Tuesday, June 17, 2014

A Plan For Succession - Short Term and Not Strategic

The New York Times The Beginnings of a Succession Plan  got me thinking about “succession” which is a term that gets tossed about by many,  without deeper thought as to what it means.


What is Succession?

Succession can be short term… meaning insuring short term business viability due to sudden and unforeseen circumstances. Although what many people view as unpredictable is really what family business transition specialists call predictable transitions and clearly one of those is death of the founder. 

However for many family businesses, succession means passing the baton to the next generation. The definition of generation gets “muddy” but the consensus is 20 to 25 years. So when dealing with succession,  core strategic issues come into play which unfortunately many do not want to deal with.
Shouldn't a major goal for succession be the determination of the viability of the business for the next generation… out 20 plus years? 


Family Businesses are Not Perpetually Viable

We now have what I call structural ambiguity present in the economy and the business environment. Assumptions that were prudent in planning and forecast in the past probably are now mostly irrelevant. And most of those in the helping professions, accountants, financial planners and attorneys get stuck in the tools of legal and financial succession. 

Far too many family members and their advisers assume “perpetual business viability” and the next generation simply cannot assume business viability for another 20 years. So just because the business may have been family owned for several generations past, I say… so what? 


The Overlap of Family and Business

The above is most difficult to do since the Family-Business overlap is so strong and the “family” component is highly emotionally charged. I hope to see more discussion on succession that addresses the strategic viability of family owned enterprises for this is the responsible thing to do for that next generation so they are not saddled with businesses where the window of opportunity may be closing or has already closed.

Is the window of opportunity closing at your family business?

You may enjoy reading The Most Important Family Business Goals .

All the best!
Dom Celentano
New Jersey Family Business Advisor

Friday, March 7, 2014

Developing the Family Business Plan

Few advisers and coaches are equipped to help family businesses. Most advisers tend to be attorneys or accountants - most families feel comfortable confiding with these professionals since they know the most deep, dark secrets of the family.

This kind of advice tends to be transactional, meaning it centers on legal or accounting tactics, as opposed to a more holistic effort address the root causes of the surface issues.

Every semester I start each of my family business classes reviewing fundamentals of Family Business Management.

Here are the essentials real family business advisors work on with family businesses.

Are we a business family or a family business?

A family business is the tangible part, the container that generates current cash flow, a place for family members to be employed, the symbol of the family that is represented to the community. Like everything, there is a beginning, middle and end. At some point a family business does not address the family needs and would be best to be sold with the proceeds going back to generate more wealth in other vehicles for the family.

Monday, February 17, 2014

Family Businesses - Can They Last Beyond One Generation?

Family Dominates the Family Business in Critical Decision Making

No matter the size of a family business, the Family component has an undue influence on the Business and Ownership elements the make up the Family Business Model

The interdependence of the Family, Business and Ownership Elements of all Family Businesses
Family Business 3 Ring Model
John A. Davis, the faculty chair of the Families in Business Program at Harvard Business School said "It used to be that you could revamp your company once a generation. That’s no longer true. ". 

This is the most pertinent for me both as a teacher of family business and growing up in a family business. For me it puts into question conventional succession planning since it does not address the issue of
Succession Planning Starts With Strategy and Not Financial Or Legal Planning:

Can the Family Business Model Last Beyond One Generation?

Most family business assume that the business goes in perpetuity in parallel with the family. Think about it, a family, genetically goes on forever. But what businesses have that going for them? Maybe none?

Why would any successor want to "succeed" into a business model that is in the declining phase of the business life cycle? Why would any parent do this?

Josh added "Re-thinking your business on a regular basis is something all businesses need to do ..." .

If you have ever been part of a family business rethinking the business is rational…  if you look at the 3 Ring Model of Family Business, the “family” circle is the dominant force…

So families don’t rethink their family and therefore it is more difficult to rethink the business model even though in today’s climate, it is unlikely most businesses can have the same business model 20 years from now.

He also pointed out that “I find the most successful private businesses think about their business as a separate entity from the family. If you confuse the two, the business will usually suffer. Businesses are meant to serve a customer. Families have a completely different purpose.”

So Are You a Family Business or a Business Family? Not sure?

Ask yourself and your family the two core questions I ask all family business clients:
Why does the family have this business?
Why does the business have this family?

All the best!
Dom Celentano
Tips on Running a Small Business

Saturday, February 1, 2014

When Starting a Business Do You Focus on Growth or Profits First?

I read a LinkedIn post that posed this question: "Here's an age old question.....Do I grow my business quickly or do I first concentrate on profits/cash flow before focusing on growth. I think the answer is it depends on who your financial stakeholders are. I'm curious on your opinion."

The thread in the article was "Profits must come and come quickly or you and your business could join the 95% of businesses that don’t exist five years after they start. - niche"

My Opinion Growth vs. Profits

There is no easy answer and I find too many people in business or writing about business try to come up with simple formulas. If business was a formula, most of us we be a success starting a business.

It rests on many factors... 
  • One would the the cash breakeven forecast vs. the amount of cash one has to fund cash losses.
  • If the business is in a sector that requires one to be a first mover, then growth comes first... once again assuming  the mount of cash one has to fund cash losses.
  • If a business is in sector where supply chain domination creates a major barrier to entry to competition, then it's growth again. Amazon is the logical example... they are building out regional distribution centers (DC) at an accelerated rate. DC's are expensive and make it difficult for other start ups to enter the business.

Family Business is Different

Family business is a mix of Business, Family and Ownership. As you can see from the Venn diagram it is that intersection of Business, Family and Ownership that makes the Growth vs. Profits question all the more challenging

If you ask the question "Why Does This Family Have This Business?" Typically the response is for the benefit of the family.

Now that could be either:
  • A safe place for employment for family members... an extension parents taking care of their children
  • Creating a valuable asset that can be passed on to family members

Either of the above can get in the way of the profit focus since there is a highly emotional component to safe employment of passing an asset.

There are numerous variations but I think this is a succinct way to look at Growth vs. Profit.  

What More Information?

Need some help with your family business? Drop me anemail and let’s chat.