Category Archives: Core Processes

An Important Truth for First Generations to Learn in Family Businesses

When an entrepreneur starts his own business, from an ownership perspective, one of the key hurdles to overcome is securing enough capital to survive, then thrive. The principle sources of this capital are usually the savings and assets of the owner plus “sweat equity” invested by the owner and perhaps family and friends. The owner usually makes significant, personal sacrifices which help him and his family survive while their business is being built into a thriving, growing entity.

When ownership is passed to the second generation and the entrepreneur decides to share ownership between his children, the complexities at the ownership level increase exponentially. This complexity is a key hurdle for the second generation to overcome. Whereas the entrepreneur had sole control and could offer clarity in direction and decision, now that the ownership is shared, roles must be established and siblings must negotiate how they will cooperate in a shared power, shared authority model.

This complexity only increases if the entrepreneur decides to stay involved in the business without a clearly defined role. If he is vague about when full control will be passed to his children or if he is prone to take a extended time away from the business only to come back and start ordering his old staff and his children around, he will effectively create such havoc that his children may decide the family business isn’t worth their effort and time.

After passing control to his children, you might hear him talk about the old days – the work and sacrifice that was needed to get the business off the ground and make it successful. What’s ironic is that he’ll likely talk in such a way as to indicate that his children have no idea how much he has sacrificed and how they really don’t understand just how much has been given to them. In short, he’ll likely talk with an attitude of “they just don’t appreciate what they have”.

In this scenario, what isn’t appreciated is the comparison of apples to oranges. Yes, the entrepreneur sacrificed much to get the business to a thriving, sustainable state. But what he is passing to his children is not only a thriving business, but a set of complex, emotionally-charged elements that affect both their business and their families. He never had to negotiate power, control and the dual (sometimes triple) relationships that his children are negotiating. In short, he doesn’t appreciate what he is passing on and the potentialities for failure that could destroy his children’s and grand-children’s family relationships. Not only does a family business have the potential unify and support an extended family and their community, but a family business also has the potential to divide and destroy an extended family and damage the broader community in which they live.

This important truth sometimes is not appreciated by the members of the first generation. This is why clarity and intentionality in a succession plan is so important. If the children of the entrepreneur seemed to have harmonious relationships while growing up, one cannot assume that they will be free of conflict in their business roles. On multiple occasions where siblings who grew up together in happy, harmonious relationships, I have seen siblings never talking again in life because conflicts in the business drove a deep wedge between them.

So, what can be done? Here are several ideas:

First, the entrepreneur should have his children assessed for their real strengths and passions. Just because they inherited his DNA doesn’t mean they are the right people to lead his business moving forward. I’m not talking about just a matrix of psychological tests, which can be helpful. Instead, I’m referring to having his children work for someone else for at least five years, preferably ten, to have an objective, real-world assessment of their abilities, talents, passions and interests. Incidentally, this has the added benefit of giving them an opportunity to observe and learn from managers other than their father.

Secondly, don’t assume children in the second generation are the right people to lead the company moving forward. There are a number of family owned businesses that fail who could have succeeded had they decided to have nonfamily leadership run their family business. In a nutshell: be willing to be “family owned”, but not “family operated”.

Thirdly, give the children a “trial” period of running the family business before passing legal ownership to them – say two or three years. See how they interact. See who emerges as a peacemaker or a troublemaker. See if running the business changes their relationships. Then assess and make a decision about passing ownership to the next generation. The entrepreneur may be surprised by the decisions he ends up making.

Appreciating the key hurdles that the second generation will face and helping them over those hurdles will be one of the greatest, most enduring acts of love and kindness an entrepreneur will ever accomplish.

Bill English

Blowing Off Steam

Have you ever “vented” or “blown off some steam” to another person about your frustrations and ended up saying something that, after you calmed down, you disagreed with yourself? Because of the intensity of your frustration and some temporary lack of self-control, you said something that you knew wasn’t true: it simply represented how frustrated you were.

