1. What is the missing ingredient in “Traditional” Succession” Planning? and 2. Clarity and My Own Transition
October 19, 2011 by Harvey Wigder · Leave a Comment
This time we have two topics. Both are about transition planning. The first takes a contrarian position on succession planning and the second is about my own personal transition.
What is the missing ingredient in “Traditional” Succession” Planning?
Succession planning refers to an owner designating successors to lead the business.
Last month, we showed how when an owner became committed to exit planning, he or she was far more likely to achieve their personal and financial goals. Despite this, the sad fact is that most
owners do not plan and thus do not maximize estate value, thus harm themselves, their families and the business’s stakeholders. We said that the missing ingredient is emotional readiness. Quoting myself:
“Although I have heard there are owners who want to retire, I don’t know them. The ones I know have their identities and lives so wrapped in running their companies that they do not have a clue about what they might do with their lives if they didn’t have the business to go to. Instead, they ask themselves, “If I sell my business on Friday, what do I do Monday morning?” When they contemplate the prospect of not actually not “going to work” at the business, they figuratively (and sometimes literally) grow cold and clammy because they feel that without the business, they would drop into a black hole that feels somewhat like a walking death. In a sense, the business is their life and without the business, life seems pretty empty.”
As one antidote, we summarized a process for Personal Transition Planning that provides a pathway for owner’s being motivated to move on to the next exciting stage of their lives.
When succession planning only focuses on the needs of the business or just considers the dynamics in the family, we miss considering the needs of the owner and forget that nothing will happen unless the person in control is excited by the prospects of his or her life after the transition. This excitement is necessary for the owner to be motivated to make the transition happen.
A second factor is a bias toward viewing multigenerational businesses as a good thing. In this view, the “fact” that 30% of businesses don’t make it to the second generation is a sign of failure. A few newsletters ago, we mentioned a study that turned this notion around by focusing on families, not businesses. It identified enterprise oriented families that stayed in business for generations even when it sold particular businesses.
Besides referring to this study I recommend Every Family’s Business by Thomas Deans. This book examines the value of a perspective on maximizing wealth. In this view, a family should only hold onto a particular business when the family feels it offers the highest return.
Clarity and My Own Transition
I am going to share a bit about my own transition from a home in Newton (that we sold two years ago) to my new digs in Worton, Maryland. The picture shows a view from my new deck. Although I will continue to spend much of my working life in Boston, the Maryland address will be my primary residence.
Twenty eight years ago, when we lived in Philadelphia, we enjoyed a second home in Maryland on the Eastern Shore of the Chesapeake Bay. About four years ago, my wife Kathy and I decided we wanted to go back to the Bay. I have been in the Boston area for 28 years and although I will always feel part Bostonian, I was ready for a change and this adventure.
Once we changed our family dialogue from should we move to actually selecting a target date (it was October 2011), the problem definition changed dramatically for us. Since I have no desire to retire, my really big question was how I could move without damaging my business. My specific questions were (1) how do I maintain business in Boston; (2) how do I build a network and become known in this new territory; and (3) should I change my business model to accommodate these changes? I had two years to find answers to these questions.
Although I will briefly describe some of the decisions and changes I made, my main point is more existential. I believe I have worked through the issues and arrived at good answers to my questions. For this, I give the most credit to the fact that I stopped and consciously asked them in the first place. In my view, and from my experience, something magical happens when we identify and clarify our goals: life’s energy and gravity works in a mysterious way to help us fit problems and opportunities together.
The opportunities I discovered include:
- Refining my executive search model to make it more unique and less bound to New England.
- Seeing that the Exit Planning Exchange was seeking to expand to Philadelphia, helping to launch the chapter. I am now its President.
- I also have been active in the Mid-Atlantic Chapter of the Family Firm Institute. This gives me presence in Philadelphia, a major city near my new home.
- Seeing Personal Transition Planning as something that could help make my search practice unique, getting trained to deliver the service, and then integrating it into my practice and launching it as a separate element within my business framework.
- Changing the name of my company from Fulcrum Search to Fulcrum Transitions (with the corresponding tag line: Better Lives, Better Businesses), to reflect the new excitement I feel about my business future.
