Notes from the Family Innovations Summit

Written by Pierre duPont

cornell-2018-0523-0105Thanks to Daniel Van Der Vliet and Cornell’s Smith Family Business Initiative for a stellar event earlier this week. This was a day of private discussions between family-owned businesses of all types and sizes – from some of the largest in the world with 20-50 family members to some small and with only two or three family members.

Across all the sessions, I heard one overriding message: communicate with your family about your business and understand your family’s views and needs – now. Do it openly and as soon as possible, as the business starts and grows, and even if the business is large or it appears to be too late to start such communications. And do this whether you think your family (and the business) needs it or not.

Another message seen clearly: many families with successful businesses have visible and not-so-visible dysfunction, and that dysfunction can create nearly-insurmountable hurdles for continued success or a leadership transition to the next generation. And yet, dysfunction CAN be overcome as we heard several times.

In one case (all will remain anonymous given the incredible amount of openness, and even raw emotional pain, expressed by some of the participants) we heard of several older generations of the leaders in a family-business who appeared to want to limit the continuing success of the company – the next-gen leader overcame this across ten or twenty years through perseverance, many creative ideas, standing ground when faced with strong family pressure, and even by walking away to force the family’s approval of the desired business-change. The result? A household-name business expanding in new directions and generating new levels of success, to the benefit of the whole family.

In another case, we learned of a family faced with discord amongst the older leaders at the top of a large and prominent global company. The discord was clearly hurting the business, so the next-gen came together as a whole to drive leadership changes and new family-control-mechanisms which proved to be the right steps for all generations and for the business itself.

We learned of family-communication done well, too. There were several examples of 20-something and 30-something children who were given leadership roles in their family businesses, and who then rose to the challenges of evolving markets and changing technologies – with appropriate guidance from their parents to the youngers, and from the youngers to their parents.

And we heard an illuminating example of a very prominent family where the elder-generation cousins who lead the business meet regularly to have their business arguments and ‘family squabbles’ behind closed doors, rather than in the public view.

Tactical advice was given by two family-leaders regarding how to strengthen multi-gen families and their businesses, and how to head-off or repair the dysfunction that can arise: engage external family-business advisors/consultants/therapists early, whether or not you think you need to do so today. I was pleased to hear this said several times, confirming the value such external and independent advisors can have – partly that value arises because such advisors have no ‘horse in the race’ (and be sure to look closely for that – sometimes there are hidden agendas and unclear profit-opportunities for external advisors), and partly it arises because the better advisors have seen and learned from many situations.

Contact Daniel if you are a family business who might like to participate in future events like this week’s. And even if you don’t want to participate, I am sure Daniel will welcome calls (as do I 🙂 from family-business owners (whether you are the older generation or a younger generation) to talk confidentially about successes and challenges and failures – lessons can be identified and shared, and paths-forward found, just by talking it through with a suitable outsider.

Pierre duPont is an advisor, entrepreneur, investor, partner and business owner.

Leadership Lessons from a Family Business CEO

Submitted by Ujjval Shah, MBA 18

Imagine being a part of the fourth oldest family-owned brewery in the United States, having brewed beer since 1888. That’s what Nick Matt (MBA 73) came to when he was called upon to lead the then-struggling Matt Brewing Company in 1989. Having been on track to be the CEO of a much larger company – Richardson Vicks (now purchased by P&G) he made the call to leave that job to steward the family business out of troubled waters. Ask him now how he made that decision and he says with a smile “it’s about family, there’s a 100-year-old family run business that might go under and so you’ve got to step up.”

Things weren’t easy for him though. Notwithstanding the multi-million dollars the company was losing year over year, there was also the situation of Nick becoming the chairman by replacing his older brother, who would technically work under him now. Nick describes this shift in power as “awkward”. This is something many family businesses have to go through. Balancing work and family is delicate and Nick says the key is to be sensitive to people and their needs. Moreover, having worked in a major multinational before coming to the family business, Nick came in with a lot of confidence and that he says helped rally his employees and family behind him. Says Nick “I had a lot of sleepless nights but no one knew that. I had this never give up attitude which I think percolated to everyone else.” He also mentioned that to succeed as a leader it’s important that people see you as authentic which is his secret to being comfortable with leadership.

