Tuesday, 26 June 2012

Family Business OR the Outside World

Delving into the heart of matters for Family Businesses
To be in it. Or to be with it. 

A few of my friends were faced with the problem - to seek their own independence or to take up the responsibility and go into their family business. My advice to them is: Ask your own heart. If your passion is in the line of business and if you are able to tolerate the family obstacles , Join it.

(Taken from SG Entrepreneur)

You know how the story goes: A wise king once built his glorious empire to great heights, only for it to be torn to shreds later by an inept son. Eventually the empire eventually gets swallowed up by a rival kingdom — no happy ending here.

What applied to the Ancient Romans, Greeks, and Egyptians is also relevant to family businesses today. Parents build their businesses from nothing, hoping that eventually the second and third generation would be able to carry it forward and expand the castle.

 The 2nd generation needs more encouragement and support as they integrate into the business.

Company founders tend to underestimate the pressure and difficulty faced by the 2nd generation as they learn the ropes.
Besides facing high expectations from daddy or mommy, they have to face up to the staff, who have their eyes on them. That is why family support from parents, especially when they are the CEO of the company, is crucial.
They also need to understand that the 2nd generation could use more structured and formalized training as they are initiated into the business.
It’s quite common for the 2nd generation to be tossed into the sea and learn how to swim by themselves. Having a clearly defined role from the onset would also help them navigate the waters.

Make sure special treatment, or perceptions of favoritism, do not occur.
If you think office politics is bad, wait until you join a family business, which brings a whole new level of complexity to office dynamics. If managed poorly, accusations of favoritism can set in, causing a negative effect in the office.

Says Cheng Woei Fen, executive chairman of Mun Siong Engineering, who runs the company with her husband: “Yes, my family is important, but I always remember to treat my staff like family too.”
Also, the onus is on the family members in a company to earn the respect of the staff.

Johnny Soon, chairman and CEO of marine and oil and gas company Heatec Jietong, says: “We must always work harder than other people to show good example to others.”

Hire an independent senior director to the company.
Besides offering a more objective perspective about where the company should head, an independent senior staff can also act as a mentor to the 2nd generation. For Chang Yee Ling, the operations director at seafood restaurant Red House, she thinks it’s helpful to have an additional mentor as it is ”sometimes easier to learn from someone other than my parents.”

Ensure that your successor has a track record before he or she takes over the company.
This is especially crucial for listed companies that need to please investors. Having an unknown and untested family member take over the business could erode investor confidence and create skepticism. Which is why potential successors need to generate their own track record, either inside or outside the company.
David Chuang, business development executive at Petra Foods and son of CEO John Chuang, plied his trade in corporate finance for a good number of years before finally joining his dad’s company. The family has a rule that they must work outside for at least two years before joining the business.

Jeffrey Soon, who is Johnny’s son, rose through the ranks from within the company. He worked from the bottom as a project engineer, literally eating and resting with the workers on-site. He later became a project manager, before assuming his current position as a business development and sales manager.
The idea is that by the time he is ready to take over the company, he would be familiar with all aspects of the business and expand the castle beyond its current walls.

