Family Business Challenges Are Unique

Family relationship issues in a family-owned business add a layer of relationship complexity that non-family owned businesses don’t face.  There are, of course, distinct advantages to family-owned businesses, but some challenges are unique to family businesses.

Some of the common family business challenges include:

• topics that are not discussed simply because they stir up tension and ignite conflict
• family members who are not performing well in their current roles
• deciding who are the best people to lead the company in the future
• working with family members that you love, but don’t like

Make sure that the professionals you hire (CPA, lawyer, trainers, investment advisors, consultants, etc.) understand the unique challenges you face.

For example, if you hire a consultant that doesn’t understand family-owned businesses, you may end up with a consultant that doesn’t understand how to do successfully do team building when the two cousins (second generation) running the company have very different visions of the future for the company.  Traditional models for team building will fail.

Use professionals who understand the issues unique to family-owned businesses.  Ask them about their experience with family businesses.  Also, ask for references of their work with family-owned businesses.  You’ll be glad you did.To your success!

Two Choices Based On Recent Market Volatility

Previous economic predictions suggested solid growth in the second half of 2011.  However, the recent market volatility suggests that the rest of this year will be more economically challenging than predicted.

Your family business has a choice to make.  Hunker down and ride out the storm.  Or, make progress on improving the results for your family business.

What is the most significant issue holding back your family business?      Is it:

• one or more topics that don’t get discussed because they create conflict and tension among family members?
• a family member in the business who is struggling in his/her role?
• gridlock in the business because of the varied opinions about the direction of the company?

If these issues are plaguing your family business, know that you are not alone.  Based on our expertise, we know that these issues are predictable and naturally occurring.  They will happen.

So, with a commitment that relationships are not damaged, take up these topics with courageous conversations as a family and resolve them.  You’ll improve operations and see better results.

How’s that for a plan to help the company make progress in spite of the economy?

Lean Your Family Business’ Ladder On The Right Wall

What wall have you leaned your family business’ ladder on?

What is the key number or the goal that you are focusing your family members and employees on achieving?  Whatever it is, are you certain that you’re focusing on the right measure?  Here are two examples.

Organizational Strategy Example #1

In “Good to Great” by Jim Collins, Collins talks about how Walgreens moved the ladder from one wall to another.  Walgreens for many decades was focused on profit per store.  Think of this as a math formula.  How do you improve profit per store?  More profit in as few stores as possible.  That formula worked for Walgreens for many years.

But, after years of success, growth stagnated.  They struggled to find the right model to jumpstart growth again.  Then they realized they had the ladder leaning on the wrong wall.  After much research, discussion and debate, they determined that their key number should be profit per customer visit, not profit per store.

What’s the implication of that new measure on the number of stores?  You guessed it.  They began a building spree that continues today to improve profit per customer visit.  With more stores, there are more customer visits.  And, because there are Walgreens stores everywhere, customers are focused more on convenience and less on price.  As a result, profit per customer visit increases sales and profitability.

Organizational Strategy Example #2

Another quick example.  In a recent Harvard Business School article, Novartis (a large pharmaceutical company) leaned its ladder on a new wall.  Traditionally, the goal in pharmaceuticals is to develop a drug that treat conditions that are common to a lot of people.  So, drugs were developed for cancers, high blood pressure, Alzheimers, cholesterol, etc.  And, this approach has been a successful one.

However, Novartis recently decided to take a different approach.  Instead of trying to create drugs that target the largest conditions, it now focuses its research and development  investment on creating the most effective drugs – regardless of the size of the potential market.  Novartis hopes that over time Doctors will regard Novartis drugs as more effective and, therefore, prescribe them more.

What’s Your Strategy?

So, how does this apply to you?  Is your business plan for your family business based on doing marginally better than last year?  Or, is your plan for this year based on some serious industry niche analysis and internal soul searching to discover your companies unique opportunity not just to compete, but to dominate a particular industry niche?

When you dominate a niche, you become the go to company and competing strictly on price is less of an issue.

I don’t know what your experience with strategic planning has been (see article Strategic Planning or Root Canal – Which Would You Prefer?), but an effective strategic planning process will provide the opportunity for a significant financial return for your company.

With the same amount of effort that it takes to improve your results marginally over last year, why not improve your results dramatically?  Pull your family and your management team together and talk about whether your ladder is leaning on the right wall.

It’s Time To Fix The Holes In Your Family Business’ Boat

You’re the Captain of the boat.  Yet another day you steer the boat on the choppy waters.  All of your crew members are busily completing their tasks and doing them well.  “I have a good team,” you think to yourself.

Then your mind returns to those nagging issues that are dragging the performance of the boat down.  Your thoughts are interrupted.  “What are we going to do about the holes in the boat?”, asks the most junior member of your management team.  You wonder if he drew the short straw and was sent by the rest of the team.

“There’s no time right now to fix the holes in the boat.  Besides, we’re doing fine,” you say authoritatively.

