Manager Magazine (Bulgaria)

MANAGER MAGAZINE (BULGARIA)
DON SCHWERZLER INTERVIEW



“Our mission is to support Bulgarian managers in achieving more at work,” says Ventsislav “Vency” Savov - the Business editor of Bulgaria’s Manager Magazine and an Associate Professor in Human Capital Management.

According to Savov, they are an exclusive representative of Harvard Business Review and MIT Sloan Management Review for Bulgaria. Personalities such as Warren Buffet, Alvin Toffler, Jack Welch, Bill Gates, Philip Kotler, Jim Collins, John Kotter, Dave Ulrich, Steven Covey, Michael Hammer, Keniche Ohnae and many more leading experts in the field of management and economy have been authors or interviewees in their magazine.

Now a new name has been added to the list – our own family business expert, Don Schwerzler, founder of the Atlanta-based Family Business Institute and the web organization Family Business Experts.com

Here is a copy of the Schwerzler interview conducted by Vency Savov:

What do you say to those who claim that the family business is a business like any other, with the only difference being that the shareholders are from one family? What are the advantages for a business being managed by one family only?

In general, I would disagree with the premise behind the first question because I think it is overly simplistic. After forty years of studying and advising family business entrepreneurs, I have learned that you cannot lump all family businesses into a single category.

In many family businesses, the management style is grounded in a “mom-and-pop” business model, where the decision-making process is quite different from non-family owned businesses. In the latter business model, which is generally taught in business schools, company managers talk about rational problems and make rational decisions. In many family businesses, the decision-making process for rational problems often results in emotional solutions because decisions are being made to accommodate the needs of the family or a family member.

In mature family businesses that have evolved and developed a more professional, formalized management structure, there are fewer distinctions between family and non-family organizations. However, when family members are involved in the day-to-day running of the business, it is important to understand that they are in the business of relationships. Without those family relationships, the challenges of running a family business are no different from those faced by non-family businesses.

In regards to the second question, the main competitive advantage a family business has are shared values, a shared culture and a shared commitment to making the sacrifices required to help the business succeed. This is especially so in the early years when there typically is a scarcity of money, time and resources.

 

What makes the family business sustainable? There are many examples of family companies that have been active for a hundred years.

A good question, but there is no single magic formula. Again, it is important to realize that every family business is unique. A strategy that works for one family business can be a disaster for another.

As a rule of thumb, about 30% of family businesses successfully transition to the second generation; about 12% successfully transition to the third generation; and only about 3% successfully transition to the fourth generation. Typically, the family businesses that successfully beat those succession odds tend to be learning organizations. Among other things, they have learned how to adapt to change and are able to do so quickly. One trap that family businesses often fall into is operating in a hermetically-sealed environment where new ideas and strategies are never discussed, much less implemented.

One sure-fire strategy for success is to develop a family business advisory board.  A family business advisory board can be a safety net for both the family and the business, should the business owner die or become incapacitated. Some of the issues where the advisory board can be helpful:

Continuing disagreements between family members

Broken communication between generations

Narrow-minded views about issues

Emotionally charged decision making

Problems attacked without objective perspectives

Distorted assessments of each other’s talents

Loss of commitment to the family and/or business

Questioned motives

Analysis paralysis

I usually recommend that the family business start with one outside advisor to learn how to accept and implement advice from outside of the family.

 

Can anyone start a family business, or should one possess a special set of qualities and perspectives? If so, what would those qualities and perspectives be?

Anyone can start a family business – but most fail!

When I am asked why family businesses fail, people generally expect me to blame the usual line-up of culprits that prevent growth and profitability; issues such as cash flow, insufficient capitalization, product quality and reliability, customer service, management infrastructure, communication, management alignment, employee empowerment, and planning – just to name a few.

With family businesses, I like to think in terms of “responsibility diffusion.” That can occur when there is an overlap of roles between family members who work in the business and those who do not. Family dynamics that can influence responsibility diffusion include:

Family dynamics and diffusion of responsibilities

Fear of causing hurt feelings

Sibling relationships defined by birth order, gender and education

Lack of knowledge or understanding about some segments of the business

Lack of formalized communications, meetings and infrastructure

Fear of being disrespectful

Lack of training in working together as adults; thereby creating a tendency to revert to parent and child roles in making decisions

Perceived lack of economic parity gained from the business by family members

Examples of the influence of responsibility diffusion abound in almost every element of a business. In recent years, many business experts have focused attention on the level of "service" a business provides to both its internal and external customers. Service assessments of a business can provide an interesting platform to discuss responsibility-related issues because the discussions can cascade into so many crucial elements of a business. Some elements of service include customer service, customer care, customer relations, sales, and business development.

 "Poor service" can be measured by many factors such as a reduction in new customer acquisitions, reduced repeat business from current customers, demands from customers to reduce price because of service-related issues, and most generally, a high level of frustration by the customer constituency.

 

How can one motivate his/her sons and daughters to take up the business of the parents? Do the mothers and fathers need a specific approach to achieve that?

It is a natural desire for parents to want their children involved in the family’s business. But as one client observed, “Having the kids involved with the family’s business, when everything is going well, is like heaven on earth. But having the kids in the business when there are big problems, nothing could be closer to hell on earth!” That is a sentiment that resonates all too well with every family business owner!

In general, I recommend that children work outside of the family business for 3-5 years so they can see and understand how other businesses operate and gain a broader perspective that they can never gain if the only business they know is the family’s business. Working outside of the family’s business is a great “seasoning” process that allows the next generations of leaders/owners to gain experience and maturity. As one client remarked, "Working outside of the family business makes good sense. Let the kids make their mistakes on someone else’s payroll!"

