Situation: The CEO of a family business seeks to create a succession plan. One family member has expressed an interest in taking the reins of the company but has failed to take the initiative to demonstrate that he is prepared to take on this role. Another family member is now demonstrating both interest and initiative. How do you plan for succession?
Advice from the CEOs:
How should this situation be approached?
Do not view this situation competitively, but rather from the standpoint of what is best for the whole family because many family members stand to benefit from the ongoing success of the business.
Whatever decision is made, the successor will need support and assistance understanding both the financial and business sides of the company. This individual must also be aware of conflicts and challenges that face the business.
What else should be done to prepare for succession?
Given that there are two individuals interested in becoming CEO sit down with each individual and negotiate a clear boundary statement on what you, as CEO, can and can’t do, as well as what can and cannot be expected of you, as CEO, as the succession decision is made. This understanding should be documented in writing and signed, signifying understanding by both the CEO and the candidate. Each candidate should have their own signed agreement with the CEO.
In a family business, the CEO, as guarantor of the company, may be faced with a different level of financial risk than other family members. Both candidates for the CEO position must understand that if they accept this position, they also accept this risk.
Situation: The CEO of a family business is anticipating retirement in the next two years. Currently, there is no succession plan. Other family members do not seem interested in running the company. What steps should the CEO be taking? How do you plan for retirement?
Advice from the CEOs:
To set the stage for your successor, make sure that you are being paid adequately for your job. If you are being paid less than some of your key employees, nobody else will want your job. Raise your salary to a point where it is appropriate for a CEO, and so it is attractive enough to entice a qualified successor. This will also help attract a buyer should you decide to sell or merge the business. Raising your salary will also help your bottom line if your company is an S Corporation.
Once you identify a potential successor, bring this individual into the business as soon as possible so they have an opportunity to understand the business fully and can receive on-the-job training from you.
Understand the numbers and red flags that give you the information and authority to run the company and the respect of your employees. Teach these to your successor so that this person has the same overview of the company that you command.
Look at what skills your successor needs to be CEO and start mentoring that person on those as soon as possible.
You may need to delay your planned retirement so that you have time to select a successor and prepare that individual to take on your responsibilities. Your current 2-year plan may not work, at least without compromises.
Without a management succession plan, the company may not bring in as much in a sale or merger as you expect. It is important that you improve the numbers to maximize the value of the firm if you choose to sell or merge the business.
Look at your current range of projects. Focus on those which are most profitable to you and emphasize these. You may be able to reduce staff and expenses by being more focused.
Situation: A small but very profitable business was founded and has been run for two generations as a family-owned and operated business. To boost performance, the CEO hired a general manager with a good background who is not a family member. The general manager has told the CEO that he feels that there are too many family members in the business. The CEO likes hiring people she trusts, particularly friends and family that she has known for a long time. Is it wrong to hire family members?
Advice from the CEOs:
Don’t try to change what you’ve already done – plan for the future.
Acknowledge the GM’s idea. Tell him that you appreciate his suggestions. Suggest that he test hiring more non-family members to cover one of your low risk market segments. Measure the performance of this team versus the other teams within the business.
The challenge with family members is accountability and objectivity. The question for the family owners is whether they have the freedom to act in the interests of the company. Can they put family ties aside when someone is not serving the interests of the company?
The essential question for the family that owns the business is – what do you want to maximize? If it’s loyalty and longevity – keeping the family together, employed and in harmony – they can be good. If it’s profits and performance – family and friends can be difficult if emotional ties cloud business objectivity.
The upside to family is loyalty and trust. That said, family and extended family friends are different. The latter don’t have the same ties or sense of loyalty.
Can you keep employees for too long? Yes. Make sure that you evaluate all employees every year. Establish job and performance standards and make sure that all employees – family and non-family – are held to the same performance expectations.
Situation: A CEO knows that his employees have been working hard and have been productive all year. Now that we’re coming to the end of the summer, he’s concerned that in the past he has seen an energy drop every August. What can be done to increase the voltage? How do you counteract the Dog Days of August?
Advice from the CEOs:
Anoint a “Champion of Fun.”