We all get frustrated at times. We all need someone to “unload” on who will listen, understand and perhaps empathize. We’ve all done it. And if there is one characteristic about venting, it is this: when we vent, we do it all the way – 100% – totally unvarnished – we just “let it fly”. People who are good at sarcasm can be funny when they are venting, but most of us are not and we say things that is not intended for public consumption.

But what do you do when you, a Christian Business Owner, overhear your employees venting about you, their boss? That 100%, totally unvarnished talk may hurt you deeply. You may not like it, but there is probably some truth in what they are saying, even if it is wrapped in a thick layer of sarcasm, hurt and/or anger.

If you’re like most bosses, you’ll swiftly acquire an air of superiority and self-righteousness. You may confront that employee directly or you may go away and sulk, promising to get revenge later is some passive way (we call this passive-aggressive). But if you’re mature, you’ll realize that your employee is just venting and that after a day or two, his old, likable self will come back.

The Bible speaks to this in Ecclesiastes 7.21-22:

“Do not pay attention to every word people say, or you may hear your servant cursing you – for you know in your heart that many times you yourself have cursed others”.

Well, now.

What Solomon is saying is that we should overlook the offense – let it go. Why? Because we have done it ourselves and so who are we to suddenly correct another person for doing what we have done many times? At this point, something about taking the log out of your own eye before taking the spec out of another’s eye comes to mind.

Your employees will blow off steam about you. Get over it. As a business owner – even a Christian one – you’re not universally liked. Not everyone has an enthusiastic opinion of you or your work product. And sometimes, you do and say things that are worthy of a venting session among your employees. Solomon’s advice is sound: if you hear about an employee or another person venting about you, your policies, your processes, your decisions and so forth – let it go because you yourself have done this many times too.

Bill English

When you Think about your Business, Think about the BOSS

When most people think about their boss, they think about an individual. Some bosses are great – others – not so much. But in this post, I want to propose that a Christian Business Owner should use the BOSS as a way to think about the fuller system in which their business exists and interacts.

You’ll recall that one of the four purposes for business is Productsthat business exists to provide a means to produce goods and services that allows the community to flourish. When one considers the ripple effects of a business within the broader system context, it easy to see how attention to delivering products and services that builds-up the community is serious business.

So, what is this larger system? It’s called the BOSS (Note: I am using this term as it is used in the training materials published by Interpersonal Communication Programs, Inc. 800-328-5099):

Business

Others

Self

Stakeholders

A comprehensive look at any business will include consideration of at least these elements:

  • Cash flow
  • Break even
  • Profitability
  • Process
  • Product and Service mix
  • Organizational structure
  • Plant and equipment
  • Employee morale and satisfaction
  • Risk mitigation
  • Governance
  • Business Development
  • Core Values
  • Short and long-term goals
  • Strategic plan

But often, the ripple effects of the business are not considered – at least not in a strategic sense. I would suggest that the wider system includes:

  • Extended family
  • Customers
  • Partners
  • Vendors
  • Shareholders
  • Board of Directors
  • The general community
  • The next generations (if family owned)
  • Church, ministries and charitable organizations supported by the payroll and profits of the business

When we consider the larger BOSS system, we start to realize that a single business with 40 employees (for example) doesn’t just touch 40 families, it like touches 100 or more families to one degree of intensity or another. Each part of this system contains its own critical information. In order for your business to function well, all parts of the system must be in place, functioning as they should. For example, if you’re not good at finding reputable vendors who deliver products and services at a decent price, then you’re likely to overpay for goods and services or purchase inferior products or services. Supply chain management is a serious aspect of having a well-functioning business.

What you’ll find is that your actions and decisions will seldom involve or impact only one part of the system. And if differences across the system are not managed well, the potential for conflict will only increase.

