Don't Just Build Business, Build Your Organization
One of the primary factors in determining whether a family firm will continue its success across generations is whether the incumbent generation is focused on building a business or building an organization.
Websterâ€™s defines business as â€œa usually commercial or mercantile activity engaged in as a means of livelihood.â€ To smaller business owners, the business is a way of making a living involving buying, transforming and selling something and can often be dependent on the skills, knowledge, relationships, intelligence, personality, character and experience of its owner for success. The owner may enlist others to help achieve goals, but the success of the business often is directly attributable to that individual.
A business owner who contacted a consultant in anticipation of his son and son-in-law entering the business explained: â€œI figure weâ€™ll start them at the bottom and theyâ€™ll work their way up the organization.â€ After studying his company, the consultant gave his findings. â€œYour plan would work fine except for one thingâ€”you donâ€™t really have an organization that they can work their way up. You have a fine businessâ€”but in terms of organization, you are basically self-employed with 300 helpers.â€
Many smaller or entrepreneurial family businesses are like the one described above. Veteran family business consultant LÃ©on Danco referred to such businesses as being structured like a rake with everyone reporting to the person at the top who has full control and authority. Such business owners usually consider succession (if they think about it at all) as a process of a son or daughter stepping into their shoes and running the business as they have done. Training and development are often left largely to the successorâ€™s observation of how the parent does it and to luck.
Another example: Two brothers took over a small business from their father. Over 30 years, their business environment became more complex and competitive. They grew by developing new products, selling more of their old products and by expanding their market by acquiring other players in their field who found themselves without successors. They had four additional executives on their team, but all had been with the company for as long as they had and only one had grown in her abilities. As a result, both owner/managers were overwhelmed with the responsibility of running the businessâ€”so busy working for the business that they hardly worked on improving business. As a result, they were becoming burned out, had inadequately prepared for succession, were not making the money that they could have made if their business were being run well and found themselves in frequent conflict over problems that were actually often structural in nature. They had a good business, but they didnâ€™t have a good organization. As a result, long-term success was in jeopardy. â€œYou think and act like small business owners,â€ their consultant told them, â€œkeeping almost all responsibilities for yourselves. But your business isnâ€™t so small anymore. And if you donâ€™t develop an organization to support your business, both you and it are likely to collapse.â€ With the help of their consultant, the brothers expanded their focus to improving their executive team, designing and implementing an organizational structure that would support their business while enhancing productivity and profitability and developing a management development program. While gross overhead went up, profitability improved and growth, which had hit a plateau, began to move upward again.
When discussing succession, we often say that success depends on preparing the next generation for leadership of the business and, perhaps even more important, preparing the business for the next generation of leaders. That means focusing on building your organizationâ€”ensuring that your business has the right people in the positions with systems in place to assure accountability, motivation, development and control. Unfortunately, when the current leader is preoccupied with buying and selling and day-to-day operations, there is likely little time available for preparing either next-generation leaders or the organization. No wonder only 30 percent of family businesses survive generational transitions.
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