I approach my transition with some fear that it might not work as well as I hope it will, but also with great excitement and careful optimism. I hope to help others making transitions feel the same way in my new career as a transitions coach.
I am happy not to be saying goodbye to my Boston friends and look forward to continuing to work with you all as I develop new friends in Maryland. Feel free to call me if you would like to talk.
Surprising Study Reframes Beliefs About Family Busines Longevity
May 9, 2011 by Harvey Wigder · Leave a Comment
At a recent workshop of the New England Chapter of the Family Firm Institute, Rob Nason shared results of FFI/Goodman Longevity Study he and his team conducted on the staying power of Family Businesses. The statistics that 30%, 13% and 3% of families survive to the next generation comes from a pioneering 1987 by John Ward. The results have dominated the dialogue and are oft quoted by newspapers and consultants.
Unfortunately the original study is often misquoted and the resulting popular conclusion is misleading. We have come to believe that there is something inherent in family businesses that cause them to fail at the sited “rapid” rates.
I wanted to share some highlights from Rob’s presentation since this goes a long way toward reframing our understanding of the survival rates of family businesses and asks us to consider their strengths anew. To me, the main take away messages were:
· The now shop worn 30%, 13%, 3% statistic is often misconstrued to mean that 30% of businesses fail in the second generation. That is wrong. The numbers were meant to show, to use the first number, 30%, as an example that 30% of family businesses last through the second generation and begin the third. As a further consideration, even if the business does not go beyond the third generation, this does not always represent a failure. Is it, for example, a failure if the business is sold? The study used the family, not the business, as its unit of focus. By doing so, it confirmed the positive result of the older study by showing that the average longevity of these businesses is about 60 years (2½ to 3 generations). It also presented a new and very provocative statistic: most of the families in their study owned multiple businesses so that the family’s involvement in enterprises outlasted its tie to any single entity.
· It makes a significant difference in perspective when you use overall survival rates as a benchmark. As we all know, the world is ever changing and businesses fail all of the time. The statistics show that only 25% of new businesses last 10 years. Another way of saying the same thing is to consider that one company that was in the original Dow Jones still survives. That is GE. From this perspective, everything is turned around. If the 30% number is valid, then it doesn’t show the weakness of family businesses; rather it is a testament to their strength.
Businesses are created by entrepreneurs. The study ask us to consider that the family business is compatible with entrepreneurship and may even be a breeding ground for entrepreneurs. I want to applaud Rob and his team for the study and invite anyone to learn more about by going to :
http://www.ffi.org/default.asp?id=411
The Advisor’s Dilemma
May 4, 2010 by Harvey Wigder · 3 Comments
I belong to two professional associations that consist of seasoned advisors who consult to family and private businesses. To get the juices flowing, we sometimes discuss cases that highlight issues and make us think about common concerns and ways we can collaborate to provide the most value to our clients.
Let’s look at the structure of a typical case. The case starts with the history that resulted in the company’s origins and place in its market. Generally the cases present a company that is a going concern and has, at its core, a foundation for a good future. However, there are problems. It almost always is declining profits. Underlying and contributing to this are problems with funding, sales, marketing, customer service, and operations. There will also be further underlying concerns about family dynamics, the quality of owner leadership, and the quality of the management team.
The advisors who discuss these problems offer different perspectives:
- Those who are accounting oriented, analyze the content and nature of financial data to get to the issues that seem to most affect the bottom line.
- The M&A specialists talk about what has to improve to make it more attractive for buyers and fetch a higher price.
- The business and turnaround consultants focus on the strategies they implement to turn the company around.
- The lawyers offer up the legal tools to draw up buy sell terms and related succession plans, but usually need to hold off until other issues are resolved.
- Estate planners outline strategies to preserve and grow wealth.
- The money manages optimize security and investment income.
- The organizational development people will see problems with leadership and will propose programs or coaching to improve planning and communications to better link human resources together to better achieve the mission of the company.
- Insurance people think of how to provide a financial safety net for the owners.
- I, as a recruiter, see opportunities to strengthen the company by introducing new talent.
We come out of these discussions with two conclusions:
The first is that the situation is much too complex for any single discipline, and in an ideal world, several would collaborate to help the owners solve complex and interrelated problems.
