Family businesses: Know how to play to your strengths

Strengths

Image source © (Licence)

In today’s fast-paced and progressive world, corporate organisations are often considered the most successful business structures. International conglomerates such as Virgin Group, Textron, and Time Warner have all attained global success based on their corporate business models. While the achievements of these multi-national organisations is inarguable, family-owned companies are also excelling in the business world.

Once considered an undesirable phrase among the corporate heavyweights, the term ‘family business’ is now a positive business indicator. While many young entrepreneurs start out on their own with a single great idea, other people embark on work ventures with their relatives. Samsung, Mars, and Wal-Mart are all international family-owned enterprises — dispelling the myth that these types of companies only ever reach small to medium size.

In fact, family firms have a range of valuable attributes that are often not found in other organisations. According to the Institute for Family Business, more than three million companies in the UK are owned by families: this demonstrates their integral contribution to the economy. Furthermore, in a world that is increasingly computerised and impersonal, many consumers welcome the sense of loyalty and familiarity that is associated with family enterprises.

However, owners of family-run businesses are often apprehensive about promoting their close-knit ethos as a main USP. They fear that by doing so, their professional appearance will suffer. While it is true that family firms connote a certain informality, this is not necessarily a bad thing. In fact, consumers are more likely to trust brands that are operated by people who share the same beliefs and are committed to achieving shared goals.

So instead of downplaying your company’s history and fundamental values, use them to your advantage. People will value the honesty of your marketing methods, and appreciate that your business is likely to have been established on solid familial foundations. What’s more, because you are building something that future generations of your family can be a part of (and you aren’t ashamed to admit it), it will resonate with potential customers. By humanising your business, you set yourself apart from the masses of corporate, faceless conglomerates that customers can’t relate to.

Rix Petroleum is one of the UK’s oldest fuel distributors, with over 140 years of industry experience. The company is still entirely family owned; something that Managing Director Tim Rix believes gives them a winning edge over their competitors.

Speaking about their journey, he said: “We have grown exponentially since our humble beginnings, but we still pride ourselves on being a family-orientated business. This ethos is embedded throughout all of our operations, and we think it is apparent in our great customer service.”

So whether you own a family-run company or you are employed by one, always remember to play to your strengths. What might have previously been perceived as an inauspicious business term now encapsulates everything that consumers want from this increasingly corporate world. Your personal investment and commitment is something that — when championed — can earn you a loyal following.

 

 

 

 

Frustrated with a family member in the business?

Frustrated

 

 

 

 

 

Stuart Farleigh – Managing Consultant at The Family Business Unit Ltd

What do you do when can’t seem to communicate with a member of the family in the business?

It often happens! A wife, husband, father, mother, brother, sister, son, daughter or grandparent just don’t understand you.

Here is what usually happens:

  • You stand your ground and fight it out
  • You ignore it – perhaps it will sort itself out
  • You run away – leave the business
There is a better way (No – it doesn’t involve hiring a “hit-man!)

You can’t force someone to change their behavior – you have a choice understand why they behave the way they do and to change yours. How can we do this?

I invite you to try this next time you are about to explode….you know those signs before it happens.

  • Stop and separate yourself from their emotions and behaviour – identify what it is in their behaviour is getting you angry and upset. Examine the dialogue in your head.
  • Put yourself in their shoes. See things through their eyes, hear things through their ears and feel what they are feeling. Ask yourself the question “Why are they really doing this?” “Is it to spite me or is there a deeper reason?”
  • With that additional knowledge, become an impartial observer. What would they suggest you do? How else would they advise that you manage the situation?
  • Hear that advice and reflect on it.
  • What other choices to you now have?
Because you are part of a system – you have set patterns of behaviour. This process will allow you new choices to change the outcome of a relationship situation.

stuart.farleigh@familybusinessunit.com

The Founder’s or Family Trap

Stuart Farleigh – Managing Consultant at The Family Business Unit

“Clogs-to-clogs in 3 generations”. Unfortunately 80% of privately held or family businesses are victim to this. Why?

trapThe “Founder’s or family trap” as coined by Dr. Ichak Adizes PHD is the inability to separate management from ownership. To put it another way, to move from an “absolute monarchy” to a “constitutional monarchy” – when a founder dies, the company may also die.

