Category Archives: Strategic Plan and Vision

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

Best Practices for Hiring an Interim CEO

Having run several businesses, I’ll say that the process to being a successful CEO in an interim situation includes attention to several key areas. But the change for the owner who is hiring the interim CEO is significant. This article outlines the foci of an interim CEO and also lays out the best practices for the ownership group.

People

There is a plethora of relationships that need attention by the CEO, whether s/he is interim or permanent. The first is his relationship with the ownership group and the Board of Directors (if the board exists in practicality). It is key that these relationships be strong and supportive from the beginning of the engagement. But it is also true that the ownership group and the Board of Directors need to “get out of the way” of the CEO and let that individual run their company. When owners in closely held businesses keep stepping on an interim CEO by making decisions outside their new role (whatever that role is), they “step on” and can, at times, cut the legs out from under their interim CEO. These engagements don’t last long, for obvious reasons.

The second relationship is with employees. Why should they follow you? Why should they trust you? Why should they follow you? What is the direction you’re taking the company? What is your plan? These are legitimate questions that only the CEO can answer and they need to be discussed with the employees in an open, honest way.

The third relationship is with vendors and supply chain influencers. If this business is large enough, a Chief Operating Officer will likely handle these relationships. If it is a smaller company, the CEO will be managing these relationships. A company needs strong supplier relationships in order to thrive. If the previous ownership group or CEO has damaged these relationships through untimely payments or interpersonal dealings that were negative, the new CEO’s presence will be a welcome breath of fresh air.

Depending on the situation, other relationships will need to be addressed, such as media, trusted advisors, partners and so forth.

In short, the CEOs job is one of building positive relationships. If they cannot be built properly, the interim engagement will not succeed.

Potentials

Every organization has potentialities that are unleveraged. The question is not whether they exist, but where they are and what opportunities to they represent? In discovering an organization’s potential, one will also uncover (perhaps systemic) problems that need to be resolved. In other words, what are the problems we must resolve in order to pursue new opportunities. These two elements – opportunities and problems – usually exist together. An interim CEO will need to discover both and then figure out A) is the pursuit of the opportunity worth the cost (financial, cultural, systems and so forth) of solving the problem? Interim CEOs are usually presented with tradeoff decisions where the value of the “trade” is often not fully understood either because the interim CEO simply doesn’t have the depth of experience in the organization that is needed or the systems and people in the organization are so dysfunctional that the information needed to fully understand the trade is not available.

For example, one organization had the opportunity to move their existing product line into a new customer vertical. But the problems to resolve in order to pursue this opportunity were twofold: A) the products would need to be redesigned to meet this vertical’s specific requirements and B) a long-standing relationship with a reseller in that vertical that represented more of a good friendship with the family that owned the business. Moving into this new vertical would mean permanently damaging that relationship and then spending resources on redesigning their product. Overall, it would take 6-9 months before any sales were realized. Was the tradeoff worth it?

In this true story, I concluded the tradeoff was worth it and authorized the sales team to move forward. We resolved the relationship issue by offering this individual’s company an opportunity to participate with us. We resolved the design issues through normal processes by gathering requirements and ensuring we had the proper specifications against which to design. Before I came on board, the family was unwilling to consider or discuss going into this vertical because the personal relationship with the reseller was long-standing. An interim CEO needs to understand the emotional dynamics of a situation before taking action. What he will discover is that most of the long-standing problems in an organization exist, in part, because of emotions within the leadership he is replacing and as a result, the potential of the organization is never fully realized.

Processes

How we get things done is a result of our processes, whether or not they are codified in writing. Healthy management has healthy processes that are both repeatable and lean. An interim CEO will find that he likely is inheriting broken processes that need to be fixed. In our technology saturated world, this usually means the computer systems are either outdated, disconnected and/or inferior. In niche markets, you’ll find that industry-specific technology platforms may be immature, regardless of which vendor is writing the code.