The second is a desire for, what I will call, the Holy Grail. By this I mean each discipline knows it has an important role to play with a focused successful company. What we all seek is company leadership that has an intelligent, well implanted business plan which leads to growth along with leadership who has an exit or transition plan to ensure the continuity of the business for the long haul.
Result: This can lead to the ultimate win-win. The owner has the experience of meeting business and life goals and advisors have the satisfaction of providing valued support along the way.
As advisors, our thinking about the company is not limited by its culture, and we know all companies go through cycles and leadership strengths in earlier stages can be weaknesses in later stages. We understand there is strength in coming to grips with change and being open to new ways of thinking necessary for the company’s present reality. We also know the owner who plans for the future dramatically increases the odds of achieving the highest quality result.
Put another way, our client may benefit from a changed way of thinking but doesn’t see the need or resists taking the risks inherent in implementing change.
The dilemma is tantalizingly simple:
How hard (or perhaps, in what way) should a trusted advisor push the owner to take a broader perspective and engage the support of other advisors and coaches who will help incorporate new ways of thinking and a more planning oriented approach to the transition that is inevitable?
The best advisors put their clients first and are consistent advocates for what is best for their clients and their clients businesses – but how can they do this if the client simply does not see the forest because of the trees? What do you think?
Six Keys to Successful Hiring in Private Businesses
May 4, 2010 by Harvey Wigder · 1 Comment
Companies have traditionally defined successful executive hiring as finding and hiring an executive with the requisite skills, experience and personality for the position. From this perspective, if the executive fails, it is because the wrong executive was hired. Unfortunately, over 40% of executives leave within the first 18 months, proving time and again, that hiring the ‘right’ executive does not necessarily guarantee success.
At Fulcrum, we take the common sense view that success is not achieved the day an executive is hired, it is achieved over time. We define success as hiring an executive who helps a company achieve its objectives and the company becoming stronger after the executive is hired.
It is easy to blame performance failure on a new executive when it is clear that objectives were not achieved and the person and situation did not match as well as hoped. A more honest view looks at the executive and the organization to diagnose the causes of failure.
At Fulcrum, we believe that the owner and new executive must collaborate and plan for success. We list the six keys to successful executive hiring below.
1. Prepare Yourself for Change
One of the saddest failed executive hiring I witnessed was by an owner who hated running his company, and was unsuccessful selling it because his asking price was too high. Rather than improve his business to increase its value, the owner decided to hire an executive to run the company for him. Unfortunately, since the owner did not understand the need to build value, he set out to hire an executive with the contrary objectives of: 1) having significant talent and 2) behaving like a clone by operating the business the same way he did.
A proactive person was hired and every idea for change was knocked down. The relationship lasted six months. It was a disaster for both the company and new executive.
The truth is there are opportunities for change in any organization. Sometimes the important opportunities will be in sales and marketing: what is sold, how it is sold and to whom. Other times change will be in capitalization, improving internal operations or building a strong management team.
The hiring owner or CEO should understand that hiring a seasoned, proactive executive implies change. During the hiring process, the owner needs to understand: 1) what the executive candidate will seek to change, and 2) buy into how the company might be different as a result. If not, the relationship starts off with a basis for conflict and failure in place.
2. Gain Commitment of Management Team Early On
Too often, an owner or CEO decides to hire and then postpones getting the balance of the management team involved in the process. Whether this is due to lack of management skill or impatience to get the job done, this is a crucial mistake for two reasons. First, the wisdom of the team is not utilized to define needs and objectives, the skills to achieve them, or evaluate executive candidates. Second, the team loses an opportunity to gain a consensus on the problems that the candidate will seek to solve, and a commitment to any of the programs the candidate will seek to initiate. A lack of consensus forces the new executive to work in an environment in which the balance of the organization does not understand their mandate, or the role they need to play in achieving the company’s objectives.
It is essential for owners to channel the insights of their management team and key employees when initiating the hiring process and engaging them in the selection process.
3. Commit to Each Other’s Goals
Both the hiring executive and the new executive bet an important part of their future on the success of their new working relationship. Often, the hiring executive focuses on their own goals, without understanding that the goals of the new executive will drive their own actions and/or satisfaction with results.
