Balancing Family and Business Goals

When conflict occurs in the family business, it can be traced to a disparity in the goals of the individuals, the family or the business.

Perhaps a family member works in the business out of economic necessity, not because he or she wants to. Or perhaps the potential successor has plans for the business that differ from current management plans--different generations usually have different goals. Whatever the cause, the conflict must be addressed and resolved to avoid and prevent more serious problems later.

One way to define and align family and business goals is through business and family strategic planning. In these plans, you will create a mission statement for the business and for the family that allows each element to complement the other. Once you have completed this task, set goals for the family business that will allow the family and business to prosper. Next, develop a strategy to accomplish these goals and, finally, formulate policies and procedures that control the family's involvement in the business.

Business Strategic Planning

Strategic planning for family-owned businesses requires that you integrate family issues, such as:

q  What are the long-term personal and professional goals of family members?

q  What is the family mission?

q  Why are you committed to establishing and operating the business?

q  How do you envision the firm in the future?

q  Will family members be active in management or will they be passive members?

q  How will issues such as compensation, benefits and performance evaluation be handled?

The answers to these questions will affect the business strategy and should be resolved before strategic planning begins.

Strategic planning involves analyzing the business in its environment and devising a process for guiding its development and success in the future. This process involves assessing the internal operations and the current external environment (i.e., economic, technological, social and political forces) that affect the business. To begin this process, identify internal strengths and weaknesses that may constrain or support a strategy. Components of this assessment include (1) the organizational structure, (2) the culture and (3) the resources. Make a list of the opportunities available (growth, new markets, a change in regulations) and the threats (increased competition, shortage of raw materials, price-cutting) to your business. This should give you some insight into the current situation and provide a strategic direction.

Next, list the objectives of you and your family, identifying personal needs and risk orientation. Many of these objectives and goals (See Appendix for Forms) will be addressed in your family strategic plan. Also, you will find that your personal objectives will affect the strategy you choose. For example, if there is a great opportunity for growth in your market but you have a low risk orientation and a high personal need for security, you probably should not pursue high growth. It would be not only risky but also expensive. Growth consumes cash, and cash must be generated internally or financed externally. Your personal objectives should mesh with your strategy.

Once you have identified opportunities in the industry, assessed the strengths and weaknesses of the firm and listed your personal objectives, you can proceed with the strategic plan. This will involve:

ü developing a mission statement,

ü setting objectives,

ü developing strategies to meet objectives, and

ü developing action steps to implement the strategy.

Mission Statement

(See Appendix for Form)

The mission statement answers the question "What business are you in?" It defines your customers and explains why you are in business. The mission statement embodies the heart of the business and gives direction to every facet of the business. Effective mission statements

q include specifications that allow measurement,

q establish the individuality of the firm,

q define the business in which the firm wants to be involved,

q are relevant to all with a stake in the firm, and

q are exciting and inspiring.

Objectives and Goals

(See Appendix for Form)

You should set reasonable objectives for the firm, based on the mission statement, to ensure accomplishment of the firm's mission. Objectives should be clearly stated, realistic, measurable, time specific and challenging. Objectives can be created for:

q revenue growth,

q earnings growth,

q sales and market share growth,

q new plants or stores, and

q product/service quality or corporate image.

Strategies

Strategies are determined by your answer to the earlier question: "What will the firm be like in the future?" Your strategic options include the following:

1.      Stability--success is derived from little change (rare).

2.      Profit strategy--sacrifice future growth for profits today.

3.      Growth strategy--growth may be achieved through vertical integration (expansion from within), horizontal integration (buy a competitor), diversification, merger or retrenchment (turnaround or divestment).

Action Steps

Once the strategy is selected, action steps should be specified that will guide the firm's daily activities. An example of an action step is creating a budget to project the costs of a strategy. This process also is known as tactical planning. The steps in tactical planning should be practical and easy to implement and account for; their purpose is to convert goals into manageable, realistic steps that can be individually implemented.

Regards,

Eric

Eric W. Leaman

Trustee

eleaman@oedglobal.org

http://twitter.com/oed4smallbiz

Organization for Entrepreneurial Development

Unleashing the entrepreneurial spirit.

Change your mind ... and EVERYTHING changes

Is Your Company Ready for Growth?

Contributed by Jurgen Ringer. To reach Jurgen, please contact: jurgenringer@iib.ws

The beginning stages of any entrepreneurial concern are usually built around the product or service expertise (let’s call it the “PSE”) of the owners and organizers, which they offer to the market. They must be good at what they do, or the company will not survive at all. If it does survive and grow, though, more than this PSE is needed. Sooner or later, a transition point is reached, where the company must be transformed from primary emphasis on the PSE to the more structured format of a professionally managed concern. That is, management know how must be added to the PSE of the original owners.