The founder is usually an entrepreneur – for a company to grow to the next stage it needs to implement effective systems, budgets, policies and structure these are often outside the range of skills of an entrepreneurial founder.Dr Adizes has compiled a chart of problems normal at this stage of development and those that indicate a move towards “The Family Trap”

Screenshot 2014-11-04 09.22.15

 

The Family Business Unit – 360° Support for the Business

FBU Logo smallOur specialist team of consultants & coaches provide a complete one-stop service around:

  • Succession planning
  • Strategic tax planning and advice
  • Wealth management advice and guidance
  • Support and guidance on company sales, acquisitions and private equity transactions
  • Recruitment of external managers and leaders
  • Strategic marketing planning and support- refocusing the business
  • Training of individuals and teams
  • Personal and executive coaching
For more information, call Amanda on  +44 20 8123 8194
Emailamanda.redondo@familybusinessunit.com

HORRIBLE BOSSES IN THE BUSINESS

BLOG BY JEREMY HAZLEHURST

On the face of it, nothing could be more unfair than a family business, in which the only way to get to the top is to have the right surname. But a piece of research recently carried out by three academics in America suggests that this unfairness is one of family businesses’ greatest strengths. And, paradoxically, that the specific type of unfairness in family businesses could even make them fairer overall.

Back in 2001 there was a fight to become the new chief executive of Pfizer. One candidate, Hank McKinnel, was known for his aggressive management style, while another front-runner, Karen Katen, was known to treat people respectfully, something which gained her friends in the company. McKinnel got the job, with one industry observer putting it down to his “toughness”.

In big corporations, lots of anecdotal evidence suggests that being nasty helps you get ahead. Recently a bunch of academics decided to test the theory, or as they put it, “should leaders be loved or feared” or, “can you have respect and power”?

They got hold of hundreds of corporate decision-makers and employees and stuck them in a lab, where they got “bosses” to deliver the same piece of news; one did it rudely, and one politely. The guinea pigs generally concluded that the rude manager was more “powerful” than the polite one.

The research concluded that corporate employees perceive that nasty people are more powerful than nice ones. Maybe they were reflecting their experience that a skill for accurately placing a blade between the shoulder blades is a prerequisite for getting to the top, but it’s not hard to see how this becomes a self-fulfilling prophecy. “Managers see respect and power as two mutually exclusive avenues to influence,” say the researchers.

You can’t be nice and get promoted. And that is unfair, because as the researchers said: “Numerous academic studies have shown that the most effective leaders are generally those who give employees a voice, treat them with dignity and consistency, and base decisions on accurate and complete information.” So the best people aren’t getting promoted. That’s not just unfair, it’s daft. (Hank McKinnel wasn’t a success as Pfizer’s CEO, incidentally.)

Perhaps the reason that this unfair situation exists in corporations is that the top people do not have a stable basis for their power. A bad quarter, and they could be forced out. They may well prevent the best people from challenging them, and so they could be tempted to prevent talented employees getting promoted. Only the nasty ones, who are less effective managers, will get on.

In family businesses, on the other hand, the basis of power is more stable. Top spots just aren’t up for grabs, no matter how much scheming, schmoozing and weaselling you do.

Without trying to paint an idyllic picture of family businesses, family members don’t feel threatened in quite the same way as corporate chief executives because they can’t be ousted by those lower down the chain. So they care and are able to promote people on the basis of their talent without worrying about their own jobs. In other words, they are free to be fair.

Family Business Succession Planning: Points to Ponder Before Transferring Ownership

Anyone who owns a family business is intimately familiar with the blood, sweat, and tears associated with building and then keeping the business viable. Nevertheless, it is not unusual for the business owner to postpone consideration of various issues involved in transferring the business to the next generation, including determining the value of the business.

This lack of preparation is often one of the reasons the risk of failure increases as family businesses are transferred to succeeding generations and a business exit strategy is not formulated. As an analogy, think of selling a business in much the same way as selling your home. The time to address issues is not on the cusp of a sale, as this reduces bargaining power. Rather, prepare the home before you list it for sale. Similarly, you must prepare with family business succession planning if it is to occur successfully. In anticipation of this most important event, here are a number of points to ponder.

