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Working With Family-Owned Businesses


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Working With Family-Owned Businesses

  1. 1. Working With Family Businesses: What to Look For & What to Look Out For Presented by: William (Chip) Valutis, PhD
  2. 2. Family-Owned Businesses —  Impact on the U.S. Economy —  Number more than 13 million —  Produce over 60% of the GDP (Gross Domestic Product) —  80 - 90% of all proprietorships, partnerships, private and public corporations are family-owned or family- influenced —  Employ approximately 1/5 of the working population (50 million people)
  3. 3. Family-Owned Businesses (cont’d) — Odds of successful succession: — Average life span is 24 years — 2 out of 3 FOBs fail to successfully pass the business through to the 2nd generation — Of those who succeed, 1 in 7 make it to the 3rd generation — Of those, 1 in 10 make is past the 3rd generation — “From rags to riches to rags”
  4. 4. Positive Characteristics of FOBs t  Quality focus: pride, high service, high-quality product or service t  Paternalistic: good benefits, care for employees, few layoffs, long tenure t  Stability: long-term focus, care for employees, few layoffs, stable work force t  Family-like: feelings of community, commitment and loyalty t  Personal: owner/operator maintains close relationship with employees; accessible to questions or comments
  5. 5. Negative Characteristics of FOBs t  Resistant: slow to change; suspicious of outsiders, new ideas and/or new methods t  Autocratic: owner/operator can be controlling, dictatorial, secretive, and foster a dependent work force t  Nepotism: may be too tolerant of inept family members as managers; fail to find competent non-family professionals t  Dramatic: openly fight and argue (particularly during periods of succession) t  Confusing: lack clear division of structure, tasks and accountabilities t  Poorly managed: founder often has technical expertise but little management experience
  6. 6. Primary Reasons FOBs Fail t Two conflicting systems in the same environment t Lack of professional management experience and/or knowledge t Inability to resolve family issues
  7. 7. Conflicting Systems — The two systems are: 1. The family w Emotionally based w Emphasis on loyalty, nurturing and caring w Harmony and belonging are critical 2. The business w Task based w Emphasis on performance and results w Productivity and profits are primary
  8. 8. Potential System Relationships High Focus on the needs of the business Low High Focus on the needs of the family
  9. 9. Endangered/Static “The Many who Fail” Low attention to business needs Low attention to family needs Waffle — no consistent effort Family First “Family at the Expense of Results” All attention to the needs of the family Harmony over business results Acceptable vs. sound management Less focus on needs of the business Locator Model Business First “Results at the Expense of Family” All attention to business Low attention to needs of family Logical, not emotional Results driven Family Enterprise “The Few who Succeed” Appropriate attention to business & family Allow for needs of family within the realities of business Win/win solutions Develop the business and family members
  10. 10. Critical Issues for FOBs —  1. Succession: The process of identifying and training a successor, and making the transition of power while supporting the needs of the business. —  2. Participation: The policies, procedures and family guidelines for deciding on key family and business issues. These may include compensation, accountability, hiring, firing and retiring. —  3. Compensation and ownership: Decisions regarding the pay and power in a family-owned firm. Includes working and non-working family members, stock considerations and dividend payments.
  11. 11. Critical Issues for FOBs (cont’d) —  4. Family harmony: Must build and maintain healthy relationships among the family involved and not involved in the business. Conflict resolution and communication skills are paramount. —  5. Responsibilities & accountabilities: Identify the obligation of family. How are major life events to be handled: divorce, death, marriage, in-laws, legal issues, etc. —  6. Owner/operators: Typically technicians or visionaries. They must learn professional management strategies. Having professional systems and leadership is critical in attracting competent non-family leaders.
  12. 12. Strategies: What to Look For... — The Business 1. Clear responsibilities and appropriate authority 2. Accountability and consequences for performance 3. Constructive contention 4. Sound decision making and problem solving 5. Professional but appropriate business systems 6. Clear boundaries
  13. 13. Strategies: What to Look For... — The Family 1. A common philosophy 2. Family councils and creed 3. Open communication and ability to resolve conflict 4. Support and encouragement 5. Non-family mentoring 6. Outside experience
  14. 14. What to Look Out For... — 1. Secrets — 2. Triangulation — 3. Chronic conflict — 4. Monarchs
  15. 15. What to Look Out For... (cont’d) — 5. Isolation — 6. “Stuffing” — 7. Mystery guests — 8. Family dynamics
  16. 16. Recommendations for Helping FOBs —  Here and Now vs. There and Then —  Visionary vs. Pathology —  Learning Environment vs. Evaluative Environments —  Self-Focus vs. Other Focus
  17. 17. Keys to Success t  Is there a common goal toward which they can work? t  What criteria should be used in decision making and problem solving? t  How to balance the needs of the business with the needs of the owner? Help Pick a Common Philosophy
  18. 18. Keys to Success t  Identify the different roles t  Define expectations for each t  Keep appropriate roles in the interactions; monitor t  Remember your roles and boundaries as well Clarify Roles & Boundaries
  19. 19. Keys to Success t  Candor builds respect t  Be a reality test - call it the way you see it t  Talk about what no one else will talk about t  Don’t be “yes men” advisors Challenge & Deliver Bad News (when needed)
  20. 20. Keys to Success t  Know your limits t  Build a network of trusted advisors to help with clients t  Communicate with the other professionals involved t  Ensure no one is working at cross purposes Encourage Multi-Discipline Interactions