As we got to talking more, the beer flowed and so did time. Nick has this playful, almost childlike, demeanor which immediately makes his audience comfortable. Being the modest individual he is, he accepts the role of serendipity in his success at the brewery. “We decided to put all our resources behind Saranac – a product only responsible for 2% of our sales at the time. It is pure chance it worked out. No one could have predicted how the craft beer market exploded” he says.

Soon it was time to make our 2-hour journey back to Ithaca and we asked him for a parting word of advice for newly minted MBAs like us. He said “Never take business decisions without proper research. Knowing your limitations as an individual as well as a leader is imperative so that you can consult more knowledgeable experts and take the right decisions.” Being eager to learn Johnson MBA’s we did just that and asked for his expert advice on the best freshly brewed beers to take back with us along with our memories.

From left to right: Virginia Dellizzotti (AMBA ’18), Ujjval Shah (AMBA ’18), Nick Matt (MBA ’73), Chris Massari (AMBA ’18)

Flocks, families, and organizations

One of the greatest contributions of Bowen Theory to the understanding of groups (families, organizations, or societies), is the following: the functioning of the individual is governed by the group. Theory also points out that if an individual can raise his functioning in relationship to other group members, others predictably raise their functioning as well, bringing the whole group to a different level. This reciprocal influence represents an aspect of the emotional system at work.

If this postulate is true, this mutual influence between the individual and the group should be observable not only in humans, but in other groups in the natural world. Not surprisingly, scientists that study group behaviors (in humans and non-human groups) have described this phenomena. Among them, Ian Cousin (1) in his account of animal migration says: “If one individual is confused, it can follow others. When its own magnetic sensing or memory is stronger, it in turn becomes influential. So you have ever changing leadership according to the quality of information each individual possesses.”

The dialogue between Bowen Theory and natural science can result in an increased understanding of groups and how to navigate the challenges of being an individual while being part of the group. Discussing differentiation of self and anxiety as two main variables influencing this process contributes to comprehending the mechanism by which this unfolds. The conversation brings new light to important concepts such as leadership.

Michel Kerr (2) nicely summarizes the link between Bowen Theory and learning about groups in the natural world: “Striking parallels exists in the interactions of cells, ants, mammals, families, organizations and communities. Relationships systems at all levels respond to anxiety in predictable ways. Chronic anxiety can transform orderly cooperation into disruptive conflict. The keys to applying this knowledge are fathoming how a system works and one´s part in it. Bowen theory is sufficiently accurate to provide a reliable blueprint for change.”

References:

  1. Explorers. Bio. (n.d.). Retrieved from http://www.nationalgeographic.com/explorers/bios/lain-couzin/
  1. Kerr, M. (2001). From the Editor. Family Systems 5(2), 98-100.

______________________________________

Dr. Mariana Martinez is faculty at the Bowen Center for the Study of the Family in Washington, DC.

 

Developing the Next Gen

2015_1393_083_select

The Family Business Consulting Group has compiled a helpful list of recent articles aimed at development of the next generation. Shared here are their 10 top articles written by their team:

  1. Introducing Teens and Young Adults to the Family Enterprise
  2. Family Champions: Energy for Success
  3. Vaccinating with Values: Family Business Antidotes to “Affluenza”
  4. Developing Next-Generation Leaders in Family Business
  5. Empowering the Next Generation with the Future
  6. The 80/20 Rule: Balancing Ownership and Management Responsibilities
  7. Achieving Balance: Individual Rights and Family Interests
  8. Passing the Baby: The 8 Must Haves of Successful Continuity Planning
  9. Enabling Incompetence Among Family Employees: Good Intentions Gone Awry
  10. Next Generation Development with a Mentor Team

Leveraging the Power of Peers

A recent article in the Harvard Business Review lauded the positive influence that peers can play. Peers were cited as the “single most neglected level of change.” A true group of peers exerts an even greater force for change which is why these groups have been so successful for most. Many high performing organizations such as Southwest Airlines and Apple have turned to internal peer groups in recent years to help develop their leaders.