What is the value of the business?
Determining the value of the business is essential to an effective exit plan, even if that plan involves giving the business away at death. Unless an owner has a realistic understanding of value, it is impossible to understand the tax implications of the transfer. Just as important, if the business will be transferred to certain family members, excluding others, knowing the value of the business is imperative if you are attempting to treat family members fairly. That’s why utilising the services of a professional appraiser is essential and need not be cost prohibitive.

To whom should the business be transferred?
While the fair minded business owner would certainly like to treat each of his or her heirs equally, if less than all of the heirs work in the business, it’s utopic to think that transferring a business in this fashion makes sense. Generally, this situation can breed resentment, especially if certain heirs work for the business and draw a salary, while the rest of the heirs receive little if any benefit from their ownership.

If the entrepreneur does not wish to leave the family business equally to his or her heirs, then are there other assets that can be used effectively to make non-business gifts to other heirs? But if the business’s value is substantially larger than the balance of the individual’s other assets, this type of distribution may not be possible, particularly following the payment of death taxes.

Have you Considered the Impact of the Family Business State on Inheritance and/or Estate Taxes?
In this vein, how much tax and potentially inheritance tax will be payable at the death of the business owner? Assuming that some estate taxes will be payable, are there available funds that can be utilised to pay those taxes? And if so, will those funds be depleted to the point where parity no longer exists between those intended to receive business versus non-business assets? Or, if an estate plan is structured so that the estate taxes attributable to the business interests are to be paid by the recipients of those interests, will those individuals have their own money to pay the taxes?

If a business is the entrepreneur’s largest asset in her estate, taking action during their lifetime may be the only way to ensure success in transferring the business to the next generation, including minimizing what can be an unmanageable estate tax at death. Such action may include a thoughtful lifetime gifting program, or a partial sale of stock to those individuals. Some form of a valuation discount may apply to the sale of some stock, particularly a minority interest, may be subject to some form of valuation discount, thereby enabling the transfer of a greater percentage of the company to the intended recipients. A sale of shares may also increase the pool of funds that ultimately will be utilized to pay estate taxes, or make gifts of non-business interests.

12 Smart Business Exit Strategies – The views of 12 owners with successful exits

Quote

Experience shows the importance of having an exit strategy for your business, even when you are in the early stages. When most founders started out, thoughts of to whom and when they might sell their business down the road weren’t anywhere on their radar.

There is a real need for incorporating an exit strategy into your business plan, in order to build an entity with “shelf value.” The goal is that one day you won’t walk away with nothing to show for the years of blood, sweat and tears you poured into it. In an effort for us to all be building our businesses to a wonderful and profitable day when we too will wish to sell, we reached out to the experts and asked –

What steps are you taking to develop an exit strategy for your business, and how did you get started?

You are going to love the 12 responses we received to this query, from those who have a plan, to those who have already sold. The variety of experience will give you strategies you can use no matter where you are on your business development timeline. Enjoy!

1. Be The Heart Of Your Business

My one big tip for creating an exit strategy is to be at the heart of your business. What do I mean by this? Don’t be afraid to be the face of your brand so that people connect the business with a story! People love stories and would much prefer to buy from a service/brand that they know of than one that they don’t. By being unafraid of putting yourself at the heart of your business, you’ll instantly create a brand, gradually attract loyal customers (who’ll be there even when you decide to sell) and make your business more appealing to potential buyers/investors. A good example of a business that has done just this is Innocent Drinks; they shared their story which attracted press attention, went on to sell millions of drinks and sold shares to Coca Cola. Innocent is now extremely sell-able.

2. Selling Your Business Is Not Selling Yourself

After ten years of successfully building my craft services business, my husband knew that it was time to sell and when he suggested it, I burst into tears as if he was telling me to cut off my arm. The business was such a part of ME and at that point, I did not possess the insight or expertise to know when it was time to sell. I did not have an exit strategy in place. Then the economy tanked, and I have spent the last 2+ years saving and building my business back up. In preparation for the sale, I have created a manifesto of company operations, collected all debts, paid off the company vehicles, and am training managers to take over the operations. Incorporating an exit strategy into your business plan is necessary and practical.