The first challenge for the growing company comes when the owners must recognize that such a transition is necessary at all. Having survived the heavy demands and very hard work of the start-up phase (while watching others fail, perhaps), and being accustomed to constant striving to keep one’s PSE ahead of competitors, there is bound to be a tendency to believe that PSE is all that is really needed, that managing is just common sense.

But many of us have seen – and worked on – major turn arounds that happened solely because a strong team of management pros was brought on board a floundering concern, without any change in the PSE. There is just no  doubt about the need to add management expertise to the PSE to keep a good company healthy ands growing.

A company which does not pass this transition stage successfully, either because it does not recognize the need, or because it does not have access to the needed expertise, will not grow, or  will encounter more and more trouble trying to cope with greater volumes.

Some typical examples of such troubles, which are symptoms of greater problems: The CEO has to approve every little thing, is the only one with initiative, feels harrassed, and thinks he has to do everything himself; there are more and more errors, internal conflicts, morale problems; the most qualified employees leave and good people can not be attracted to replace them; there is poor or no cost control; unexpected cash shortages occur; some people exceed their authority, but most dodge responsibility; there is a general feeling of aimlessness and confusion; sales and profit performance are erratic; and so on and so on.

Eventually, the company must shrink back to a manageable size (“Mom and Pop”?),  be sold, or simply fails alltogether.

To determine if your company is in danger of reaching this stage, or is already there, see how many of these questions you  must answer ‘no” or “maybe”:

• Are there written descriptions that tell people what their job is, how to do it, relationships with other positions in the company? Such as an organization chart, job descriptions, statements of responsibility, delegated authority, measures of accountability? No, everybody does not know what their job is – I have seen confusion and conflict in companies with fewer than 15 employees!
• Does your compensation system recognize performance? Structured bonus programs (the discretionary Christmas bonus does not count!), properly designed individual or group incentives for hourly employees, gross profit based sales commissions, meaningful stock options or profit participation?
• Does your cost accounting system let you make aggressive pricing decisions if you need to? Variable and semi variable costs clearly identified so your incremental profit rate is accurate? How does your true gross profit compare to your competitors?
• Is cost control as tight as it needs to be? Monthly performance numbers? Detailed budgets and budget performance reports by department and areas of responsibility? Do department managers understand their budgets and how to control them?
• Do you have a written Business Plan, short and long term? Do your department managers understand it, and their part in it? Does your company have a Mission Statement, and longer term goals, which the management team understands and supports? 
• Is your management information system as good and as prompt as it needs to be for timely decision making by your managers? Have you and your managers identified your Key Performance Indicators (KPI’s), and are they being tracked routinely?
•  Is the company’s sales management program reasonably complete, including sales targets, gross profit based commission programs, specific programs to gain major accounts, analysis of lost sales, comparisons against competitors? Is there a clear understanding of what sales people are supposed to do, with training programs to help them do it? What is the difference between your top and your bottom performers in terms of skills, motivation, expertise, effort put forth?
• Do you know  your penetration  of your market segment, and whether it is growing or shrinking? An  approximation is fine if necessary, but be sure you are realistic, so you know what additional effort is needed for a strategy to make gains.
• Is there a program and strategy for protecting and improving your market position? Is it supported by your advertising, sales promotion, a functioning web site?
• Does the company have a program to develop a management team for the longer term? Top management succession? Supervisory training? Personnel appraisals aimed at improving supervision and personnel selection?

These questions are still far from a complete Management Audit; still, if you have to answer “no” to as many as half of them, your company is not only unready for growth, it has already outgrown its management expertise. You will need part time or permanent help to correct the problem. You might get a little of that help by keeping up with this blog.

ACTION

Thought and desires must lead to personal action.

Man must think but his thoughts must be supported by actions.

You must be doing what you need to so that what you want can come to you. Put your whole mind into present action.

Act in the NOW. You cannot change yesterday or tomorrow… you can only take action on today.

HOLD TO YOUR VISIONS AND ACT NOW. This will move you toward what you want.

Every success leads toward other successes.

Eric W. Leaman

Trustee
eleaman@oedglobal.org
http://twitter.com/oed4smallbiz

Organization for Entrepreneurial Development

Unleashing the entrepreneurial spirit.
Change your mind ... and EVERYTHING changes

 

Paternalistic Pitfalls

 

Paternalism  “A policy or practice of treating or governing people in a fatherly manner, esp. by providing for their needs without giving them rights or responsibility."