When computer systems don’t talk to each other, you’ll necessarily have manual processes to move information from one system to another. Those manual processes represent your Centers of Mistakes. Expecting people to get “it” right every time is nonsense. People make mistakes. Computers execute code. The two are not synonymous.

Fixing processes may mean capital outlays. An interim CEO will need to understand what costs are recovered from improving the processes. Some recoveries will be obvious – others will not. Estimates may be based on judgments that come from experience. In the end, there will be a decision and the interim CEO may need to work hard to make his decision the right one.

Cash Management

Like it or not, the first thing we do at Platinum is get our hands around cash using the Break Even and our Cash Flow Forecast. Coming into a business as an interim CEO, one must understand the company’s cash position because almost all decisions involving either spending or saving cash. Usually, it is not as good as what was first presented. Knowing how to stretch vendors, how to work with the bank and so forth is essential to the success of an interim CEO.

What the Business Owner Needs to Understand and Do: Best Practices

If you’re a business owner and you’re hiring an interim CEO to run your business, you need to understand the following:

  • You’re adding (what is likely an) unanticipated cost to your budget. Interim CEOs are not cheap. They parachute in on quick notice, are handed difficult problems to resolve and they rarely even get a “thank you” from anyone in the organization. Make sure you get a great ROI on this investment by doing what you need to do (more on this in a moment)
  • Your world is about to change – dramatically. Do not hire them if you expect him to simply do what you were doing. Only hire him if you need significant change in order to solve significant problems and achieve big opportunities. Do not expect that much will stay the same in your business. Some of it will, but more likely, most of it will not. Your culture is going to change. Processes are going to change. Cash management is going to change. Problems are going to be resolved. Key relationships are going to shift to this interim CEO. Your world will change.
  • You’re no longer in charge. I can’t stress this enough. If you’re the owner and you’re hiring an interim CEO, then understand you’re no longer in charge of your business. Your interim CEO is. If you get into a power-struggle which him, you’ll win because you’re the owner. But you’ll also lose because you’ll either leave him in place but render him ineffective or you’ll let him go and will have wasted serious dollars on his tenure. If you’re not ready to give up power in your business, then don’t hire an interim CEO. If you enjoy the power and prestige of being an owner, being in on all the decisions, telling others what to do – and you can’t let all this go – then don’t hire an interim CEO. It will end up being an exercise in futility.
  • It’s no longer about you, it’s about your business. An interim CEO will be there to improve your business, not your ego. He will make difficult decisions, some of which you were unable or unwilling to make. His focus, if properly placed, will be on improving the value of your business.

What you need to do is pretty simple but often very difficult to do:

  • Empower the interim CEO to do his job well. This means giving him clear spending authority, hiring/firing authority, contracting authority and so forth. What would a CEO normally have in terms of power and responsibility? This is what you give to your interim CEO
  • Have clearly identified, measurable goals for your interim CEO to achieve. Remember, he is interim, which means he’ll be there for a few months or even a few years. What is he to accomplish? Hold him accountable to these goals.
  • Get out of the way and don’t meddle in his affairs. Hold him accountable to achieve his goals. How he achieves his goals is up to him. Don’t micromanage and don’t meddle in his day-to-day work. You need to get out of the way. If you’re an owner and yet your position reports to the interim CEO, then understand that you cannot put on your owner hat during the day. Stay in your swim lane and don’t cross over into your CEO’s swim lane. Have the self-control and maturity to put your owner hat on only during the Board meetings.

Summary

Hiring an interim CEO can be a positive experience for you and your business. Interim CEOs can often accomplish goals that owners of closely held businesses cannot. An Interim CEO is a great idea when a family is transitioning the business but the next generation is not ready to lead or when the business needs to be turned around or when the current owner has a health event and you need someone to step in and run the business. Interim CEOs bring a wealth of experience and knowledge that an owner will never have. But hiring an interim CEO will also ask the owner to step outside his or her’s comfort zone and relate to his/her business in a fundamentally different way.

Bill English

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