The Journal Of Exponential Results - Family Business Edition

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Founded in 2006

Vol. 1 • No. 2

www.ExponentialPrograms.com

Sydney, Australia

February 2011

FAMILY BUSINESSES COMMIT SUICIDE The average life expectancy of a family business is only 24 years.

If you are the heir of the family firm, this means the business will fail in the middle of your career, in your prime earning years - a financial disaster many people take a lifetime to recover from, if ever.

If you make it past the first hurdle, there’s more bad news; Only 3 out 10 family businesses survive into the second generation and only half of those make it into the third generation.

Family business researchers echo the sentiment that as many as 3 out of 4 of these firms could have survived had the owner/ manager possessed a better understanding of the key issues in managing change. Had they been better equipped with a strategy to handle change, adaptation, and continuity more effectively, their chances for a successful transition would have been greatly enhanced.

This is pretty sobering news when you consider that family firms reportedly account for 65% of total U.S. employment and 65% of wages paid. Worldwide, the estimate is that more than 90% of all companies are family owned and operated. In the US today, there are an estimated 1.2 million businesses that are owned and operated by a husband and wife team on a day-to-day basis

Index

Suicide . . . . . . . . . . . 1 Succession . . . . . . . 2 Fueling Economy . . 4

implying that most family businesses are small.

There are two reasons family businesses struggle. The first is their inherent structure, centered around the founder (usually the father), creates an informal, but no less dominant patriarchal organisation that is undocumented and unstructured. The second reason family businesses die prematurely is because they have no succession plan in place when the inevitable comes to pass. Most firms can’t make it through the emotional turmoil of losing the founder who is the central and omnipotent figure of the business.

30%

of all American family businesses survive into the second generation, with the majority failing when it comes to handing over to a family member following the retirement of the founder.

12

This may be why only

Coming Up

%

Tips and techniques to help you grow your business with an unexpected twist!

3

make it into the third generation and

% into the fourth.

Weather

Today – Cloudy And Uncertain . . . . . .

Tonight – Clearly Profitable . . . . . . . .

Tomorrow – Exponentially Profitable The Journal of Exponential Results • 1

PUTTING SUCCESS BACK INTO SUCCESSION Corporate succession research describes succession as a planned, rational, analytical process. Human resource professionals within the firm establish a documented procedural guideline to inform both the participants and other employees. This access to information allows individuals (potential successors) to plan and prepare for the sequential steps of the process and decide whether it is a path they wish to take. It can be argued that such a methodology, in and of itself, will enlarge the candidate pool.

Contrastingly, family business research reveals succession as largely unplanned. Most studies reveal that the majority of family firms report not having a succession plan in place, let alone one that is documented and communicated to organisation and family members. Forty-four percent of those polled in a 1996 survey of over 1,000 family businesses, said they had a formal succession plan - up from 28 percent in the previous year’s poll. However, that still means that over half of all family business owners do not have a succession plan.

Corporate Firms

Family Firms

Planned

Unplanned

Rational / Analytical

Irrational / Emotional

Rite of Passage

Critical Event Decision (Life & Death)

Renewal

Discontinuity

Relatively Minor Issues

Often a Major Issues

2 • The Journal of Exponential Results

In many cases, within-family heirs are largely unaware of the firm’s precise financial position, i.e. leverage, equity, and nonoperational investments and are consequently ill-informed to lead the firm.

“Smooth Succession” is an oxymoron... Succession in a family business is probably the most complex management challenge anybody faces.”

Family firm succession is reported to be irrational/emotional and discontinuous in nature.

Rather than a rite of passage, family firm succession is often a critical event decision based on the health of a reluctant founder to hand over the reigns to a successor. Discontinuity arises as a result of the founder’s reluctance to train and foster growth in their potential successor(s). The emotional element is fueled by both the strong presence and will of the entrepreneur and the high degree of personal identity and self-presentation invested in, or associated to, the venture. The perceived inseparability of the company from the person is at the base of this phenomenon.

Discontinuity is a by-product of the founder’s reluctance to train a successor until it is absolutely necessary. In many instances, such training does not occur until the death or removal of the founder due to poor health. Therefore there tends to be no overlap of responsibilities, or transfer of contacts or knowledge between the founder and their successor.

When a business is only the projected shadow of its owner, the value of such a business may depreciate sharply with the demise of the sole owner or managing principal stockholder. In fact, earnings may drop even more sharply in service organisations when a large part of the earnings are directly traceable to the superior personal services rendered by the owner.

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Aussie Family Firms Fuel Economy In Australia, family firms employ over 50% of the workforce with 8 out of every 10 Australian businesses being family owned and operated.

If you thought these firms are mom and pops shops, you’ll be pleasantly

27

surprised to learn that a little more than 1 out of every 4 (27%) of ASX publicly listed companies are under the control of the founding family with the total worth of those family firms exceeding A$3.6 trillion.

%

of Australian businesses that are listed on the ASX are firmly under the control of the founding family.

The total worth of those family companies stands at

57%

3.6TRILLION

A$

of Australian family business owners planned to retire, out of which only

32

%

had a successor.

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www.ExponentialPrograms.com The Journal of Exponential Results • 3

Aussie, Aussie, Aussie!!!

Family business are notorious for under-representing their family’s features in their marketing, promotion and advertising. The Australian Made campaign has been successful because one simple icon represents the brand’s positioning.

The same can be created for your family business – as soon as you determine what that brand is going to be. What will you highlight and focus on? The founder, next generation, diversity or large number of family members? Special characteristics, talents or accomplishments?

All good food for thought, but always keep in mind that this must mean something to and resonate with your target market. It must

be relevant and clearly articulated. A dental practice that announces a daughter’s graduation in orthodontics is relevant and important whereas a son’s triathlon win for a local restaurant might not be until the menu’s healthy local ingredients are weaved into the story.

Your family’s involvement in the business is one of its greatest assets – to be leveraged with authenticity and integrity.

It’s the one thing your competitors can never copy and steal from you. It’s a defensible competitive advantage that can literally last for generations and beyond. The most infamous example is Colonel Saunders and Kentucky Fried Chicken, now branded KFC.

Don’t become another…

Family Firm Fatality

Learn how to successfully transition your family business into the next generation and beyond by avoiding the mistakes 8 out of every 10 founders make and 5 out of 6 heirs don’t realise is their responsibility.

This comprehensive guide cannot be found in bookstores.

Avoid mistake #1:

Waiting until it’s too late.

Get your hands on it now at www.FamilyFirmSuccession.com

Create a legacy of family jewels and treasures Suite 303, The Trust Building, • 155 King St, Sydney, • NSW 2000 (02) 9231 2311 • www.EskaeJeweller.com.au 4 • The Journal of Exponential Results