All posts by Jennifer M. Pendergast, Ph.D.

The Benefit of Sharing with Other Families

Jennifer Pendergast
Jennifer Pendergast

Recently, I have noticed a trend towards more benchmarking across family businesses.  A number of clients have requested that we introduce them to families with similar issues.  While they value consultant expertise, they really enjoy meeting one on one with other families to learn what has worked and not worked for them in building the infrastructure to perpetuate their business across generations.  This type of interaction is why university-based family business groups have been so successful.  They create a place where families can get to know each other and share their successes and failures.

Yet, the real opportunity may lie in reaching out to another family on a specific issue you are trying to address.  On the topic of family business boards, for example, there are a number of areas a family might want to learn more about: how to educate next generation board members, how to develop a board that oversees multiple family owned entities, how to select family members to serve on the board, how to communicate findings and actions from board meetings to the family, to name just a few. 

You may already know a family with similar structure to yours who could serve as a good benchmarking partner.  Or, you can use a consultant or advisor to your business to help identify a benchmark candidate.  Three keys to success – clearly define what you want to study, pick the appropriate benchmark partner and look at both successes and failures. 

Make sure you know what you want to learn and have written a set of questions before you embark on finding a study partner.  This will help you to define the types of partners you want and will ensure that everyone involved in the process has agreed on the output. Then select a partner or partners that are similar to you on relevant dimensions.  If you want to study next generation board education, finding a family that has the same level of board formality, similar generational structure and similar board structure will be helpful.  What business they are in may not be so important. With a clearly defined topic to consider and a willing partner similar to you, the last key is to remember that you can learn as much from success as failure.  Ask your study partner what they did that worked as well as what didn’t work.  If they had to do it over again, what would they do differently?  Armed with this information, you will make better decisions for your family and business.

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Back to School for the Kids and the Family Business

Jennifer Pendergast
Jennifer Pendergast

As the nation’s children head back to school, many of us “grown ups” are reminded of our school days.  Some enjoyed their academic experience.  Others couldn’t wait to get out into the real world.  Regardless of your school experience, hopefully as you’ve grown older you’ve realized that learning is a never-ending pursuit, whether it be of the academic variety or the on-the-job variety.  For many businesses, back to school time coincides with budgeting time.   As you are developing your financial objectives for the year ahead, why not develop learning objectives as well?  They may be at the individual, company or even family level.  And, the objectives may be fulfilled in a variety of ways – attend a seminar, read a book, reach out to a colleague with expertise in a given area, hire a consultant. Creating the same discipline around managing your intellectual resources as you have around your financial resources should help to ensure that you, your business and your family will continue to grow.

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Adjusting ‘On The Fly’ For Unexpected Situations

Jennifer Pendergast
Jennifer Pendergast

Earlier this week, I shared some thoughts on creating a flexible system to deal with the unexpected situations that naturally occur in family business transitions.  While planning is very important to ensure successful transitions, the best plans will inevitably need to be adjusted ‘on the fly’ when circumstances change.  So, how can families create decision-making systems that can deal with the unexpected?  There are two elements to a flexible system – one is structural and the other emotional. 

From a structural standpoint, the most flexible system is one that creates a place for making decisions and rules or policies that govern decision-making.  The place for making decisions may be a regular family meeting, a family council meeting or a board meeting.  The key to defining the place is to assign responsibilities for decisions to the appropriate parties and ensure that everyone understands who has responsibility for what type of decision. 

The rules or policies that govern decision-making include the process for reaching agreement, which may be majority rule, by consensus or some other mechanism.  The key is that the process is understood and followed.  Other rules include defining who has a vote, what we will do if we can’t reach agreement, how long a decision will be binding, how often we will revisit it, and the process for overturning a decision. Many families capture these rules in a decision-making policy. 

With the place and rules for decision making defined, a family system still has one ingredient necessary to address unexpected situations.  That ‘magic ingredient’ is trust.  No matter how strong the structure and rules are, if family members do not trust each other, they are not likely to abide by the rules or the decisions made using those rules.  Trust is not arrived at by following a simple formula.  It requires working together, building an appreciation for individual differences, respecting the opinions of others and a willingness to compromise and to forgive.  Both ingredients in a flexible system require family commitment.  So, while we can’t predict what circumstances we may face in family transitions, we can predict which families will weather them best – those who have put the hard work into developing the systems and trust required to work effectively together.

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Creating Flexible Systems for Family Business Transitions

Jennifer Pendergast
Jennifer Pendergast

As my kids start the year at a new school after moving our family to a new city this summer, I find myself reflecting on transitions.  Family businesses are full of transitions – ownership transitions, leadership transitions and family transitions.  One of the reasons family business is so complex is that these transitions, which have both structural and emotional consequences, often occur simultaneously.  Just as we are dealing with an aging parent, who may require additional family support, we may also be dealing with entrusting stock to the next generation and determining how the next generation will be represented on the board of directors.   So, here’s a quick word of advice in dealing with multiple transitions, from someone who has had to open an new office, move into a new home, get children ready for a new school, support a spouse in a new job and begin to build a business network in a new city, all at the same time …                                  

I’ve found the best way to manage the complexity of multiple transitions is a combination of careful planning and flexibility.  Many of the challenges inherent in family business transitions can be predicted ahead of time.  And, often the timeline can be as well.  So, thinking ahead to identify the likely transitions you face and creating a plan for dealing with them can minimize the disruption, just like my spreadsheet with all the names of the utilities I need to cancel and start helped to keep me on track.  At the same time, we can’t possibly prepare for every potential outcome.  So, when the wireless network in my home office took three days to install instead of one, I had to find a coffee shop to work in and a babysitter to watch the kids.  Similarly, when a next generation member doesn’t measure up to your expectations or the current generation is unwilling to step off the board to make way for new blood, the family needs to adjust.  In my case, the adjustment required me to take a deep breath and look for a solution.  In the family context, the solution often involves multiple parties.  The keys to creating a flexible system to deal with the unexpected are a governance structure that supports family decision-making and trust among family members to help the group compromise on the best solution. 