3. Diversifying Our Revenue Stream And Adding More Profit

We got started thinking about an exit when we first started the company back in 2003, but it never crystallized until this year. For us, it is diversifying our revenue stream. In the meantime, we will bring as much profitability to our company as possible. Our plan is once we raise profitability and diversify our revenue some more, to look for VC investment or to go public. We got started on this plan by adding various revenue streams.

4. Standing Out And Gaining Prominence

Our exit strategy is simple. Our website will continue to grow on the same—if not better—path than we are doing right now until we become one of the foremost daily deal websites on the web. After that, the plan will be to seek out a company or person who may want to acquire us. You can do the searching for yourself, but if your company becomes that prominent, people will already be contacting you. We started working on this plan by pumping out as many handpicked deals as possible—especially during the holiday season.

5. Success First And Then Formulate An Exit Strategy

Our business is fairly new, but we have being growing a rapid rate. Due to our speedy success rate, we haven’t been able to craft a coherent exit strategy. Though, we imagine that two years down the road, we will be exploring our options. The way we would go about doing this is through strategic sales or accessing the public market.

6. Excel At Exiting

Stephen Covey advised us decades ago to begin with the end in mind. From the moment you start your solopreneurship, you should be thinking how best to end it. Keep a file and whenever you meet someone who might be interested in buying a part or all of your business, record facts about that person, including when/where you met and what makes you think he or she could be a buyer. To your file add other sale-related tidbits–comparable businesses that are expanding, the price that similar businesses sold for, names of business brokers, individuals with that entrepreneurial drive (even if they currently have a 9-5 job) et cetera. When the time comes for you to move on, you will be able to exit, excellently.

7. Leaving My Business Legacy

After 18 years in business, I began looking for my successor. It was important to me that the business continued to have a great reputation, I could feel great about the position I left it in and secure in knowing my clients would be well taken care of and my staff would have jobs for many years after my retirement. I worked with several prospective buyers, only to decide they were not a good match. Finally I found someone. We worked together for 3 years before signing legal documents outlining my succession plan, to assure the transition would be smooth for everyone. I taught him how my business runs and gave him the opportunity to meet and work with my clients. My business sold at a fair price on the exact day planned. Now when I see former clients and staff it feels great!

8. I Got ‘IN’, But How Do I Get ‘OUT’

All your records should tie to each other.

1) Receipts & Disbursement books, to Sales Tax returns, to Business & Personal tax returns

2) Use a ‘Business Broker’- it’s worth the commission. They will weed out & pre-qualify the real buyers from the ‘just making inquiry’ ones. It will save you a lot of time and aggravation.

3) It’s a must to figure out the ‘true’ value of your business. Know in advance the size of the down payment you are looking for, interest rates and the amount of ‘payoff’ time’.

4) I interviewed a number of brokers. Many will downplay the value of your business to make it easier for them to sell & others, to get you to sign with them, with overplay it. If you know the true value you will find the right broker. I did & he sold it!

9. Exit Or Bust

Any entrepreneur should have an exit strategy to minimize the likelihood that he or she will walk away from the venture without anything to show it. Specifically, once certain benchmarks and parameters are reached, one should begin to seriously consider having other investors come in who might be interested in either helping further grow the business or make it part of a larger entity, or simply sell the business altogether. What we’ve seen in other companies (including large corporations like Yahoo) is that holding on for too long can lead to dire consequences. There is no guarantee that a growing entity will continue moving in that direction.

10. Top 4 Tips For Your Exit

1 You need a plan!
According to the SBA, the #1 reason most business transitions fail is due to a lack of planning. A successful transition can take years to execute, only 20-25% of businesses sell, and there’s a tidal wave of competition coming as baby boom generation business owners start to retire. The people who are successful are going to be those that planned ahead!

2 It’s not the end, it’s a new chapter!
The #2 reason business transitions fail is biz owners can’t let go. You’ve worked hard and built a business you love, but one way or another, you will exit the business. Having a plan and executing it increases the chances the people you care about (employees, customers, family) will be taken care of. Having a vision of your satisfying life after you exit will help you avoid procrastinating on developing your plan.