While paternalism has all but vanished from larger companies and diminished in mid-sized ones during the last decade, it still exists  in to many organizations with fewer than 100 employees [and some with as many as 200 employees].

 There are many pitfalls in being paternalistic, the worst of which is the lack of consistency which ultimately comes from using such a style or of a manager being paternalistic. Other problems which occur are over-staffing, over-compensating, allowance for "empire building", and allowing poor performance to be the norm.

 Paternalism is often easiest to see in smaller companies, and usually in those just starting out. The OWNER/MANAGER in their misguided way believes that they must actually over-compensate in order to attract the most qualified people. Then, in order to retain them, they also must provide every benefit the company can (or cannot) afford.

 Paternalism is also a favorite tactic of the totalitarian owner/manager.  They destroy the potential of their company and demoralize their good employees by treating them like children and allowing them to make only very minor decisions on their own.  This “tactic” feeds the ego of the owner/manager but creates a company that will never reach it’s full potential.

 Paternalistic managers/owners are most noted for making promises to keep people “happy”.  A paternalistic owner/manager tells the staff that, "One of these days, we're going to have a retirement plan, and all incumbent employees will be vested from date of hire." If the company doesn't make a profit and no plan is instituted then people are disappointed and “de-motivated” … the opposite of what the owner/manage tried to do.

 What if the owner/manager says, “You will be given a bonus at year-end" and no obligation on the part of the employee or employees - other than continued employment - is implied or expressed, then there is a promise and a contract does exist. The payment of that bonus is costly. To prove that a contract does not exist is costly. Either way, this style of management usually and ultimately produces more costs than profits.

 Do any of these sound familiar?

 The OWNER/MANAGER finds his Secretary as indispensable. He gives the secretary promotions, salary increases, and bonuses rather indiscriminately. Another executive's secretary, who happens to be a minority employee, is not paid at a comparable rate. Discrimination. Over-compensation.

 In order to keep staff "happy", there is an across-the-board Christmas bonus. Some of the employees have not been performing up to (unwritten and sometimes unknown) standards. Poor performers at a particular level or with particular lengths of service are given as much, proportionately, as those who are excellent performers. Lousy management.  TIP: Never, never, never … give a bonus … only give incentives that are EARNED!!

One manager rates his employees as "outstanding" on a regular basis. Without any investigation as to why these outstanding performers haven't contributed to the company’s profits, the "fair-haired" manager's employees are given merit increases which may not be based on merit, which are inconsistent with known productivity and performance, and which puts the entire wage and salary system out of kilter. In addition, such inconsistency leads to dissension and other employees complain. Taken to an extreme, one could again have discrimination.

The costs of paternalism can be staggering in relationship to the income and size of the organization.

Rather than freezing wages for those who have been overrated, the correction is usually to raise salaries and grades to match. If the discrepancy is 7.5%, this will mean a hugh  additional operating expense even for a smaller company. Further, by giving such increases, even though we call them adjustments most employees think of them based on merit.

Performance ratings by a paternalistic owner/manager are selectively higher than what they should be. Because of that, salary increases may be higher than what written policy [when it rarely exists] calls for.

Paternalistic owners/managers usually avoid negative situations, including that of rating the poor performer. Aside from the disparity (unintentional discrimination, but intent has nothing to do with winning or losing a claim) in the resulting aftermath, not only are wages too high, and other employees upset about disparate treatment, but in order to have a company or individual department be productive, one must hire three poor performers to do the work of one excellent one. This has a snowballing effect which ultimately often leads to layoffs.  When the company must decide who to lay off, and based upon all these “outstanding” performance evaluations (and not one negative one on file), this is a difficult choice.

Perhaps the saddest words to hear from the paternalistic OWNER/MANAGER is, "After all I've done for them, and this is the thanks I get!"

Appreciation is a fleeting emotion and most employees still ask, "What have you done for me lately?" Paternalism is a no-win style of management. Not once will anyone hear an employee say that they are under worked and underpaid.

So, what does all this mean?

Paternalism leads to:

·         unequal treatment of employees;

·         increased costs of running an operation;

·         a good possibility that monetary losses will be sustained;

·         incongruent and inconsistent performance appraisals will be given [if at all];

·         and perhaps even a retreat from the realities of the real world of business.