The Champion of Fun should be an employee – not management.
This may be a team of two people who focus on different things – one for small, day to day activities, and one for big events, like a Habitat for Humanity day.
Provide a budget for the Champion. Allow discretion to create excitement around the office or workplace. This includes posters announcing events and other ways to make the most out of each event or activity planned.
If out of office activities are anticipated, encourage employees to involve family members if they wish. Maybe a picnic and softball game at a local park, or an early evening of go-kart racing.
Create a sense that your employees have some control over their environment. This adds energy.
Circulate an Office Depot catalogue and give each employee a budget that they can spend to dress up their space.
It’s amazing how much a small investment like this can rejuvenate people and the overall atmosphere.
Bring in lunch as a surprise a couple of times during the month. Take some extra time and let people enjoy each other’s company. This is for deepening personal connections, not for lunchtime business discussions.
Situation: A family-owned business has a family member on hourly pay who puts in excessive overtime. The cost of overtime significantly cuts into company profits. The CEO wants to cut back these overtime hours and get the employee to work more efficiently. At the same time, she feels that maintaining peace within the extended family is important. How do you cut excessive overtime for a single employee?
Advice from the CEOs:
Situations like this within a family business are delicate because of relationships beyond the work place. Treat this individual respectfully, but make it clear that you have to act in the best interests of the company and all employees.
Develop a job description with this employee that will help to get their overtime under control.
Communicate to the employee: “I don’t want to take advantage of you by requiring this much overtime.”
Let the individual know that you are looking for additional talent and want to more tightly define the roles.
Develop a company policy on overtime that limits the amount of overtime that any one individual can accrue. If anyone starts to approach this limit, then have a process in place that shifts additional overtime to others.
This is a serious problem for the company. It calls for company transformation. Enlist the employee as a champion for the cause of transforming the company. Keep this a positive vision.
If the individual is not a keeper: start controlling hours, but don’t give a raise. Let them leave on their own time.
If the individual is a keeper: give them raise, while cutting overtime hours.
Situation: The recovery continues to be uneven and uncertain. One company finds that both staff and their families are nervous about how the company will fare and the future of their jobs, and this has created strain. What are you doing to stay balanced and positive – both within your company and also in your personal relationships?
Advice from the CEOs:
Transparency and communication. These are critical in both business and personal affairs. You have to be honest, avoiding either pessimism or unwarranted optimism.
Share the metrics of where you are – the reality – and projections on your expectations of how things will go. This has been a long bump in the road, but eventually things will get smoother.
Involve your staff in difficult decisions. Do the same with family on difficult personal or family decisions.
Be frank with family, but keep communicating. Time is more important to family than money – they want you to be there with them. If you’re working long hours in the evening, at least go home and have dinner with your family.
Staff adjustments, where necessary, have been done as single events and weren’t drawn out. CEOs have communicated more frequently about the state of business and pipeline. Assure staff that the company is solid. Show them the runway.
Those most worried are employees without project work. Some companies focused them on infrastructure projects to keep them engaged.
Cross-fertilize your teams. One company brought professional service employees into product engineering. Both groups learned and benefitted from understanding each other’s perspective.
Situation: An SMB CEO has sold his business and seeks a new opportunity. Options range from a mid-level position in a large company to various options in existing or start-up smaller companies. How do you evaluate your career choices?
Advice from the CEOs:
The most important factors are to determine what you want to do and what will make you, and your family, happy. Start with a Pro/Con analysis of each type of opportunity compared with your short and long-term desires. Which among the following choices are more important?
o Financial stability and some level of job security vs. higher risk and potential reward with lower security.
o Desire to be a player or to be the person in charge vs. being happy with a staff position.
o Ability to create your own path or willingness to adapt to the priorities of others.
Given these choices, here is what you may find:
o In a large or established company the most likely opportunity will be a staff position. The trade-off is stability for authority, but be aware that large company organizational politics may be severe.
o In a small existing company it is possible to be a player in a key position. The trade-off is lower stability and viability for more authority.
o In a new company there is the chance to be the CEO, bringing business experience to a group with technology expertise. The trade-off is high risk, long hours and low stability for a high level of authority.