3 Think win win
Armed with your vision, you should have some idea about how much you need to get for your business to finance the dream. Is your business worth that? If not, what adjustments do you need to make to your business plan to get you there? Think of this as the transition period of changing the business from what you wanted it to be to what someone else wants to buy. Win win!

4 Build your team
When selling your business, you need to make sure the business continues to run at optimum levels. Think about getting some help with the sale, so you can concentrate on what you do best. You may only get one chance at this and you want to get it right the first time. People who have been through the process can help!

11. Business Operating And Exit Strategy Are One And The Same

The way I see it business owners should be operating their companies the same way whether they are preparing to exit or not. However, if I was asked by a businessperson what steps to take in preparation to exit I’d say:

1. Assume the person considering the purchase of your company is going to do an outstanding job of due diligence and prepare accordingly. You’ll need clean financials (and not just the current year), as well payroll details and a clear explanation of each P&L line item.

2. Assume the person considering the purchase of your company is going to ask the hard questions and be prepared.

3. Don’t stretch the truth…don’t lie – period! If there’s bad news (difficult employee for example), disclose this information if asked.

Every business owner wants to paint the best picture possible about their business and they should. But my experience in buying and selling companies is that full disclosure is always best.

12. Top 3 Strategies To Sell Your Business For Top Dollar

1. Seller Neglect – Often, once a seller has decided to sell they begin to neglect their business. A seller must keep increasing sales throughout the exit process. Sales , Sales, Sales is like location, location, location! Owners must keep their eye on sales. Buyers will pay more for a business with increasing sales than one with decreasing or stagnant sales.

2. Remove yourself form the business – If you are a business owner like “Norm” from the sitcom “Cheers” where “everybody knows your name” – that may be good for business but not for a business sale. In order to maximize the value of your business, owners have to disassociate themselves from the business and have customers, employees and suppliers sign on because of the business and not the owner. The best method to remove yourself from the business is to train your top staff to take on your responsibilities. The more infrastructure you have, the more valuable your business.

3. Reduce the amount of personal perks you take from the business – Most small business owners ” live” out of their businesses. Buyers will pay you handsomely for profits, but if you keep taking money out of the business for personal expenses you will automatically increase your expenses and therefore reduce your profits. The best advice here is to separate your personal and business expenses and don’t keep forking out your business
debit card for family dinners and vacations.

Unlocking Value For The Older Generation

Richard Lane, Farrer & Co

Balancing the need to pay for retirement and cashing in on their hard work and handing over the reins to the next generation.

The UK economy is at a crossroads.  On the one hand, the Chancellor is increasing the pension age for all of us at the same time as annuities are continuing to fall, whilst on the other we have seen over the past six months or so an increase in business confidence and much more corporate activity.

As a result of the above, we have seen a number of family business owners coming to us seeking ideas for ways to pay for their retirement whilst others are looking to cash in on their hard work as they hand over the reins to the next generation.

Whilst it may be possible for some businesses to continue to pay both a salary and dividends to the older generation through their retirement this is not always the case and numerous business owners are having to consider the option of withdrawing capital from their businesses. For many, the thought of taking capital out of the family business is difficult to contemplate – the idea was always to gift the shares to the next generation – but they are having to come to terms with the “new normal” in the context of the current economic situation.

This article addresses the opportunity that exists to take out a significant capital sum from a profitable family business whilst also benefitting from the reduced capital gains tax rate of 10% (as opposed to the top rate of 28%) afforded to many business owners under the Entrepreneurs’ Relief (ER) regime. This can be particularly interesting when viewed against current income tax rates for salary and dividends of up to 45% and 30.6% (effective rate) respectively.  We also outline some of the planning that owners must do in order to make the most of ER.

Two initial points to note are that:

  1. only shareholdings in trading companies can attract ER so, for example, owners of shares in a pure investment company (such as a property holding company) or indeed a company which, very broadly, can attribute more than 20% of its profits to investment rather than trading activity, will not qualify for ER, and
  2. there is a maximum lifetime amount of £10 million of capital gains per person on which ER is available, a consequence of this latter point being that for larger businesses it is certainly worth considering the possibility of transferring shareholdings across the various family members to ensure that each member’s entitlement is fully utilised. In the case of the older generation, it is important to consider ensuring that husband and wife both hold shares in the company. If going down this route, however, it is crucial that the conditions for ER to apply to any future sale are met by the receiving shareholder.
In order to qualify for ER on the sale (or other disposal) of shares in a company, an individual shareholder must hold not less than 5% of the ordinary shares of the company.  These shares need to be held for at least 12 months prior to the sale and, crucially, they must entitle the holder to at least 5% of the voting rights attaching to the company’s ordinary share capital.

