Five Critical Components Of Family Business Success

In 1897, Mark Twain said, “All you need in life is ignorance and confidence, and then success is assured.” In 1997, we know you need much more to achieve and maintain a successful business. While family businesses fail due to many causes, most successes seem to share similar goals. Delivering qualityproducts and superior customer service are fundamental. But as family businesses focus on these goals, other management aspects may go unattended. Make sure you don’t overlook these five critical tasks:
1. Solving problems successfully,
2. Managing finances astutely,
3. Preparing for family succession,
4. Meeting your market’s needs, and
5. Putting customers first.

The First Component:Solving Problems Successfully
Start by determining whether the problem is personal (strictly among family members) or professional  (affecting the business and possibly other employees). If the problem is a personal family problem, you need to resolve it within the family, making sure that the issues do not spill into business life. Resolving family problems within the family requires an informed, diplomatic decision-making process.

Resolving business problems also requires an unbiased, informed decision-making process to preserve the organization’s integrity. The CEO must initiate and guide each type of interaction to achieve suitable solutions -- always in a win-win atmosphere. Businesses can resolve conflicts and relieve tensions if a positive attitude accompanies open communication.

Brainstorming is an excellent way to involve others in solving problems. The ground rules are simple. Employees at all levels, or just the management team, meet in an open forum to identify the problem and then suggest ways to solve it. A neutral party should facilitate the meeting and instruct group members not to react overtly, either positively or negatively, to the proposed ideas.

The facilitator lists the ideas generated and asks for any additions or piggy-backing of ideas. Everyone should then discuss each idea to reach a group consensus. The owner may have to compromise his or her position for the good of the company and willingly accept the solution that the group votes on as best. Implementing the solution will then have employee support.

Brainstorming without criticism allows all to freely offer their points of view. Placing a value on ideas or expressing negative opinions may inhibit some from participating and limit the company’s ability to tap its employees’ potential. Criticism creates a win-lose atmosphere -- which may feel good to the person whose idea wins praise, while making others feel they have nothing to contribute.

Although many problems can be dealt with by brainstorming, serious conflicts may require the use of an outside mediator or business consultant.

Consultants or advisors can give you an objective viewpoint and share unbiased insights on management, family or employee behavior. As accountants, we can present relevant data in a noncontroversial way to help define the financial implications and pitfalls of any proposed course of action.

The Second Component:Managing Finances Astutely
Successfully creating solutions to personnel problems may seem to be a big part of your work day, but financial mismanagement or incompetence continues to be the major cause of family business failures. It is imperative to maintain your accounting procedures. Accurate monthly statements show your current financial status, reveal tendencies or trends, and alert you to both positive and negative relationships or circumstances. As accountants, we can help you interpret data so you receive a clear picture of your cash flow, equity capital, capital needs, excess cash available for investment or dividends, and relationships among your accounts, credits and debits.

The Third Component:Preparing for Family Succession
As parents and offspring mature, owner-managers generally know who is qualified to run the business in their absence. Other family members may not always agree, however. Thwarted expectations can have a devastating effect on those put in subordinate positions, perhaps affecting other personnel and lowering
company morale.

For example, the youngest son of the owner of Peacock Printing (not its real name), wanted to specialize in marketing and sales, the oldest son wanted to remain in the shop, and the middle son was nominated for chief executive officer. The family’s ability to be open made harmonious communication possible,
which led to a succession on which everyone agreed.

The father then felt secure enough to retire early. Successful today despite tougher competition, the second generation operates the business with the same
dedication to detail and quality that had been valued by their parents.

Heads of state have said, “In times of peace, prepare for war.” Heads of families might consider that advice. The time to shape, perfect and bulwark your plans for succession is when things are going smoothly, not at crisis time. We frequently see that it takes two or three years to develop a plan, resolve contingencies and make a successful transition. This is the period when mixed emotions affect owners.