So, the next time you take your team off-site to do long-term planning, place your business at the center of the larger BOSS system and take a look at the ripple effects of your business within the BOSS system. Then ask the difficult question: is God pleased with the effects my business is having in the marketplace? Do I have a well-functioning system? He’ll answer you directly and clearly. Celebrate what you’re doing write and ask the Lord (and perhaps some outside advisors) what you can do to improve.

Bill English

Sorry, Christians Don’t Get to Retire

I have referenced how I believe that we will need to work well into our 70’s because I simply don’t believe that most have saved enough to be independently wealthy and whatever safety nets that are provided by the Federal Government will have negligible effect in 15 or 20 years.

But I’ve not dealt with retirement, as a concept, directly until now. So let me be direct and blunt:

The Scriptures do not support the notion of retirement.

Retirement implies stagnation, non-productivity and ceasing of growth. It has been retired. It is no longer useful. No longer helpful. No longer “part of the game”.

Sorry, Christians don’t get to become useless, unhelpful, irrelevant and unproductive. It’s not part of God’s plan and it’s not part of His will.

Work is a gift from God. Work existed before the Fall, so work is not a result of the fall nor is work part of the curse that God placed on Adam. I can find no place in the Bible where there is even a hint of support for our American concept of retirement – sitting back, relaxing every day, being non-productive and living off the money we have saved or inherited.

What I do find are passages like this:

Isaiah 60.21-22:

They are the shoot I have planted,

the work of my hands,

for the display of my splendor.

The least of you will become a thousand,

the smallest a mighty nation.

In Psalm 1.3, the Godly person is one who:

…is like a tree planted by streams of water,

which yields its fruit in season

and whose leaf does not wither—

whatever they do prospers

In 1 Corinthians 3.6, Paul uses the imagery of growth when he talks about him planting a seed, Apollos water but giving glory to God because He is the one who causes a person to grow.

One can even point to Philippians 1.3-5, where Paul writes:

“I thank my God every time I remember you. In all my prayers for all of you, I always pray with joy because of your partnership in the gospel from the first day until now, being confident of this, that he who began a good work in you will carry it on to completion until the day of Christ Jesus.

The idea is that God never stops working in us to grow the “good work” and that He does so until the “day of Christ Jesus”.

The passages I have cited at the tip of the iceberg. There are literally dozens of passages that indicate that God is creative and that He wants us to work and grow until we reach heaven.

Now, this doesn’t mean you can’t sell your business as you get older, but it does mean that as a Christian, you’re not allowed to sit back and do nothing. You must be growing – developing – learning – becoming – until the day you see Christ face to face.

Sorry, Christians don’t get to retire.

Essential Planning: Management, Directors and Advisors

Proverbs 24.3-6 says this:

3By wisdom a house is built, and through understanding it is established;

through knowledge its rooms are filled with rare and beautiful treasures.

The wise prevail through great power, and those who have knowledge muster their strength.

Surely you need guidance to wage war, and victory is won through many advisers.

If these verses are applied to running a small, family-owned business, it is clear that a business (just like a “house” literally, a place or dwelling for one or more families) is built through wisdom, understanding, knowledge, guidance and advice. It is by knowledge that the rooms are filled with “rare and beautiful treasures”.

You might recall that when Peyton Manning was a two-time Super Bowl winner and was the MVP of the NFL several times. Peyton never lost sight of his need to be coached and to learn from those who were willing to pour into him their knowledge and wisdom. If only small business owners could grasp how important it is to be always learning, growing and improving – not just their technical skills – but their business skills as well.

This is why I recommend that small business owners realize and accept that as their business grows, they will need to develop and invest time with three different groups.

Management Team

The first group small business owners need to invest in is a management team. The management team runs the day-to-day operations of the business and the folks paid to lay awake at night and worry about the business. If you don’t have a management team, then most decisions will route through the owner and the business will only scale to a certain size, then stagnate. When your business is $250K/year, that’s not a big deal. But it will be rather difficult to run a $5M or $10M business without a management team. The largest I’ve ever seen is $23M – but they were paying the price in people leaving the company for better environments.

