Small Business Management 13e

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Nov 20, 2013 (3 years and 8 months ago)

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PowerPoint Presentation by Charlie Cook

The University of West Alabama

Copyright
©
2006 Thomson Business & Professional Publishing.

All rights reserved.

Part 2 Starting from Scratch

or Joining an Existing Business

The Family
Business

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Thomson Business & Professional Publishing. All rights reserved.

5

2

Looking Ahead

After studying this chapter, you should be able to:

1.
Discuss the factors that make a family business
unique.

2.
Explain the cultural context of a family business.

3.
Outline the complex roles and relationships involved
in a family business.

4.
Identify management practices that enable a family
business to function effectively.

5.
Describe the process of managerial succession in a
family business.

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Thomson Business & Professional Publishing. All rights reserved.

5

3

What Is a Family Business?


Family Business


A company in whose ownership and/or functioning two
or more members of the same family are directly
involved


A firm whose ownership passes from one generation
of a family to another (succession)

Smith Family Hardware

Est. 1935

Welcome

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Thomson Business & Professional Publishing. All rights reserved.

5

4

Exhibit 5.1

Family

1

6

3

7

5

2

Business

Ownership

4

The Three
-
Circle
Model of Family
Business

Source:
Three
-
Circle Model developed by Renato Tagiuri and John A. Davis. Found in “Bivalent Attributes of the Family Firm.” 1982.
Working paper, Harvard Business School, Cambridge, MA. Reprinted 1996,
Family Business Review,
Vol. IX, No. 2, pp. 199

208.

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5

5

Family and Business Overlap


Family Concerns


Care and nurturing of family
members


Employment and
advancement in the firm


Loyalty to the family


Business Concerns


Production and distribution
of goods and/or services


Need for professional
management


Effective and efficient
operation of the firm


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6

Advantages of a Family Business


Strength of family relationships during challenging
periods of business change


Financial sacrifices that family members make for the
good of the firm


Operation as a family business distinguishes the firm
from its competitors


Higher levels of concern for its community and non
-
family employees


Capability to plan and prepare for the long haul


Emphasis on quality and value

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5

7

Exhibit 5.2

Advantages of a Family Business

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8

The Culture of a Family Business


The Founder’s Imprint on the Culture


The founder’s core values become a transmitted part
of the culture (for better or worse)


Organizational Culture


Patterns of behaviors and beliefs that characterize a
particular firm


Cultural Configuration


The total culture of a family firm,

consisting of the firm’s business,

family, and governance patterns

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9

Exhibit 5.3

Business Pattern

Paternalistic

Laissez
-
faire

Participative

Professional

Cultural

Configuration

of the

Family Firm

Governance Pattern

Paper Board

Rubber
-
Stamp Board

Advisory Board

Overseer Board

Family Pattern

Patriarchal

Collaborative

Conflicted

Cultural Configuration of a Family Firm

Source:

Adapted from W. Gibb Dyer, Jr.,
Cultural Change in
Family Firms

(San Francisco: Jossey
-
Bass, 1986), p. 22.

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5

10

Family Roles and Relationships


Parental Concerns in Passing the Business On:


Does my child possess the temperament and ability
necessary for business leadership?


How can I, the founder, motivate my child to take an
interest in the business?


What type of education and expertise will be most helpful in
preparing my child for leadership?


What timetable should I follow in employing and promoting
my child?


How can I avoid favoritism in managing and developing my
child?


How can I prevent the business relationship from damaging
or destroying the parent

child relationship?

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11

Family Roles and Relationships (cont’d.)


Husband

Wife Teams


Opportunity to share more in each other’s lives


Business differences interfere with family life


Work doesn’t leave time for family life


Sharing family responsibilities eases the load


Sons and Daughters


Personal preferences different from the business


Personal qualifications insufficient to assume role in
business


Desire for personal freedom to choose another career

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12

Family Roles and Relationships (cont’d.)