One point worth noting is that, provided the shareholder has held at least 5% of the ordinary share capital for at least 12 months, it does not matter if they also dispose of shares which they have received in the meantime and which they have therefore held for less than 12 months as all of the shares disposed of should qualify for ER by virtue of having held at least 5% for that 12 month period. In addition, the shareholder needs to be either an employee or an officer of the company (an officer for these purposes is either a director or the Company Secretary) and must have held that role for at least 12 months prior to the disposal.

The method by which the older generation will extract cash from the business will not be by way of a sale to a third party but instead by the company buying back the shares (a buyback).

The rules on buybacks have loosened over the past few years and providing the company has sufficient “distributable profits” then the company can effectively buy the shares and cancel these from the register.  Distributable profits in this instance are accumulated profits.  As part of the process planning is essential and should be started, as outlined above at least 12 months prior to the event.

It is essential that the funds received by the shareholder in return for the buyback of shares are treated as capital (and taxed as such) and so HMRC will need to be approached to confirm this. The Articles of the company will also need to be checked and amended if necessary in order to permit a buyback of shares.

The buyback and cancellation will remove a significant percentage of the issued share capital so the next generation must have new shares issued to them prior to or at the time of the buyback.  Again, provided they have held 5% or more for at least 12 months further transfers of their shares (even those held for less than 12 months) should attract ER.  These should be held directly by the individual family members if possible, or if for a minor then a trust arrangement could be considered.

Using the above buyback route can allow retiring family members a significant nest egg with which to invest or buy an annuity whilst leaving the next generation in control of the company.

Points to Note:

  • Ensure each family member holds at least 5% of the share capital for at least 12 months
  • Ensure each family member is either employed by or an officer of the Company providing actual services to the Company for at least 12 months
  • Ensure clearance is sought from HMRC in the event of the buyback route
  • Issue new shares to the new generation to ensure that they can benefit from ER on future sale/transfers
Richard Lane is the Head of Family Business at Farrer & Co.  For more information about their services to family firms please visit their website

The Top 10 Communication Mistakes That Kill Family Businesses

communication mistakesYour family business doesn’t have to be a source of frustration and anxiety as it often becomes for so many families. Family business disagreements can lead to estrangement in family relationships that last for generations.

It doesn’t have to be that way. In a 40 year career in and around family business, I see one obvious, yet seldom addressed, area of skill development that could eliminate a huge amount of the family business breakdowns.

Communication skills are needed. Think about it. We are linguistic beings – words are the water we swim in. Like the fish in water, language is so much a part of our world we almost forget it’s there. In families the way we speak to each other becomes ingrained and trained at a very early age. Being witness to many family business families, I have found a very predictable set of mistakes family members make that could be avoided.

Here’s my list of top 10 communication mistakes

1. They stop talking!

Okay, I know this is pretty obvious.  But we all know once you stop talking you aren’t on a path to fixing the problem.  Sure sometimes it’s okay to take a timeout and stop talking for an hour or half a day but too often families will come to us who haven’t spoken together significantly in the past month.  As painful as things are, you need to keep talking so you can try to understand the source of the breakdown and reach an agreement on possible solutions.

2. They can’t listen

One of most important skills you can acquire for being a successful human being is to learn how to truly listen to people.  Real listening requires you to suspend your judgments and forget your history. You need to really try to listen to what the person is saying.  Too often people get overcome with emotions and simply stop listening.  As you listen, you don’t have to agree with everything you hear but you should learn how to honestly take it all in.

3. They can’t communicate in a calm manner

The brain scientists have now proven that emotions flood your brain with chemicals that actually shut down the creative part of your brain.  I realize we’re all emotional creatures and I know emotions play a part in everything we do.  Highly effective families learn how to take a couple of deep breaths and restore some calmness before they try to communicate their issues to each other.  In our work, we also teach and practice mindfulness – the ability to stay calm and rational in the midst of challenging situations.