 

When children enter into the family business, should they start at an entry-level position or start at the top?

Many traditionalists would consider my approach radical because I see the “Nexters” (my term for the next generation of leaders/owners) as a wasted resource in many family businesses. From my perspective, the most effective strategy is one that engages the Nexters in the change management process. When Nexters are locked into a "slot" somewhere down on the organizational chart, they face the boredom of what I refer to as the "tyranny of routine." In many family businesses, the Nexters wind up working “in the business” rather than working “on the business” – and that is a major difference in moving the business to the next level of growth and profitability.

“Who should have the responsibility for managing the succession process?” is a question I pose to family business owners. My answer: the Nexters!

The problem for many families in business together is how best to involve the Nexters in a proactive role in the succession process. That is especially true for the parent generation that is too busy running the business to deal with the perceived hassles associated with the succession process; i.e., lawyers, accountants, financial planners, valuation experts, and other professional service providers that may need to be engaged in the succession process. 

Just as the family business owner assigns managers to be responsible for marketing, sales, production, accounting and finance, it can be a smart option to assign the responsibility for managing the succession process to the Nexters.

Does that mean the Nexters can use that assignment to do their own thing? No,  of course not. They are charged with the responsibility for managing the family business succession process. Succession is best accomplished as a collaborative effort between and amongst generations, and it is managed best when viewed as a process, not an event.

Another question for Nexters to consider is how best to prepare the family’s business for succession. The focus for succession is generally outward, as the business marshals the resources to do the financial, tax and legal planning. I think the Nexters, as part of the succession management process, should invest time and effort into an inward assessment to better understand what needs to be done to improve the efficiencies and effectiveness of the business. What new strategies need to be designed, discussed and implemented to improve the competitiveness of the business? Other considerations include new technologies, retooling the operation with new and better equipment, expanding into new markets, developing new products, or moving into new facilities.

Said another way, the family business succession process has traditionally been focused on being transitional; but I believe succession time for a family business should be both transformational as well – and Nexters can play a significant role in achieving that objective.

 

What are the hidden land mines of the team work, based on close family relations? How can they be avoided?

When I take on a new assignment as a family business troubleshooter, one of the first assessments I make is whether my client is a “family first business” or a “business first family.” While the problems or issues may be described in the same way for each of the two models, the solutions will be very different. Furthermore, much of the internal conflict in a family business comes from family members that have opposing views of the motivation driving the business. For example, a dad might make decisions by putting the business first, while the mom argues that business decisions ought to be made by putting the family first.

The two areas we are most concerned about when we are talking with our clients about succession planning and succession management is the professionalization of the management style of the business and the formalization of the communication system for the family. Those two critical areas are responsible for generating most of the problems that family businesses encounter. They are the keys to being able to grow the business successfully while maintaining healthy family relationships.

Part of this equation is what I refer to as the “dualism dynamic.” Let me explain. If you are going to create a mission statement for the business, FIRST you should create a mission statement for the family. If you are going to create a business plan for the business, FIRST you should create a business plan for the family. If you are going to develop a succession plan for the business, FIRST you should develop a succession plan for the family. In other words, the planning process for the family should be driving the planning process for the business.

 

Can one learn about family business in a university? If no, what are the reasons for that? If yes, what is the specific knowledge that a specialized training can provide?

One of the most important life-lessons is learning to think clearly. People in business need to know how to assimilate information and then make good and ethical decisions. University experience can encourage that process, regardless of curriculum. The downside to a college education, especially for Nexters, is not being able to apply what they have learned to furthering the success of the family business. For instance, as a family business grows in size and complexity, the management style of the business needs to become more sophisticated, and trying to solve new problems using old solutions or old techniques can wreck a family business and damage family relationships.

 

Should the internal company rules be applicable to both family members and employees with no affiliation to the family that owns the business? What management principles should be applied towards both categories of employees?

Family business owners tend to be very aware of external factors that can adversely impact their businesses including dealing with customers, vendors, distributors, bankers, government regulations, etc. But the internal threats to the business are just as problematic if the issues are not recognized and resolved. The key to building a successful team is understanding that there is one set of rules that apply to everyone, that family members are not exempt from the rules that govern everyone else. Having a Managers Handbook and an Employee Handbook is good risk management because it can help the company avoid litigation.

 

In your opinion, what kind of personality is best at managing a family business? What can we learn from that person?

My family business heroes are those passionate entrepreneurs who work day in and day out to create a successful family business and build a lasting legacy for their children and grandchildren. They not only understand how to run a company, they also know why they are in business. Moreover, the contributions that family business entrepreneurs make to the national economy are significant. In the USA, it is estimated that family businesses contribute about 60% of the GDP (Gross Domestic Product) and are responsible for creating most of the new jobs!

 

 

What advice can you give to our readers who are first generation in a family business? (The market economy in Bulgaria has only a 20-year history, and for the time being, family businesses in that country are primarily first-generation management.)

Here are ten tips for first-generation family business owners:

1. Differentiate family issues from business issues. Ask yourself if you are a family-first business or a business-first family?

 2. Explain business functions and strategies to family members who are stakeholders in the business but don’t work in it.

3. Facilitate the formalization of business functions and controls, establishing better processes for the entire management team

4. Encourage personal growth and development for yourself and members of your team.

5. Create a family business advisory board.

6. Take time to become more planning-oriented, and avoid the pitfall of always reacting to problems.

7. Gain a better understanding of the strengths and weaknesses of your organization – and know that today’s plan may not be best for tomorrow.

 8. Set goals and action plans that will ensure the sustainability of the business.

 9. As part of your business valuation, learn and seek advice about factors that would increase or enhance the value of your company.

 10. When conducting new employee orientations, explain how family values impact the decision-making process in the company.






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