Family Business Owners; How Do You Manage Your Transitions?

keysDid you know that 70% of all family businesses fail to successfully transition from the first generation to the second, and that 80% fail to successfully transition from the second generation to the third? This statistic is alarming.

I work with family businesses in transition. Transition is the active process of passing stock and leadership to the next generation.

I am often asked, “When should a family business get serious about transitioning?” I think there are three situations that call for beginning the transition work.

  1. When the entrepreneur wants to change his/her role. When this happens, the entrepreneur is in transition. And when the entrepreneur is in transition, the whole company and family are in transition. Planning is critical here.
  2. When the senior generation plans to pass stock to the next generation within 1-2 years. When stock transfers to the next generation, the next generation becomes owners. What does this actually mean? It means that they will have new ownership roles and responsibilities that need to be discussed and agreed on. Clarity is critical here.
  3. When owners and managers become different people. When some of the owners are not employees of the company or when the owners bring in professional non-family management, the roles of ownership and management separate. When this happens, owners and managers need to clarify their roles and agree how they will work together. Integration is critical here.

I am also asked, “What do owners do?” Besides electing directors, the main responsibility of owners is to agree on how they are going to own and run their business. They do this by developing an owners’ plan. Just like management should have a strategic plan which spells out their long-term strategy, owners should have an owners’ plan which spells out their vision.

An owners’ plan consists of three parts:

  1. The values, needs and goals of the owners. This includes things like revenue and profit expectations, distributions, debt and risk tolerance, compensation for owners who work in the business, the culture they want inside the company, etc.
  2. How the owners will work together. This includes things like what owners do, how they make decisions, perks, how family members who are not owners are involved, updating buy-sells, etc.
  3. What board arrangement, if any, they want. This includes things like what the board does and how it works with ownership and management.

When the owners speak with one voice, it gives clarity to management on where the owners want to go and what is important to them reduces ownership conflict and allows for a more effective transition.

For more detail on the roles and responsibilities of owners, managers and boards, check out my book The Balance Point by Cary Tutelman and Larry Hause, which is available at Amazon.com.

The Balance Point

The Balance Point

by Cary Tutelman and Larry Hause

Harnessing Entrepreneurial Manic-Depression: Making the Rollercoaster Work for You

transition-curve-slide

 

The sky is falling!

Ever since the media’s Chicken Little response to the tremors in the financial markets, I’ve felt like shouting from the rooftops “now you know how it feels to be an entrepreneur!”

I just lost 9% overnight?! Fill a bathtub and get the toaster. I’ve had enough.
Wait… I actually gained 13% while in the bathroom? I’m f**king Superman!

This is a guest post on capitalizing on — vs. countering — the “entrepreneur’s disease” (manic depression) through 4 cyclical stages. This is done by pairing appropriate activities to specific — though not necessarily positive — emotional states…

The author is Cameron Herold, former COO of 1-800-GOT-JUNK, whose professional resume includes:

-Helping build revenues from $2 Million to $105 Million in 6 years (no debt or outside shareholders)
-Building a PR team that landed more than 5,000 stories in those same 6 years
-Hiring 220 people in 4 months
-Leading the sale, branding, and integration of 450+ franchise locations.
-Teaching his psychological theories at the Entrepreneurial Masters Program at MIT.

I first saw this presentation at an Entepreneurs’ Organization (EO) event in Omaha prior to my successful Warren Buffett quest at the annual Berkshire Hathaway shareholders meeting.

I [Tim Ferris] encourage you all to read this,

 

Cameron:

Marc Andreessen, co-founder of Netscape, once wrote:

“First and foremost, a start-up puts you on an emotional rollercoaster unlike anything you have ever experienced. You flip rapidly from day-to-day – one where you are euphorically convinced you are going to own the world, to a day in which doom seems only weeks away and you feel completely ruined, and back again. Over and over and over. And I’m talking about what happens to stable entrepreneurs. There is so much uncertainty and so much risk around practically everything you are doing. The level of stress that you’re under generally will magnify things incredible highs and unbelievable lows at whiplash speed and huge magnitude. Sound like fun?”

Many ultra-successful entrepreneurs are even clinically diagnosed as manic-depressive or bi-polar. Francis Ford Coppola has it. So does Ted Turner.

This article is about the emotional intricacies of being an entrepreneur – about what you’re going to feel during the journey.

The concept that we’re going to examine is called the Transition Curve. It resembles a rollercoaster.

Regardless of whether or not you believe you will ride an emotional rollercoaster running a business, you will. You have two fundamental choices: you can hold on and scream, or you can wave your hands in the air and have some fun.

I’m going to walk you through these different analogies, but let’s first look at the various stages of this process, which repeat.

 

* Stage 1: The first stage of the concept is called “Uninformed Optimism”. At this stage on a rollercoaster, just getting to the top of the rollercoaster, you experience feelings of an adrenalin rush, characterized by excitement and nervous energy.

* Stage 2: The second stage is called “Informed Pessimism”. As you ride over the top of the curve you now have a bit more information. Feelings of fear, nervousness, and frustration begin to set in. Perhaps you even want to get off of it.

* Stage 3 – The third stage is called “Crisis of Meaning”. You’re past scared. You feel despair. It’s as if you’re standing on the edge of a cliff ready to jump, and you begin to think “Today the rollercoaster’s going off the bottom of the track for the very first time.” You feel helpless and you’re both terrified and frozen.

* At this point, you face a critical juncture. You can come off the bottom of the curve and crash and burn, which is when your business goes bankrupt, you lose your marriage, you start drinking, or you end up in a doctor’s office because of stress. Or you can come around the corner because you’re getting support at “Crisis of Meaning” and you can enter an upward swing call “Informed Optimism”.

* Stage 4 – Informed Optimism. 
You’re calm. You’re informed. You might even say you are cautiously optimistic.

Capitalizing on All Emotional Phases — Activity Pairing

Here is the critical point – at each stage of the curve, you can do things to leverage the feelings and energy — positive or negative — that you have at that moment. Fighting against these phases is like working against a natural force.

Read the list of ways you can leverage this cycle by Cameron Herold