowth – Added value and contingencyMature – Continuity and legacyDecline – Graceful exit

Business ValuationProvide honest informationChoose an accredited valuation analysisCost - $5,000 - $10,0004 - 8 weeks to complete

Assemble your transition teamProfessional advisorsFamilyPeersBoards of advisors

Explore optionsKeep in familyGiftingTrusts Buy-sellOutright saleInternal sale

Contingency plansDeathDisabilityKey-personLoss of business valueFailure to secure sound management or transition team

Identify successor & future management Key positionsTools needed to succeedDevelop skillsAmple timeCommunicate plans

Develop actual plan – written & documented Stick to goals and time lineShare with othersManage the plan PersonallyProfessionally

What will you do when you exit? EXIT!!! LEAVE!!! GET OUT OF THE WAY!!!OR….

…START A NEW BUSINESS!

FINAL EXAM

TWO THNIGSSTART TODAYINVOLVE OTHERS

What is the Vermont Family Business Initiative? Founded in 1996 in the UVM Business School. Provides a series of family business forums throughout the state.Currently 30+ member business in Vermont, from Bennington to Newport. Family owned and closely held.

Additional resources Family Business Daily Feedwww.twitter.com/fambiz2point0Family Business Wikiwww.familybusinesswiki.orgFamily Business Town Squarewww.familybusinesswiki.ning.com/Family Business Magazinewww.familybusinessmagazine.com

ContactDann Van Der Vliet www.uvm.edu/familybusiness802-656-5897Daniel.vdv@uvm.eduwww.facebook.com/vbc.vfbiwww.twiiter.com/fambiz2point0Presentation is available at: http://www.slideshare.net/dvdv