The junior manager sheepishly says, “The other boats are getting ahead of us.  If we can’t fix the holes in the boat, could we speed up the engine?  Or, maybe we could bring in some more people to bail water.  Or, maybe even get bigger buckets.”

You instantly realize two things.  First, you realize that those three suggestions are foolish and more costly compared to fixing the holes in the boat.  And second, you realize that you’ve been doing those same three things for months in an effort to solve the problem.

Then the real revelation hits you.  You’ve been addressing the symptoms of the problem, not the real problem.

“Let’s make a plan to fix the holes in the boat,” you announce.  A sense of relief creeps across the face of the junior manager as he heads off to gather the team and make a plan.

What are the “holes” in your family business’ boat?  Isn’t it time you dealt with the real issues?  Yes, opening up those issues might be painful.  But, 2011 will be a better year for your company if you “fix the holes in your boat.”

To your success!

The Disease of Seniority in Compensation Decisions

I love to work with family businesses on employee performance and compensation planning challenges.  While family businesses desire a culture of accountability, performance and results, family relationships add a layer of relationship complexity that complicates things.  One of the compensation issues family businesses face is how they deal with the issues of seniority in their compensation decisions.

I’ll be honest.  I’m not a fan of seniority as a factor in most any decisions, but especially in compensation decisions.  I believe that seniority was once worthy of the weight and emphasis that was once placed on it.  However, as a factor in who gets paid what amount, I can no longer conceive of seniority being a reasonable factor in determining compensation.

In this age of technology advancements, global competitiveness and market reinvention, there is no longer any correlation between paying people more because they’ve been here longer and their skills or job performance.

For instance, companies send out their typing to Taiwan while technical assistance calls to computer manufacturers are being handled in India.  Outsourcing may be a hot political topic, but it isn’t going to go away in the global economy.  These are issues of technology and global competitiveness, not seniority.

In terms of market reinvention, ask some former travel agents, who had many years of seniority, how much their seniority helped them when consumers in droves began making their own reservations on-line.  Almost overnight, the concept of working through a travel agency was gone.  The reality is that the number of years of experience doesn’t mean what it used to mean in the marketplace.

So, as you make decisions this year in your family business about compensation, why should seniority not be a factor in your compensation decisions?  The most basic answer is that your customers don’t care about the seniority of the employee who is helping them.  Sure, customers want to deal with someone who is skilled and competent, but seniority has no correlation to the customer’s expectation to be served well by your company.  If your company won’t serve them well, customers will go elsewhere without regard to the seniority of the employees.

Let me give you a recent personal example.  We recently went to a very popular local family owned restaurant.  While waiting to be seated I could hear one of the owners (lots of seniority) and a long time waitress (lots of seniority) sharing similar stories about waking up that morning and dreading the day ahead and looking forward to closing time.  The owner then pasted on a smile, greeted us happily, but unconvincingly and walked us to our table.

Now, did I feel warm and fuzzy about how appreciated and valued I was as a customer of this restaurant?  Will it make me more likely to go back again compared to the numerous other restaurant choices I have locally?  And, what did seniority have to do with the level of service I received?  The point is that I could just as easily have received poor service from a brand new employee for a whole host of reasons.

The notion that family members and employees who have been here the longest are the most skilled and are the best performers is obsolete.  There’s an old adage that asks whether a twenty-year employee has twenty years of experience or one year of experience twenty times.  I’m not saying years of experience won’t make an employee more helpful to customers.  What I am saying is that the correlation is not automatic.  An employee’s job performance in serving the customer will depend on their knowledge, skills, initiative, level of service, responsiveness, etc., not on how long they’ve been employed with your company.  So, if your customer doesn’t consider employee seniority as an issue in their level of satisfaction with your company, why do you?

Most companies use multiple factors in determining compensation.  So, what factor should be used to replace seniority as a factor in compensation decisions?  The answer is skills.  The key question is “How has the employee made themselves more valuable to the company than they were last year, last month, and last week?”

At performance review time, give the employee a list of skills they could learn to become more valuable.  Then, tell them how their compensation will increase as they become more valuable to the organization.  And, no, I’m not talking about giving them a raise every time they learn a new skill.

For instance, a new employee who works part-time will get more hours as they are cross trained in multiple positions.  More hours will mean more compensation.  Of course, some new skills will certainly mean a raise in their compensation.  New skills make employees more valuable in the marketplace and, if you want to keep them, you’ll want to pay them competitively.

So, as the leader of your family business, take on this issue in the interest of making your family business more competitive.  Make your company more competitive by using skills as a basis for compensation decisions in your organization instead of seniority.  It will build accountability and encourage a focus on customer service, performance and results.  It’s also a great cure for the disease of seniority.

A Hard And Costly Lesson – Competitive Advantage Is Fleeting

As the leader of your family business, I would guess that one of the things that probably frustrates you is that your employees, even if they’re family members, don’t think like you do.  On the other hand, that’s probably why you’re the owner, isn’t it?

