Tag Archives: Family

How Do You Redefine the Top Executive’s Role in the Business? Four Points

Situation: The President of a family-owned business that has been in operation for over 30 years wishes to change her role by increasing delegation of responsibility and accountability within the business in preparation for her eventual retirement. Other family members in the business are happy with their current responsibilities and are resistant to taking on more responsibility. What advice does the group have for this member?
Advice from the CEOs:
• Given that you are preparing for retirement, it is important to let others know about your plans and your desire to increasingly hand off your responsibilities to others. Ideally, one or more of the others will express a desire to take on more leadership, particularly if it includes a boost in pay.
• It is important to clarify responsibilities and prioritize which ones you wish to hand off. Once this is done build and execute a hand-off plan.
• Transition current managers who are misplaced in their position to other roles. Work with them to identify alternate roles where their talents can better benefit the company. They may be aware of their current discomfort and welcome the opportunity to take on a different role more suited to their abilities.
• Focus on removing barriers to delegation that may be in place. For example, bring others into the discussion and review the projects that they are overseeing. Identify the challenges underlying those projects and ask for their suggestions on how to address these. Don’t provide the answers. Ask questions and push them to develop appropriate solutions.

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Is Burning the Candle at Both Ends Doing Harm or Creating the Legend? Four Points

Situation: A CEO fills nearly every minute of the day with activity. All are meaningful, and he enjoys the contribution that is made to each. Many activities involve his children and activities important to members of his family. However, because he asks the question there is something that is nagging at him. Is burning the candle at both ends doing harm or creating the legend?

Advice from the CEOs:

  • The priority is a positive, healthy lifestyle. Two answers to the group’s questions are in conflict with this.
    • Four to five hours of sleep at night is not enough to sustain the current level of activity.
    • Medical studies indicate that while some people can get along on 6 hours of sleep per night, most need 7-8. Those who get less than 6 hours on a regular basis are taxing their bodies as well as their psyches
  • What does your family think? Are there messages or hints indicating that too much is being taken on or that there isn’t enough time for them. If so, there may be too much on your plate.
    • The one person who does not seem to fit into the lifestyle described is your spouse. This individual needs attention – on a regular basis, not on a once-per-week evening out. Comments about too much activity are more likely a request for more quality time.
    • Given the importance of this relationship, not just currently but looking out 10-20 years, this indicates a need to reallocate proprieties.
  • Do what makes you happy. Each of us is the only person who can really monitor our activities, so each of us must set the metrics.
  • Create some monitors to assure that you are not over committing and that you are giving sufficient time to rest and your wife. After all, this is a marathon. It makes no sense to burn out in the first mile!

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How Do You Maintain a Healthy Work/Life Balance? Three Perspectives

Situation: A CEO finds that even on vacations he is obsessed with what is happening at the office. This keeps him from relaxing even during time off. Moreover, his family notices this and is unhappy that he isn’t spending his vacation time with them. How does he turn this around? How do you maintain a healthy work/life balance?

Advice from the CEOs:

  • If an individual is still working most of the time when on vacation this has a number of negative effects.
    • It makes the vacation even more stressful than normal work. First, a vacation is meant to provide distance and perspective from the workplace, as well as to allow time to relax and recharge. Second, this is time set aside to enjoy being with family and focus on work robs everyone of this. Third, while on vacation, there are fewer resources at one’s disposal so solving problems from afar is more difficult that when in the office.
  • To address these issues, plan on the next vacation to be “fully unplugged.”
    • Designate a “substitute” to act as CEO during this vacation. Assure that this individual has their own “go to” person to work with if they encounter a situation that puts them in over their head. Perhaps this can be a member of the board or another senior officer.
    • Plan the next vacation for two weeks to test the substitute model.
    • An additional benefit is that this can provide assurance that even if an unexpected situation prevents the CEO from being present, there is an assurance that the company can operate without the CEO if necessary. This boosts the value of the company.
  • Remember that success as a CEO is measured partly on the ability to have a fully operational office when the CEO is absent. Build and conduct the role so that the company operates well when the CEO is not there. This is consistent with a healthy growth model and long-terms plans for building a successful company.

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Do You Sell the Company or Grow Bigger? Four Options

Situation: The CEO of a successful company is considering two options: sell the company or grow to the next level. She believes that the company could be sold for an amount that would satisfy her financial needs. Also, the prospect of a long vacation and more time for family is appealing. Do you sell the company or grow bigger?