 

Eric W. Leaman

Trustee

eleaman@oedglobal.org

http://twitter.com/oed4smallbiz
Organization for Entrepreneurial Development
Unleashing the entrepreneurial spirit.
Change your mind ... and EVERYTHING changes

 

7 Ways to Build Wealth Personally or In Your Business

Money is a valuable tool for all of us to have and use in our lives. It is there to be accumulated and used… but we must learn how to do both or we will never have wealth and what money we do have we will most likely not keep.

In 1926 George S Clason published The Richest Man in Babylon. In this systematic and entertaining book Clason presents and details the ways to accumulate and keep wealth that are when applied as certain as the law of gravity.

“Money is plentiful for those who understand the simple laws which govern its acquisition.” – George S Clason

In the book Clason introduces Arkad, the richest man in Babylon.  Early in the book Arkad is asked by the King to teach 100 men the secret to wealth. Here is a summary of what he taught them.

1. Begin paying yourself first.
2. Budget and control what you spend. Discipline yourself to live on far less then you earn.
3. Make your money work for you. Invest in safe enterprises or the highest rates of compound interest available.
4. Keep your savings safe. Do not speculate.
5. Buy a home for yourself and your family.
6. Insure you future income for your retirement and the estate you will leave your loved ones.
7. Increase your ability to earn. Be the best at what you do and learn to do more.

Regards,

Eric

Eric W. Leaman

Trustee

eleaman@oedglobal.org

http://twitter.com/oed4smallbiz

Organization for Entrepreneurial Development

Unleashing the entrepreneurial spirit.

Change your mind ... and EVERYTHING changes

What would you say to 17 year old you?

It's a common question being bantered about in this day of anti-bullying campaigns. The notion of speaking the you "of now" speaking to yourself at age 17 is an intriguing prospect. I'm curious though what you, as an entrepreneur, say to yourself at that age?

• Did you always want to "be the boss" and has it lived up to the hype?
• Did you plan on wrapping up high school for the service? If so, what skills you'd be about to learn will serve you well in the future?
• Are you so stressed about not being tormented each day of high school by the "it" crowd that negativity seeps in?
• Are you simply expected to enter the family business?
• Are you simply expected to graduate, go to college, and enter the corporate world?
• Was there a gut feeling you didn't follow that you'd like to revisit?
• What advice will someone give you in the coming years that will prove really key?

Knowing what you know now about your career and the point to which it's brought you, what would you say to the 17yr old you who however many years ago is sitting there prepping for his/her final year of high school?

Are you working hard or smart?

Average business people feel comfortable working about 2500 hours per year (50 hours per week for 50 weeks, everyone needs two weeks vacation!). This number represents the total number of hours worked including all tasks. Yet, in a small business, most have difficulty “selling” 5 hours a day out of the 10 hours at work. The reason is a seemingly endless supply of non-”selling” distractions with which business people in large companies don't have to deal. Among these are:

Relentless customer calls (no associate to insulate the businessperson)
Clerical duties handled directly by the businessperson (insufficient clerical help)
Preparing bills (no accounts receivable clerk)
Screening potential customers (insufficient clerical help)
Accounting (no accounting department)
Paying bills (no accounts payable clerk)
Landlord/tenant issues (no managing partner)
Computer and office equipment maintenance (no office manager)

And you can take it from here!

By the end of the day, you know you have been working hard, but you have no idea why you only worked on revenue generating items for three hours out of the ten you were there. This is a common problem faced by businesspeople in small businesses who are working hard but not smart.

Setting Priorities – Key Skill

With so many tasks, the natural thing to do is to try to handle them in the order in which they come. Then, as tasks begin to back up, most people do the tasks they find least aversive first, and keep working in least aversive priority until an urgent (but not necessarily important) distraction presents itself.

This "squeaky wheel gets the grease" method begins to produce crises since the matters that demand the most attention are not necessarily the most important things the businessperson has to do. The longer important matters are crowded out by urgent distractions, the more likely there is to be a crisis. After a while, so many important matters get neglected that the businessperson is forced to shift into "fire-fighter" mode. Customer inquiries about their work are added to the distractions that keep the businessperson from getting the work done. Before long, staccato interruptions riddle his/her office like machine gun fire and the businessperson doesn't know whether to stand and fight or run screaming from the room. Sound familiar?

The key to getting control of your day is to set clear priorities:

Make a list of common activities in which you engage daily (including all the non revenue distractions) and prioritize that list according to importance (revenue generators and marketing your business will be at the top of this list).

This is not a specific "to-do" list, but rather a general list of daily tasks.