4. Inability to balance advocacy and inquiry

People spend all their time trying to convince you why their way is the right way and too little time trying to ask questions and understand your point of view.  In our work, we call this advocacy- trying to get your point across and inquiry – understanding the others point of view. By asking questions to understand the other person’s thinking you can create openings for mutual understanding and building consensus.

5. Inability to escape the past

Especially in families, we get trapped in our past stories and experiences with people.  I can understand how that happens because I saw it happening in my own family business.  Effective communication focuses on new possibilities for new ways of thinking and acting.  Families too often get caught up in rehashing and reliving in the past.  Effective communicators know how to build new visions and new possibilities for working together for more powerful and effective futures.  We want to use the past to educate us but it is effective communicators that create a new future.

6. Inability to be thoughtful and coherent

Effective communication requires the ability to be thoughtful and to have a plan about what you’re trying to accomplish.  Too often people start rambling and ranting and are unable to communicate their point effectively. We encourage people to take some time and write down what they’d like to accomplish and practice it a bit before they dive into the conversation.  You need to have a clear plan of where you’d like to go in the conversation and be open to the possibilities of where it might lead.

7. Confusing facts with opinions

This one always causes a heated discussion.  In our work, we talk about assessments and assertions.  An assessment is the judgment of something qualitative – “that’s a good-looking jacket” – a totally subjective thing to say.  An assertion is something that is quantitative like “We sold $100,000 of merchandise.” The problem is people think their assessments (opinions) are facts and they are very sloppy about keeping clear about the difference between an assessment and an assertion.

8. Speaking as knowledgeable yet lacking knowledge, competence and experience

When the family starts to get caught up in controversial decisions about the business, many times family members start giving opinions without sufficient knowledge or experience. Successful business families understand the need to conduct ongoing training for the family in the area of business fundamentals and best practices. This enables the family to have more productive dialogue coming from a place of shared knowledge. We encourage families to invite other successful family leaders to their family meetings to help educate members through real-life success stories from other families.

9.  Inaccurate about facts and conversations – convenient memory

There can be nothing more frustrating and mind-boggling than when people start conveniently forgetting what they said or rewriting their version of the conversation.  Some people seem to think this is a convenient way to avoid accountability.  When this is a behavior pattern in the family, I start encouraging them to capture their agreements in writing and circulate them to each other.  Unfortunately, some people use confusion and selective memory in order to not be held accountable for previous conversations.

10. Inability to collaborate and build consensus

Business’ and families, by their very nature, involve complex decisions and a broad range of ideas and perspectives. It’s critical to the families’ long term success to build the skill of true collaboration- really learning to build off of each other’s ideas vs. tearing them down. Successful families know the importance of making sure everyone’s voice is heard and the solution represents as many interests as possible.

You can use this list as a communication checklist at your next family meeting. Have everyone look over the list and identify 1-2 areas they realize they need to work on to improve their communication effectiveness. Capture those findings, remind people and hold them accountable to improve in the areas needed. If someone can’t be honest with themselves and identify 1-2 areas, send them to me and we’ll have some coaching on “accurate self assessment”!

Think of communication skill building as one of your top priorities in your business family. You can’t really discuss your collective vision, set clear expectations of each and discuss your breakdowns if you can’t communicate.

How to Thrive While Leading a Family Business

by Josh Baron and Rob Lachenauer 

imgres

We’ve seen both sides of the spectrum: family executives hating their jobs, their businesses, their families, feeling under-appreciated for their efforts, exhausted by all the “craziness,” wanting nothing more than to “sell the damn thing.”  And we’ve seen family executives thrive with rewards that are richer and more profound than a leader of a publicly traded company could possibly derive.  The company flourishes, the family has a collective purpose that brings them together, and the kids prosper.

So, naturally, we wonder, “Why do some executives thrive while others wilt?”

