Morning,

Fact:
3 out of 5 businesses will be sold or change leadership within the next 5 to 10 years. It’s critical that Baby Boomer owners and founders handle the transition well. Unfortunately, most owners are swallowed up into the day to day operations, instead of handling the critical issues that require important communication between family members and other shareholders or key employees.

Fact:
There are sons and daughters out there who believe that one day their parents’ business will simply be given to them. There also some delusional parents who believe their children will buy the business.

Again, communication is the answer to most problems, especially this biggie.

When on vacation in Mexico in February, I read, “Every Family’s Business - 12 Common Sense Questions to Preserve Your Wealth”, by Thomas William Dean, PhD

I recommend it to business founders (parents), their siblings, other shareholders, and key employees. Tom Deans spells out why only 3% of businesses survive a third generation of family ownership and only 1/3 make it to the second generation. In descending order, here are my top five reasons, and why.

5. Putting a child in a position of authority who lacks the skills, drive or capacity to learn.

Effective management and leadership is the key to creating wealth in any business.

4. Timing the sale. Every business has a beginning, middle and end (Recessions, the offering looses its luster over time and leadership gets stuck in the past; company’s technology becomes antiquated as the business loses its edge or competitive advantage. They are ill-equipped to compete in the future.)

3. Parents passing the businesses on when the business is moving toward the end of its life.

2. Not getting the hard elements of a family business right (i.e. compensation to relatives, stock ownership, succession planning, mixing up family communication with business communication, honest annual discussions on performance of siblings, control, protecting the family wealth and getting emotions and elements of the family out of the business.) Its biggest threat is the family itself.

1. Not having honest reality conversations at least once a year between the family members, key employees and the founder. The conversations should be aimed at protecting the family wealth, making money, preserving capital, and managing risk.

Tom presents 12 questions that, when answered openly by all concerned, [At least annually] lead to running a good business, timing its sale, and cashing in on its full value.

Families can unknowingly kill their businesses with love. When was love ever a criteria for promotions at the Royal Bank or General Motors?  This can be unfair to sibling as well. Too often the sibling is not in a good position to lead. What is required is clarity of the business and the relationships.

A few years ago, my group helped a successful organization with 3 plants and a home office in the Greater Toronto Area handle its family crisis played out at the parent’s kitchen table as well as in their boardroom. Customers and employees saw this dysfunction but they were incapable of saying what hurt the business and the family the most and exploring the tough issues together. They eventually created a plan for the family that kept relationships adequately okay; kept goals aligned and focused and, most importantly, kept the sale of the stock primary over family employment. Eventually they sold the business to a competitor for lots of cash.

Not every business should be sold to a competitor or to the highest outside bidder. Many companies are sold to family members and the 2nd generation takes the business to another level. Unfortunately, most don’t have a strategic plan that keeps the business from devaluation for the family. When we do this business strategy work for our clients, we ask 11 market centric questions that help design the business for growth.

In the future, when we do strategic work with a family business, we will ask the family to answer Tom’s 12 questions. Without this component, even a great design won’t matter. Combining these two approaches is excellent way to design a valuable business whether or not it is family owned.

Possible Actions, for some of you:
> Read Tom’s book  www.everyfamiliesbusiness.com/

> Begin the open, fierce conversations with your family or key employees about how you see the future of the business and what could protect its wealth, whether or not you sell or keep the business
Click here to order the book
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On April 19th, you’ll have a chance to engage with Tom Deans, as he will be our guest speaker on our next Strategy Coffee Huddle.  Click here to join the call.

Have a great week,

Kevin D. Crone
CEO
Dale Carnegie Business Group
BusinessNext Inc.
Offering Dale Carnegie Throughout Canada
Tel. 905.826.7300 / 1.800.361.2032 ext. 223