Would love to hear from readers about ways they have used to create a flexible system….

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Should we encourage family employment?

Jennifer Pendergast
Jennifer Pendergast

In a recent study of large successful family businesses, I noticed an interesting trend.  Families businesses that have spent generations discouraging family members from entering the business are now developing programs to pull them back into the fold.  They have learned that in their efforts to ensure that only the most qualified members of the family entered the business, they have discouraged family interest in the business.  

While businesses only become old and successful by having strong management, family businesses also need to maintain owners’ interest and engagement in the business in order to survive as a family owned entity.  So, many of our study participants are putting in place orientation programs for next generation family members to help them learn about the business and increase the chance that the most qualified will elect to join.  Regardless of whether the family members join, the business benefits from well-educated owners who appreciate the business and may one day take on important responsibilities on the board of directors or family council.

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Loose and tight controls

Jennifer Pendergast
Jennifer Pendergast

Family businesses often pride themselves on maintaining a strong and consistent culture built on the family legacy and values.  While this adherence to a strong culture can be one of the greatest strengths of a family business, it can be particularly challenging when entering foreign markets. 

Family businesses that successfully expand beyond their country borders manage the balance of loose and tight controls.  They identify the key elements of their culture – the ones they can’t operate successfully without – and develop ways to transmit them across borders.  Transmission mechanisms may be formal – such as training programs or  job evaluations that measure adherence to culture.  Or, they may be informal, such as visits from headquarters personnel to remote locations or opportunities for managers in remote locations to visit headquarters. 

At the same time, successful international family businesses understand when they need to relax their culture to accommodate differences in international markets.  Successful international family businesses in a recent study unanimously supported the empowerment of local management to run their international operations.  Clearly defining priorities for those managers at the outset, gathering data that allowed home country management to track performance and hiring strong in-country talent were all identified as keys to success.

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Partnering: a strategy for expanding your core competencies

Jennifer Pendergast
Jennifer Pendergast

In Tuesday’s entry, I talked about the value of sticking to what you know.  But, if you follow that tack forever, how do you ever grow?  The answer is by building your institutional skills and experience.  Companies can build their base a number of ways – by encouraging family members to get great educations, by bringing in talent from the outside, by investing in training and development for employees….  All the companies in our study of successful, old family businesses leveraged these strategies – plus one more.  They were willing to do something a lot of family businesses are not – partner. Many family businesses place a high premium on control.  They are not willing to work together with other companies to achieve their vision.  Those who were willing to partner – by purchasing an interest in an existing company or starting a joint venture with another company – were able to enter new geographic markets and businesses more rapidly and successfully.

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Innovation vs. sticking to your knitting: another family business paradox

Jennifer Pendergast
Jennifer Pendergast

In a yesterday’s post, I shared a lesson from a study of large, old, successful family businesses – innovation is a key to success.  But, while companies in this study demonstrated an ability to innovate, they also clearly recognize their core competencies and stick to them.  So, we uncover another family business paradox – trying new things vs. sticking to your knitting.  How do we resolve this paradox?  As with all paradoxes, the answer is “both and” not “either or”. 

Successful family businesses are willing and able to try new things, but they select carefully when they branch out.  They choose new business areas that leverage prior knowledge and skills.  Sure, occasionally the businesses in the study branched out well beyond their comfort zone.  But, when they did they often did it with a partner (more on that in a future post).  And, many of the businesses were currently in the mode of paring back their portfolio to focus on what they do best, then innovating around that core. 

The key to successfully executing this strategy is to clearly understand what your competencies are, the ones that clearly differentiate you from your competitors, and how you might use them to take you to new places.  The fact that family business owners provide patient capital creates the opportunity to build and leverage these core competencies to their greatest potential.

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What can we learn from big old family businesses?

Jennifer Pendergast
Jennifer Pendergast

I recently had the good fortune of conducting a study for a client on the characteristics of multi-billion dollar, multi-generational, international family businesses.  While many of readers won’t fit into this category, there are definitely lessons to be learned by studying these unique businesses – and they aren’t what you might imagine…

The first thing that struck me about these businesses is how innovative they are.  Once family businesses get beyond the 1st generation entrepreneur, we often see a more careful, measured approach to running the business.  With all of the family’s eggs in one basket, the desire to take risks can decrease in later generations.  Slow, steady growth becomes the objective. 

Yet, the businesses in the study unanimously demonstrated the desire and ability to reinvent themselves to stay ahead of trends in the market.  They routinely built and acquired new businesses and, perhaps more important, were willing to exit legacy businesses.  In some cases, they acquired businesses twice their size in order to build a dominant position in the market.  In other cases, they were willing to sell off half their business because they didn’t see that business as a path to the future. 

The freedom to make these big strategic bets requires a clear mandate from the owners to pursue new opportunities and trust in a strong management team to execute the strategy

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