Family businesses are inherently messy.  Work and life are almost inextricably intertwined.  With so many things going on concurrently, family executives either get swept up in a virtuous cycle or a vicious cycle with very little in between.  Leaders who thrive in this environment embrace and use this messiness.  They can be all sorts of people – introverts, extroverts, operations-oriented folks, great sales people, men, or women.  But what we see in common in thriving family business leaders is that they get four things right:

Four separate rooms

Life in a family, business can really be a pressure cooker because the business discussions continue around the dinner table and in the bedroom.  There sometimes is no separation between work and family, home and the office.  The CEO leaves a meeting at the office with the CFO, his daughter, and he goes home to her mother, his wife and joint owner of the business.  This entanglement of relations runs so deep that the only leaders who thrive are those who have learned to explicitly separate their lives into four separate rooms: one for the business managers, another for the board of directors, yet another for the owners, and a separate one for the family members.

Consider your own home:  You have different discussions in the kitchen, the bathroom, the bedroom, and the living room.  Of course there’s some overlap: Nothing is hermetically sealed.  There are doors and windows that open, but there are rules – spoken and unspoken – regarding what can be discussed where.  And things must be discussed.  Owners, for example, need to talk about ownership issues away from board directors, family members, and employees.  The thriving leaders we see know how to get their own houses in order.  They build discussion rooms – not silos – and teach others to work within the spaces that they’ve created.

The crocodile brain

Thriving family business leaders know how to manage what neurosciences have named the “crocodile” brain, so-called because it is controlled by gut emotions; thought processes are limited, and impulse control is nonexistent.  The crocodile brain is the reason that people are not rational actors; it explains why decisions should never be made without trying to help people process their feelings, their passions, their rivalries, and their egos.

After placing people in the right room, thriving leaders deal explicitly with the irrational side of decision-making.  Think about it:  in a family business, owners can never decide to buy or sell a business based entirely – or even primarily – on the basis of money.  When they are on the surface deciding whether or not to acquire a company, thriving leaders in a family business are really thinking about that acquisition’s impact on the identities, roles, relationships, and personal finances of others.

Thriving leaders don’t ignore the crocodile brain and are not afraid of the crocs’ behavior.  We see these leaders putting the croc issues on the table for careful conversation.  “Gosh, it hit me, this acquisition could really change your role in the business.  Let’s talk that through,” is the type of leadership behavior we see them exhibit.  They make the emotional side of business safe.

A place to land

Thriving leaders in family businesses help to create places to land when their gig is over.  They build for themselves and others a number of attractive paths forward after the day-to-day spark goes out of life in the C-Suite.  Often in corporate businesses, you’re either in that executive suite, or you’re out – you go to work at another company.  By contrast, in the best family businesses, the aging executive doesn’t just move over to the curb.  He or she stays around as a board member or shareholder or special advisor, or on special projects.  Thriving leaders embrace the reality that they can add real value after life as a business executive.  Their identity is not all tied up with living and working in the C-Suite.

This is the other side of succession.  Thriving executives don’t just say, “Who is going to be our next CEO,” but also, “What can I do next?”  Think of the four rooms we talked about earlier.  Once they depart the C-Suite, thriving executives still use their wisdom and experience to make valuable contributions in the other three rooms.  They can go up to the board. They can go up to the shareholders’ council.  Or over to a family leadership role.  They may also decide to take up a philanthropic role in the family foundation.  Thriving leaders appreciate that all of these roles are vital and necessary in family businesses.

Passion and wisdom to develop the next generation

Thriving leaders’ greatest joy is to see their children succeed in their business and as owners.  They get it that their own role, while central, is temporary.  For example, in a recent cross-generational ownership meeting with a client, a 26-year old, introverted next generation member surprised the eight owners in the meeting with a fundamental insight into the future of their business.  You could feel the leadership baton starting to be passed.  The current generation, three seasoned business executives in their late fifties, beamed with pride.

Developing the next generation is really tricky.  These thriving leaders have great wisdom in how they do it:  They don’t coddle, they challenge.  They know their kids will lead differently than they did and accept that fact.  They provide real jobs with real challenges.  They let their kids fail and then help them up.

As you can see, we are talking about a very different leadership task than in corporate environments.  The rewards are different and deeper.  These thriving leaders find meaning, money, and mentoring in ways not available outside family businesses.

Are you a thriving leader?  Do you know of others who are? As a test, ask yourself, “How many of these four leadership behaviors are shown by you and others in your family business?”