Winter 2010 Toolbox

Advice on growing and sustaining your business

The Top Nine Reasons Family Businesses Fail
and the Eight Building Blocks for Creating
a Sustainable Closely Held Company

By Wayne Rivers
Family Business Institute, 2009
210 pp., $39.95
www.familybusinessinstitute.com

Don’t get scared away by the cumbersome title. This book, by North Carolina consultant Wayne Rivers, abounds with practical advice on growing your business and making the transition from an entrepreneurial venture to a sustainable, multigenerational company.

“[M]ost closely held businesses are failing to reach their potential …,” Rivers writes in his introduction. “It’s our estimate that most closely held companies are operating at about 50% of their actual success capacity.”

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With tables, flow charts, diagrams, and quotes from business gurus like Steven Covey and Jim Collins, Rivers provides what he calls “a how-to manual for simultaneously generating more money, more time, fewer headaches and a higher quality of life.” Business owners can accomplish these lofty goals, Rivers argues, if they “get outside their comfort zones.”

The author points out that a common problem in closely held businesses is business owners’ tendency to under-delegate and to operate at extremely low staffing levels. Too many entrepreneurs view administrative staff as a cost rather than an investment, and they may harbor the misconception that working extremely long hours is the only way to win employees’ respect, Rivers observes. He urges readers “to undertake a new way of thinking that requires the executive to look at herself not as a doer but as an orchestrator, to shift her thinking from worker to executive and investor, and to disengage from the day to day tasks which consume so much of her time in favor of stepping back to view the big picture and designing a better future.”

Among a business leader’s most important tasks, Rivers contends, is nurturing the next generation of leadership. This means more than teaching successors-to-be to perform an array of company functions. “Leaders focus on the future,” he explains, “while managers focus on today.”

Rivers decries the traditional family business training regimen that requires heirs apparent to slave away at the bottom of the corporate ladder. “Future leaders have to prepare for a job that doesn’t really exist yet,” he notes, “and develop a different kind of business for a different future. Keeping them trapped in 60 to 80 hour per week jobs only ensures that they’ll continue the cycle of working in the business rather than on it.”

The book includes detailed recommendations on business basics such as strategic planning, marketing and sales management, operations management and administration management (featuring a lengthy table that illustrates “how to go broke while making [a] profit”—as sales grow at the hypothetical company, margins and collection periods decline). Rivers’ no-nonsense advice provides a reality check that, unfortunately, appears to be lacking in many family enterprises. (Examples: “[B]usiness leaders brag about their low turnover, but this often means they are burdened with large numbers of marginal performers and don’t often prune their talent trees” and “[N]othing is more common than the underdeveloped business which has outstanding product or service quality but lacks an adequate number of customers.”)

There is also a chapter on family issues, which stresses that conflict avoidance is often counterproductive and that a distinction should be made between family members’ ownership and management roles. Readers who are willing to do the self-assessments suggested in Rivers’ book should emerge with companies well positioned to survive whatever the future may hold.

 

 


 

Tips for entrepreneurs’ female relatives

Women in Family Business: What Keeps You Up at Night?

By Patricia Annino, Thomas Davidow and Cynthia Adams Harrison with Lisbeth Davidow
2009, 150 pp., $21.95
Available through amazon.com

An attorney specializing in estate planning (Patricia Annino of the Boston law firm of Prince, Lobel, Glovsky & Tye LLP) has teamed up with a pair of family business advisers (Thomas Davidow and Cynthia Adams Harrison of Thomas D. Davidow & Associates in Brookline, Mass.) to offer advice to female stakeholders in family enterprises: wives trying to convince their husbands to retire, widows weighing whether to keep or sell their husbands’ businesses, mothers seeking to avoid conflicts between their husbands and children working in the business, daughters-in-law coming to terms with their roles as semi-outsiders, and others.

This book offers wise counsel for women whose lives revolve around a family business, though they themselves don’t work there. The authors do an admirable job of explaining to these key constituents how problems in the business affect the family, and vice versa.

Consider, for example, this sage advice for daughters-in-law: “Even though you may experience a level of closeness and integration that comes with being part of the family system, you are not on the same footing as a family member.” Or these words of wisdom for widows: “It is … important to be aware of the difference between an advisor who acts as a supporter, who will help you decide what you want to do, and a caretaker, someone who will try to do everything for you.”

The book’s estate planning recommendations are its strong suit. Here’s some sample advice for wives: “If you’re worried about what will happen to your financial security when your husband is no longer running the family business, it is important to find another way, through a combination of non-business assets and your husband’s life insurance, to shore up your own financial future. If you do, any decisions about the business’s future can be made independently of your own security.”

Organized in sections based on role (though some of these overlap)—wife, mother, widow, stepmother, daughter, daughter-in-law, sister, sister-in-law—the book pre-sents answers to questions that many women may have, yet might hesitate to ask: “Will we ever be able to take time to enjoy the fruits of our labor?” “How can I get my brother to take me seriously?” “What is the advantage of holding on to the stock if I am not in the business?” Case studies are presented to illustrate key points.

Yet there are some family business women whose needs are largely unaddressed in Women in Family Business. The book offers little for women CEOs of family businesses, or those who run a family company as “co-preneurs” alongside their husbands. Even the sections geared toward daughters/sisters working in the business for the most part assume that these women are not the heirs apparent.

Women in peripheral or supporting roles, though, can use this guide to navigating nettlesome issues, gathering essential information and avoiding unpleasant surprises.

 

 


 

Free advice on governance

The International Finance Corporation—an organization affiliated with the World Bank that helps companies and financial institutions in developing countries achieve sustainable economic growth—offers the IFC Family Business Governance Handbook free of charge in English as well as Albanian, French, Macedonian, Portuguese and Spanish. The book, which can be downloaded from the Internet, is also being translated into Arabic, Chinese, Russian and Serbian, IFC says.

The handbook (second edition), whose English version is about 60 pages long, offers advice on family shareholders’ varied roles; family constitutions, policies and governance institutions (family assembly, family council, family office); advisory boards and boards of directors; family and non-family senior managers and succession issues; and the challenges of going public.

Case studies present examples from two family enterprises in which IFC invests: SABIS, an international, college-preparatory school system founded in 1886 in Lebanon; and the Carvajal Group, a Colombian multinational company founded in 1904 that now operates in 12 business sectors.

“[I]t is very important that families in business … start building an adequate corporate governance structure as soon as possible,” the IFC handbook says. “Waiting until the size of the family is very large, and its business operations more complex, would make it very difficult to address the already existing conflicts between family members.”

To download the book in English, see www.ifc.org/corporategovernance. The book can be downloaded via a link to the right.

About the Author(s)

Barbara Spector

Barbara Spector is Family Business Magazine's editor-at-large.


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