My guess is that the single most important issue that employees don’t understand like you do is this:  competitive advantage is fleeting.  You know that the reality of having competitive advantages is only temporary.  More than any other issue, I don’t think employees grasp this reality.  So, they wonder why you were pleased with last quarter’s results, but now you’re preoccupied with this quarter’s results.  You’re pleased that your team signed two new good sized customers, but you’re concerned about losing long-standing customers.

What can you do with this reality?  Two things.  First, talk about it and provide examples of how fleeting competitive advantage is sometimes.  Second, build the reality of having advantages only temporarily into how your family business hires, develops, allocates and manages resources.

Strategic Planning or A Root Canal – Which Would You Prefer?

As the leader of your family business, you may view strategic planning as one of those time consuming efforts that only Fortune 500 companies have time for, right?  Besides, there’s real work to be done instead, right again?

Granted, strategic planning looks simple on paper, but is difficult to do effectively.  When done well, strategic planning will multiply your efforts, focus your teams and achieve results that are not possible without thinking strategically about the future of your family business.

There are many benefits to developing a strategic plan for your family business.  Here are the top four benefits of strategic planning:

• First, an effective strategic plan allows your family business to chart its own course instead of allowing your competitors to decide what customers they will take while leaving you with the leftovers.
• Second, the goal of the strategic planning effort is to identify not only markets where you can compete, but also to identify market segments in which you can dominate.  If you can dominate a market segment, you are driving what happens in that segment.  You’re not one of the “also rans” left to compete for business solely on the basis of the cheapest price.
• Third, an effective strategic planning process focuses your family business on its strengths instead of trying to be all things to all people.  In addition, it relieves you of the temptation to be consumed by fixing your company’s weaknesses.  The real return on investment is not in fixing your weaknesses.  The real ROI is achieved by focusing on your strengths.
• Finally, the strategic planning process forces you to live in the real world.  If a train is headed right for you, an effective plan gives you the time to see it and do something about it.  Do your customers see the strengths that you say you have?  Is the market opportunity as large as your sales manager says it is?  Will there ever be a return on investment for a product that requires a capital intensive investment on the front end?

No doubt, strategic planning is challenging, maybe especially so for a family business.  It takes time, energy, focus and resources.  However, when it is done well, the organizational and financial benefits will far outweigh the time and cost of the process.

Training Is For Animals

Training is often seen as the answer to many organizational challenges.  Besides, it’s less expensive than hiring a consultant, right?

When you look strictly at the outlay of cash, training may be less expensive than many other alternatives.  However, when you consider the return on your investment, which should repay your cash outlay and lost productivity many times over, training is often money thrown into the furnace.

Most training is so poorly designed that it is clearly a waste of every dollar spent on it.

Trainers have learned how to use PowerPoint slides.  They’ve learned how to use stories to make concepts stick.  Some trainers are even excellent presenters.

But, oh so often, trainers fail to make the link between the knowledge they share and the change in beliefs that has to happen in a participants mind that will, ultimately, change a the participant’s behavior.

Here’s the formula:  New knowledge is required to change beliefs.  New beliefs will change habits.  And, new habits will change behavior.  Change enough individual behavior and you can change organizational performance.  And, since organizational performance determines organizational results, effective training should help an organization improve it’s results.

When selecting a trainer, ask their references if the training provided by the trainer actually helped improve the organization’s results.

Closing The Gap Is Simple, But Not Always Easy

While the performance of your family business may be good, ask yourself this question.  Is there a gap between the results you want for your family business and the results it has achieved?

If so, what’s missing?  What knowledge, skills, talents, etc. are needed so that your family business can achieve the results you want for it?

When you answer that question, you have an action plan.  Now the fun part begins.

Closing the gap between the results you want and the ability of your organization to deliver those results is the definition of execution.  Develop an execution mindset on your management team, work to close the gaps you’ve identified and you’ll see results improve.  Granted, not always easy, but the principle is simple.

The Speed of Change Is Increasing – Is Your Family Business Ready?

If we assume that all of the knowledge that mankind had accumulated by the year 1 AD equaled 1 unit of information, how long does it take to double that knowledge?  Keep in mind, this original 1 unit of knowledge includes Aristotle, Plato, Socrates, Homer, etc.

According to Dr. Daniel Johnston, a Clinical Psychologist practicing in Macon, Georgia:

• The original 1 unit of knowledge took 1500 years to double
• The next doubling (2 units to 4 units) took only 250 years (1750 AD)
• The next doubling took 150 years (1900 AD)
• The doubling speed has now reached every 1 – 2 years

If your family business is struggling with dealing with the pace of change, you are not alone.  However, with the pace at which things will change in the future, you’ll have to get comfortable with constant change.

What are the “we’ve always done it that way” challenges that your family business needs to address?  Schedule a “courageous conversation” about one of those “we’ve always done it that way” topics and see if you can make progress in addressing changes that have forever affected your way of doing business.  As you resolve one issue, identify the next one.  Pretty soon, you’ll be skilled at helping your family business improve its results.