12 Essentials for Striking the Right Balance in a Family Business

  1. Set some boundaries. It’s easy for family members involved in a business to talk shop 24/7. But mixing business, personal and home life will eventually produce a volatile brew. Limit business discussions outside of the office. That’s not always possible, but at least save them for an appropriate time — not at a family wedding or funeral, for example.
  2. Establish clear and regular methods of communication. Problems and differences of opinion are inevitable. Maybe you see them already. Consider weekly meetings to assess progress, air any differences and resolve disputes.
  3. Divide roles and responsibilities. While various family members may be qualified for similar tasks, duties should be divvied up to avoid conflicts. Big decisions can be made together, but a debate over each little move will bog the family business down.
  4. Treat it like a business. A common pitfall in a family business is placing too much emphasis on “family” and not enough on “business.” The characteristics of a healthy business may not always be compatible with family harmony, so be ready to face those situations when they arise.
  5. Recognize the advantages of family ownership. Family-owned businesses offer unique benefits. One is access to human capital in the form of other family members. This can be a key to survival, as family members can provide low-cost or no-cost labor, or emergency loans. Firms run by trusted family members can also avoid special accounting systems, policy manuals and legal documents.
  6. Treat family members fairly. While some experts advise against hiring family members at all, that sacrifices one of the great benefits of a family business. Countless small companies would never have survived without the hard work and energy of dedicated family members. Qualified family members can be a great asset to your business. But avoid favoritism. Don’t set standards higher or lower for family members than for others.
  7. Don’t provide “sympathy” jobs for family members. Avoid becoming the employer of last resort for your kids, cousins or other family members. Employment should be based on what skills or knowledge they can bring to the business.
  8. Draw clear management lines. Family members who often have a present or presumed future ownership stake in the business have a tendency to reprimand employees who don’t report to them. This leads to resentment by employees.
  9. Seek outside advice. The decision-making process for growing a family business can sometimes be too closed. Fresh ideas and creative thinking can get lost in the tangled web of family relationships. Seeking guidance from outside advisors who are not affiliated with any family members can be a good way to give the business a reality check.
  10. Develop a succession plan. A family business without a formal succession plan is asking for trouble. The plan should spell out the details of how and when the torch will be passed to a younger generation. It needs to be a financially sound plan for the business, as well as retiring family members. Outside professional advice to draw up a plan is essential.
  11. Require outside experience first. If your children will be joining the business, make sure they get at least three to five years business experience elsewhere first. Preferably in an unrelated industry. This will give them valuable perspective on how the business world works outside of a family setting.

If you start or join a family business you're likely to benefit from a range of advantages which you often don't find in other enterprises. These include:
  • Common values - you and your family are likely to share the same ethos and beliefs on how things should be done. This will give you an extra sense of purpose and pride - and a competitive edge for your business.
  • Strong commitment - building a lasting family enterprise means you're more likely to put in the extra hours and effort needed to make it a success. Your family is more likely to understand that you need to take a more flexible approach to your working hours.That deep commitment often makes family companies resilient, even when business is slow and finances are tight.
  • Loyalty - strong personal bonds mean you and family members are likely to stick together in hard times and show the determination needed for business success.
  • Stability - knowing you're building for future generations encourages the long-term thinking needed for growth and success - though it can also produce a potentially damaging inability to react to change.
  • Decreased costs - family members may be more willing to make financial sacrifices for the sake of the business. For example, accepting lower pay than they would get elsewhere to help the business in the longer term, or deferring wages during a cashflow crisis.

20 challenges faced by a family owned business

17 08 2006 (from  a blog) Every business organization has a unique set of challenges and problems. The family business is no different. Many of these problems exist in corporate business environments, but can be exaggerated in a family business.
Family business go through various stages of growth and development over time. Many of these challenges will be found once the second and subsequent generations enter the business.
A famous saying about family owned business in Mexico is “Father, founder of the company, son rich, and grandson poor” (Padre noble, hijo rico, nieto pobre). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and and empty bank account.
Prepare now and help your grandson avoid the poorhouse.

20 challenges for the family business
  1. Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.
  2. Informality. Absence of clear policies and business norms for family members
  3. Tunnel vision. Lack of outside opinions and diversity on how to operate the business.
  4. Lack of written strategy. No documented plan or long term planning.
  5. Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.
  6. Role confusion. Roles and responsibilities must be clearly defined.
  7. Lack of talent. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out.
  8. High turnover of non-family members. When employees feel that the family “mafia” will always advance over outsiders and when employees realize that management is incompetent.
  9. Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions.
  10. Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company.
  11. Training. There should be a specific training program when you integrate family members into the company. This should provide specific information that related to the goals, expectations and obligations of the position.
  12. Paternalistic. Control is centralized and influenced by tradition instead of good management practices.
  13. Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation.
  14. Communication problems. Provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems.
  15. Systematic thinking. Decisions are made day-to-day in response to problems. No long-term planning or strategic planning.
  16. Exit strategy. No clear plan on how to sell, close or walk away from the business.
  17. Business valuation. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value.
  18. Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business.
  19. Vision. Each family member has a different vision of the business and different goals.
  20. Control of operations. Difficult to control other members of the family. Lack of participation in the day-to-day work and supervision required.

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