Seeking to sustain the company and ensure its future as well as the family’s, senior members frequently find themselves in a family-versus-business dilemma.
Involve your board of directors, your outside advisory board, your banker and your accountant. Develop and share your company audit and valuation with your successor to fully educate and bring that person up to speed regarding your business.

Announce your successor(s) to management personnel in an open forum so they have an opportunity to express their viewpoints on your decision. This permits you to then share the reasons for your choice.

Keeping all conversation in the open will help to avoid gossiping, backstabbing and low morale. Your planning should also involve all members of the family so they understand and accept the succession decision.

“Forewarned is forearmed” applies to both managers and the managed. To protect your company and your future:
• Determine who is best qualified by experience, talent and style to lead the company in your absence.
• Prepare others intellectually and emotionally to accept and cooperate with that person.
• Prepare a succession plan, even if it takes you several years to finalize. Explain it first to those closest to you to get their feedback, adjust the plan, then introduce it to others.

Once all those concerned know and accept your plan, the continued growth of the family business will be on solid ground.

The Fourth Component:Meeting Your Market’s Needs
You may have 20 years into manufacturing a product using specific materials, and your systems are in place depending on those materials and vendors. But what happens when your customers no longer want your product the way you are producing it?

Zephyr Boat Builders (not its real name) provides an example of a family business that made changes to successfully meet its market’s needs. When examining the company’s books, management discovered a steady decline in sales. When the senior family member saw the figures, he sought the reasons behind the decline. He found the marketplace was responding to the availability of lighter, cheaper boats made of aluminum rather than wood. Alerted, the family decided to explore building boats with metal hulls, despite their huge investment in lumber. Calling a meeting of all management personnel and department heads, they brainstormed and came up with a plan to re-engineer for a new beginning.

Management attended trade shows, examined the competition and asked boaters what they wanted in a boat -- then built better boats using the customers’ suggestions. When they returned to the trade shows with their newly designed product, the large national chains lined up to buy. Cost accounting procedures were set up to make prices competitive, sales soared and morale improved.

The Fifth Component: Putting Customers First
In their book, Customers for Life, Carl Sewell and Paul B. Brown say, “It doesn’t make any difference what consultants or anybody else say is the right way to greet customers. The only thing that matters is what the customer wants.” If you value your customers, you will value what they say about anything pertaining to your business. An example of top customer service is exemplified by Nordstrom.

Superior customer service is the daily goal of 35,000 employees at Nordstrom department stores. Nordstrom authorizes every salesperson to act as a company owner, sell in all departments, help all customers and act on behalf of the company in settling many types of transactions, even complaints. The company’s organization appears as an inverted triangle, the opposite of most hierarchy charts. Sales and support staff are on top, supported by department managers, who are supported by store managers,
merchandise managers, regional managers and general managers. In the small space at the bottom of the inverted triangle is the board of directors. This hierarchy encourages employees to deliver the highest level of customer service known. Could such a structure stimulate employees in your family business?

Nordstrom’s legion of satisfied customers reinforces the concept that price alone is not the way to grow a business. World-class customer service and quality products are the two major characteristics of this success story. Flexibility and adapting to change are characteristics of successful individuals or businesses. Both are true of Nordstrom.

The Wave of the Future
Family businesses have many idiosyncratic ways of sabotaging themselves despite their best efforts. Success in the uncertain future depends on how flexible an organization can be in the face of change. Family businesses can succeed when they:
• Develop and follow a well organized five-year business plan.
• Get family feedback and create a succession plan with all the cards laid out to all the family members.
• Communicate their succession plan to the general staff as well as key personnel to help get cooperation within employee ranks.
• Conduct annual audits to validate book-keeping, review accounting procedures and analyze their market trends.
• Stay open to employee ideas for improving policies, procedures and products, and empower them to attain a partnership attitude and the highest level of quality performances.
• Emphasize and maintain excellent customer service.

Win-win problem-solving skills, astute financial management, fair and open succession planning, meeting your market’s needs and putting customers first must be treated with equal importance. If any one of these areas is ignored, your company could be facing a downturn in the near future.