Other factors to consider are how critical your personal situation is and the depth of your resources. If you have time and flexibility, take the time to find a situation that best meets your needs.
Situation: The spouse of a CEO works in the business but has conflicts with other employees. This creates personal tension for the CEO. The CEO wants to explore a different role for the spouse, and also wants to create more balance at home. The CEO believes that working with the spouse to create a simple family charter with common values, vision and mission will help the two of them to find common needs and goals both at work and at home. How do you create a family charter?
Advice from the CEOs:
As you build a family charter, consider both your individual and your common views. Once you have established common ground with your spouse, you can bring children into the process to reinforce values and share creation of the vision.
In preparation for this discussion, both you and your spouse should start by thinking about what you each want. Once you have done this, compare notes and look for commonalities where you agree on what is important. These commonalities will form the core of your shared values, vision and mission.
Have lunch with your spouse once a month, just the two of you. Why? Because you are telling your spouse that they take precedence over your second spouse – your job, and you are taking time and attention from work to spend time one-on-one with your spouse. Do this monthly, but not always on the same day – make it more spontaneous and special.
Reinforce your family charter with regular family or one-on-one meetings with your spouse and children.
When having a conversation, focus on listening and don’t try to “fix” things.
Situation: Few economists predict a robust recovery. We know from past recessions that in a slow recovery some companies will fail while others rise to the top. What are the three qualities of the companies that will thrive and become the companies of the future?
Advice from Philippe Courtot:
Companies of the future will have three qualities. The first is a keen sense of who your customers are – what characterizes them and their buying and use decisions. You need to see yourself through their eyes. This will give you the ability to shift more easily as their needs shift. Making this shift is easier for a service company than for a manufacturing company because the infrastructure of a service company is more flexible.
Second is an intense focus on operational excellence. Everything is measured with the objective of obtaining the highest levels of productivity as well as the opportunity for ongoing learning and improvement. The companies of the future will have superior systems for gathering and tracking performance data, as well as cultures which allow them to learn from what they track.
Third is a culture of continuous innovation. The company of the future will be the company disrupting itself. Germany provides a wonderful example because of its culture of excellence in small, family owned companies. You may be surprised to learn that it is these small companies who are the true drivers of German innovation, not the big companies like Daimler or BMW. The small companies follow the three rules outlined here. Their success has been aided by the emphasis in German education on math and engineering which means that there is an ongoing supply of domestic talent to feed these jobs.
Interview with Charles Bellavia, CEO, ElectraDrive
Situation: High tech entrepreneurs frequently see venture capital funding as a quick route to enabling their ventures. However VC funding is highly variable by tech sector and company cash needs, and few companies are ever funded. Do you need to rely on VC funding and what are the alternatives?
Advice from Charles Bellavia:
The first question to ask is what you want from VCs. In the past they brought both contacts and funding. Now, generally, they just bring funding. So ask three questions.
Can you fund the company out of your own pocket?
Far more companies are funded by founders, friends and families than by VCs. However self-funding demands conditions.
Cofounders should have alternate income sources so that they can operate without salaries for periods of time.
Watch the life stages of start-up cofounders. Avoid joining a start-up when your kids need your attention, especially during their teen years. Can you forgo regular income if you are paying for college? If an annual 2-week summer vacation is important, don’t join a start-up.
What is the minimum funding needed for the company?
What funding do you need just to prove your technology and generate cash?
Focus is key. People will suggest variations. You have to know your path and whether variations will help or distract.
Stay with your core idea and think in terms of product generations. Build fitting variations into future plans if they will delay initial launch.
How do you keep project workers motivated?
Plan for turnover. Know who is key to the project, and where you need back-ups.
Start-up life is all consuming. When the picture on the wall is crooked, everyone jumps to straighten it out.
Have fun and make it fun. This needn’t be expensive, like parking lot pot-luck barbeques with a CD deck and music.
Be generous with simple, low cost recognition. Acknowledge employees for who they are and where they came from. This is especially important when you have diverse employees and builds camaraderie. One company has pot luck lunches and employees are asked to bring their national dish; the food is wonderful and helps employees to appreciate one another.