Advice from the CEOs:

  • First Option: Pursue funding to take the company to the next level – through either private equity or venture capital. Present an optimistic, but credible, upside return for the investment; back this up with a realistic lower estimate to cover exposure.
    • Both funding sources only buy the home-run model. Two reasons:
      • They need potential and credible home runs to sell to their investors; nobody invests in solid base hits because the return is insufficient for the risk.
      • They assume that the funds recipient is overestimating what they can do.
      • Given the existence of new technology to expand the company’s presence, it has a legitimate home-run model.
    • Hire a pro to help obtain funding.
  • Second Option: Take a shot at buying the company’s principal competitor – this provides the opportunity for rapid growth at low risk in the existing market and will make the company more appealing at a higher price.
  • Third Option: Based on personal goals, if the company can be sold now at a good price – do it. This will enable you to fulfill your life goals.
  • Give the first two options 12 months. If there is no or limited progress in 12 months start taking two successive months off on vacation – allowing minimal time to monitor the company. If vacations are satisfying, sell the company.
  • Ask yourself a serious question – do you really want to be on extended vacation now or is this an objective for 3-5 years out? If the company already has strong momentum, why not see what can be built and then sell. There may be more adventure in this.
  • Fourth Option: Take some money off the table – enough to build your dream – but continue to own controlling interest in the company. This offers both choices.

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How Do You Prepare for a Difficult Conversation? Three Suggestions

Situation: The CEO of a family business faces his most difficult conversation. One brother, who makes more than anyone else, is not living up to his responsibilities. A long-term key employee currently handles most of this brother’s responsibilities at a modest salary. The CEO is intimidated by this task. How do you prepare for a difficult conversation?

Advice from the CEOs:

  • Call a meeting of the three brothers and the key employee. Propose putting all four into a pool. The key employee is treated like a brother. Ask: what is a fair way to split the pie and to build incentives so that each makes what their father, who built the company, made? Make it clear that all four members of the team want the same earning potential and that one team member is not more equal than the others.
    • Prepare and script this meeting ahead of time.
    • Don’t allow the under-performing brother to play the others off against each other.
    • Know what must be said if this brother says he will leave.
  • The CEO must stick with the message. If the underperformer doesn’t like the message, he is not indispensable. A replacement could be hired for far less than he is currently being paid.
  • What are the key points for the conversation?
    • Turn the question around – the brothers all joined a company model that no longer works – the three brothers, combined, make less than their father made.
    • Ask the underperformer – what are the proper incentives? What is fair? Is it fair that for years, he has made more than anyone else?
    • It’s time for each member of the team to work together to figure out how to make what their father made in this business.
    • The brothers have supported the underperforming brother for years. Any old debts that were owed have been paid.
    • Ask the underperforming brother for his voice in how to expand the company and make it more profitable.
    • This is a new game. If all members pull together everybody wins.

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Which is More Important – Cash Flow or Value Creation? Six Thoughts

Situation: A family-owned company has built a sustainable and modestly profitable business. They have built high quality, referenceable collaborations. The CEO is ambitious and wants to become a world-class company. They now seek limited partners as investors to grow the company. Which is more important – cash flow or value creation?

Advice from the CEOs:

  • Both cash flow and value creation are important. There are several sub-questions to the question:
    • First, what is the fundamental business model?
    • Second, the CEO is the company’s charismatic leader. How best to follow his energy?
    • Finally, and most fundamentally, does the current business model make sense? Can it be simplified it to improve its scalability?
  • Currently there are three divisions, each with a different objective.
    • Operations – to be sustainable.
    • Services – low profit and low percentage of company revenue but also low overhead.
    • Investment – to achieve an acceptable rate of return.
  • How does the company get the best valuation?
    • Currently, the company is organized as a conglomerate.
    • Conglomerates are too diffuse and difficult to optimize to attract investors. Pure plays do better. Consider refocusing the company around its key strengths.
  • The family business model is fine. The question for the family – how does the CEO keep and attract the key staff like that makes this business work? Salary alone doesn’t do it. What are the future rewards for key personnel? Consider deal participation to incentivize key employees.
  • The investment and operations divisions are different companies – this is fine. Optimize both.
  • To attract the best LPs, the business model should evolve from a family to corporate model. This will make more sense to investors and improve their ability to participate in future growth and profits.

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Can Outside Board Members Help a Struggling Company? Four Thoughts

Situation: The CEO of a family-owned company has struggled to align family members with the business plan. When difficult decisions must be made, established personality patterns and family history hinder consensus on what should be done. The CEO seeks advice on whether the addition of one or more outside Board Members can help to build consensus. Can outside Board members help a struggling company?

Advice from the CEOs:

  • The CEO of another closely-held company brought in an outside Board member two years ago. This has added considerable focus to the Board discussions. The addition of a fresh and respected perspective has helped to clarify decisions and reduce conflicts among the founders.
  • First, have a conversation with the team. Give them the opportunity to straighten out things themselves. Present the addition of an outside Board member as an option. Get their support. This will make the addition of an outside Board member a company decision, rather than the CEO’s.
  • The experience of other companies is that compensation can range from free – a retiree who wants to help – to expensive. Arrangements and expense will depend on what the company leadership wants to achieve.
  • Investigate SCORE – a well-established source for outside board members for small and family businesses.

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How Do You Plan for Succession? Four Points

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.

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How Do You Plan for Retirement? Three Strategies

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.

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Is It Wrong to Hire Family Members? Six Considerations

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.

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