Both parties need to understand what the other wants to accomplish, and be committed to achieving mutual success. This implies a literal contract and a psychological contract with fair and proper terms built on a foundation of mutual respect.
Looking Outside the Family for New Leaders
May 4, 2010 by Harvey Wigder · Leave a Comment
When executive members of a family-owned business decide that the time has come to hire an executive from outside the family, the reason for doing so is usually precipitated by a significant disruptive event such as increased marketplace competition, a changing business model, a financial crisis, foundering leadership within the family ranks, lack of a succession plan, lack of vision or strategic direction, or simply the need for new blood and a new way of doing business.
It’s one thing, however, to arrive at this decision, it’s quite another to have the will and courage to execute what will inevitably become one of the most profound decisions in the history of the family’s business. For this reason, it is critical that the family executives take the time to understand the implications and ramifications of making this decision. Below are important issues that should be addressed before the family business owners set the hiring process in motion.
Put Business Matters Before Family Relations
Unlike other types of businesses, a family business is a complex, dual system that consists of two distinct and often contradictory parts: the family and the business. Thus, before a family business owner can set out to hire, he or she must come to terms with the fact that a new hire will fundamentally change both the family and business dynamics.
In effect, the decision to hire outside the family suggests that the business owner has already made a conscious decision to not only separate business goals from family relations, but also to put the goals of the business first and foremost. In other words, with this decision, the overarching goal to maintain family harmony or at least family order has shifted to promoting the business, knowing the risk of disrupting or altering the family dynamics. At this point, some family stakeholders may object and try to thwart the hiring process. One way of dealing with a family crisis is to bring in a family business therapist who has experience dealing with just this type of situation and who is able to provide useful third-party perspective to avoid long-term family dysfunction while still meeting the business needs.
Step Back and Reassess the Situation Before Proceeding
Not rushing into the hiring process is the first rule of thumb. While hiring mistakes are costly for any business in terms of time and resources spent, a bad hire in a family-owned business comes with an emotional cost, and it takes doubly the time for a family-owned business to regroup and begin the process again. Thus, time and care should be taken upfront to analyze the business operations, the business objectives, and goals to ascertain what skills, experience, and expertise are needed to bring the family business to the next level.
Come Face-to-Face with Your Blind Spots
Also at this stage, it’s important that the family business owners be aware that they may have professional and personal blind spots that they must address in order to understand the kind of executive capabilities that will be required to move the family business forward. For example, while the family business owners may know the mechanics of their trade, they may not have a good understanding of how to run a business, especially a business that is on the cusp of change. Even though the business has been operating in a certain way for a period of time and has achieved a certain level of success, the operations may need to be re-examined and overhauled to make way for the new talent who will be brought in to implement new processes and systems.
Obviously, the best and probably the only way to come to terms with one’s blind spots is through the help of an outside expert who can work with you to determine how the new hire will compensate for your shortcomings.
Understand That Executive Power Comes with the New Position
The decision to hire an outside executive must also come with the realization and an acceptance that the new position has to have a level of executive power that is unprecedented in the history of the family business. For this to happen, the business owners must be willing to relinquish the reins of authority to the new executive. Without this willingness, the case to hire an outside executive will be closed. What executive would be willing to come into an organization without the authority to make decisions that would effect change in the business operations? This is, by far, the most difficult decision that family-owned business members will have to face when making the decision to hire outside the family.
Accept That a New Executive Hire Will Change the Organizational and Personnel Dynamics
Family business owners must understand and accept that when a new executive is brought on board, the organizational structure, from day-to-day operations to personnel, will undergo fundamental changes. In particular, the business owners must realize that their existing relationships with their employees, including family and non-family employees, are not sacrosanct. The new executive will invariably form his or her opinion on how competent and effective the staff is and make adjustments accordingly, which will surely result in staff restructurings.
Making a successful executive hire in any business is a challenge under the best of circumstances. But for a family-owned business, the challenge is even greater: The hiring decision is compounded by the fact that the executive not only understand the business, but he or she must also mesh with the family dynamics. At the end of the day, what’s most required when making the decision to hire outside the family is the courage to do what is best for the business’s long-term success. It all begins and ends courage to act.