How you management team is comprised is up to you, but there are two basic ways: Organizational Chart and the Value Process. Most business owners will build their management team off of standard organization charts: managers for sales, operations, supply chain, finance and so forth. They departmentalize their company and then appoint people to manage parts of their company. It’s very common to see this. How well it works all depends on how well the business owner is able to build a team.

Advisors

This is usually the second group that most small business owners put together, but they do so grudgingly and really don’t like it because the cost of engaging and building a team of trusted advisors. Many take the position that advisors – consultants – are just there to take their money and not offer much of anything in the way of value. And while it is possible to waste money with trusted advisors, my experience is that most business owners end up paying more in other costs when they don’t properly build and engage their team of trusted advisors. Good trusted advisors will save you money, even though they have up-front costs.

Most small business owners are really good at what they do, but they are not good at accounting, contracts, compliance, hiring, firing, benefits, financial reports, banking and so forth, so it really is a good idea for them to have a team of trusted advisors who can help them work better “on” their business. And they will offer real expertise at a fraction of the cost of having the business owner him/herself read and learn the same information on their own.

Your trusted advisors should include:

  • Law firm – look for those who can help with contracts, policies, shareholder disputes (if you have a partner(s)) and HR/employment law.
  • Accounting firm – Have them do your quarterly and annual filings. Be sure to ask them about things you can do to lower taxes. And they should help you with your personal will, since that will be highly affected by the size and profitability of your business
  • Banking – look for a bank that can scale with your projected sales and size for the next five years
  • Financial Planner – be sure to pull out value out of your company on a regular basis and invest it personally for your retirement
  • HR/Benefits – you *will* need someone to help you with human resource elements such as payroll, policy manuals, job descriptions, benefits and so forth
  • Executive coach – believe it or not, an EC is become more and more common as small business owners look to sell or transition their business to their children. While most second or third generations know how to run the business, they often don’t know how to lead or how to think outside of what they have seen in their mom and dad. And often, the coaching has to help mitigate the family’s dysfunction so that the business can survive.

Board of Directors

As a business grows, so does the need for accountability and outside perspectives. A small business – even if completely owned by family members – will need outside perspectives both at the management and at the governance layers. While this is usually the last of the three groups to form, it is an important one for ensuring that proper governance is followed. Why is this important? Well, for family businesses, it is important for the family members to have a place where they can put their owner hat on and express themselves on matters pertaining to their role as an owner. What should not be happening is family members acting as owners during the day when their employee position doesn’t require it and, in fact, would negate that role for them during the day. For example, if one of the family members is an owner of 20% of the business but is employed as the Vice President of Sales, they s/he shouldn’t be talking or acting as an owner during the day.

Be aware the “outsiders” should be on your board – not just family and friends. You may want to include some trusted advisors on your board, but the board is there mainly to hold you – the business owner – accountable to accomplish certain things that you wouldn’t normally do yourself but you know you need to do. It’s a form of self-discipline. If your business is owned by your family, we highly recommend having non-family members on your board in order to get outside perspectives at the Board layer.

Summary

As your business grows, you will need to build and engage these three groups. And you, as a small business owner, will need to value what they bring to your business. Yes, it will cost you some money, but in the long run, these groups will save you money as they help you grow, become more profitable, streamline your operations and mitigate risk.

One caveat – as your business grows and you groups are formed, remember that your role will necessarily change and through delegation, you will need to know how to get more done through people than doing it yourself. This is where many entrepreneurs flinch and just say that they’ll stop growing the business so they can stay in control. That’s a legitimate business decision. But if you want to grow and sell for millions in the future, you’ll need to recognize that your role will change and you will be surprised as little you actually control after these three groups are formed. Your focus will be working “on” the business more than “in” the business, so reserving the things to yourself that allow you to work within your strengths will be very important.

Bill English

image_pdf