Sibling Cooperation, Sibling Rivalry


Best case: siblings work as a team, each contributing
services according to his or her abilities.


Worst case: siblings compete as rivals and disagree
about their business roles.

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13

Family Roles and Relationships (cont’d.)


In
-
laws In and Out of the Business


Disagreements about how to treat and reward in
-
laws
and family members/children


Assign to different branches or

to different business roles


The Entrepreneur’s Spouse


Communication between

entrepreneur and spouse is

critical for them to perform as

an effective team for both the

business and the family.

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14

Professional Management

of the Family Firm


“Best Practices” (John L. Ward)

1.
Stimulate new thinking and fresh strategic insights.

2.
Attract and retain excellent managers.

3.
Create a flexible, creative organization.

4.
Create and conserve capital.

5.
Prepare successors for leadership.

6.
Exploit the unique advantages of family ownership.

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15

Professional Management

of the Family Firm (cont’d.)


Nonfamily Employees in a Family Firm


Hazards:


Competition with family members for advancement


Getting caught in the crossfire and politics of family
competition within the firm


Solution:


Identify family
-
only reserved positions in advance.


Treat both family and nonfamily employees fairly in matters of
reward and promotion.


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5

16

Professional Management

of the Family Firm (cont’d.)


Family Retreats


Are a gathering of family
members, usually at a
remote location, to discuss
family business matters


Use of an outside facilitator
may be necessary.


Guidelines


Set a time and place.


Distribute an agenda prior to
the meeting.


Plan a schedule in advance.


Give everyone a chance to
participate.


Keep it professional.


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17

Professional Management

of the Family Firm (cont’d.)


Family Councils


An organized group of family members who gather
periodically to discuss family
-
related business issues


Represent the family to board of directors


Useful in developing family harmony


Increases understanding of family

traditions and interest


Family Business Constitution


A statement of principles

intended to guide a family

firm through times of crisis and change

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18

The Process of Leadership Succession


Available Family Talent


Mentoring


Guiding and supporting the work

and development of a new or less
-

experienced organization member


Allowing only qualified competent

family members to assume leadership

roles in the firm increases the value of

the firm for all who have an ownership

interest in it

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5

19

Exhibit 5.4

Stage I

Pre
-
Business

Stage II

Introductory

Entry of Successor

Child becomes aware of
facets of firm and/or
industry. Orientation of
child by family member
is informal.

Child is exposed to
business jargon,
employees, and the
business
environment.

Stage III

Introductory

Functional

Child works as part
-
time
employee. Work
becomes more difficult.
Includes education and
work for other firms.

Stage IV

Functional

Potential successor begins
work as full
-
time employee.
Includes all nonmanagerial
positions.

.

Stage V

Advanced Functional

Potential successor assumes
managerial position. Includes
all management positions prior
to becoming president.

.

Transfer of Leadership

Successor assumes presidency.

Includes period in which the
successor becomes
dejure
head
of company.

Stage VII

Mature Succession

Successor becomes
defacto
head of company.

Stage VI

Early Succession

A Model of
Succession
in a Family
Business

Source:
Justin G. Longenecker and John E.
Schoen, “Management Succession in the
Family Business,”
Journal of Small Business
Management,
Vol. 16 (July 1978), pp. 1

6.

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20

Conditions Favoring Successful

Leadership Succession in a Family Firm


A sound, profitable business


Stable, healthy family relationships


Advance planning for leadership succession


Positive family leadership and a team
-
oriented
management structure


Presentation of career opportunities without
pressure


Open communication on family business issues

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21

Succession in a Family Firm


Transfer of ownership


Passing ownership of a family business to the next
generation


Who will inherit the family firm?


Should each heir receive an equal share?


Should ownership be transferred gradually?


How to handle tax considerations?


What to do with other wealth and assets of the founding
entrepreneur?




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5

22

Key Terms

family business

organizational culture

cultural configuration

family retreat

family council

family business constitution

mentoring

stages in succession

transfer of ownership