For those in family business, peer groups can be a highly effective means of vetting ideas, seeking confidentiality and bench-marking their business against others. A well-formed peer group is assembled with careful detail to insure that all have something to contribute as well as take away from each meeting. While the advice an owner or business leader receives in a peer group is non-binding, the power of the peer relationship eventually calls for some level of action.  Coming to the group month after month with the same persistent issue is rarely tolerated.

There are many other peer groups or quasi-advisory boards that vie for an individual’s time. These can be very local, regional or even virtual. Joining a group is a matter of your ability to invest the time and capacity to be sure you get the most out of your experience.   Beware of groups that may be too large or transient (members continually changing) as it will affect the level of confidentially you will experience in a group. In my experience, we have found that smaller groups (6-8 members) tend to yield a higher level of dialog, accountability and return on investment. Having a professional facilitator keeps the discussions and agenda on track from meeting to meeting.

What a peer group isn’t? What a peer group is?
Sales leads

Gripe session

Dirty laundry airing

A free-for-all

Self-centered

Peer pressuring

Secretive

Confidential

Provocative

Informative

Supportive

Challenging

Structured

Consistent

 

The number one trigger which causes an executive or business leader to join a peer group is the realization that it is lonely at the top, and even on the way to the top. For those aspiring to leadership in their firms, sharing that journey with others is fundamentally important. The individuals I have worked with have indicated that the most valuable aspects of being in their peer groups was an increased understanding of the management of the business, improved communication with other family members, and the associations of other interesting family businesses.

At the Smith Family Business Initiative, we have two such peer groups.

  1. Global Emerging Leaders in Family Enterprise – this two-week summer leadership program assembles global business peers to delve into family enterprise, entrepreneurship and global business.
  2. Cornell Family Business Network – forming in the summer or 2016, recent alumni will gather virtually to further their understanding of their role in the family enterprise, whether currently working in the business or not.

On Tuesday, May 10, from 11:00 a.m. – 12:00 p.m. EDT, we will offer a free webinar to explore this topic further. Registration is required.

 

Enduring lessons after 50 years of A Charlie Brown Christmas

 

A-Charlie-Brown-Christmas-image

A-Charlie-Brown-Christmas-image

The holidays abound with traditions. It’s the time of year that draws people together and we gather in the familiar. For many, A Charlie Brown Christmas is a part of those traditions, a simple story of a beloved awkward boy and his gang of friends that most of us can relate to. And while Charlie Brown celebrates his 50th Christmas this year, I’m glad to report he’s still a little bit older than I. Charlie also learns a few valuable lessons each year, both business and personal.

There is no script – Despite best intentions of trying to be the disciplined leader of the school Christmas pageant, Charlie’s best efforts do not get everyone on the same page. While Charlie is all business, the cast simply wants to improvise and have a good time. A little of both is needed, but the best laid plans always go awry. As Jay Walker shared recently, “the business plan becomes obsolete once the first customer shows up.” Be flexible, savor the moment, and always move forward.

Believe – Charlie sees something in his beleaguered tree that others do not. It was natural, simple and just in need of “a little love.” Charlie stands by his choice and others begin to believe as well. Belief is a transformative action; benefitting both the giver and receiver. Whether it’s believing in your product or service, believing in yourself or someone who needs a lift, it takes courage and patience.

Focus – Chaos abounds. In business, we are taught to seize opportunity at every chance. In life, friends and family can pull us in every direction. Yet, having the discipline to prioritize and create calm amidst the clutter is often what separates success from stress. Linus draws everyone back together to remind us all what the Christmas season is about. Regardless of your religion or beliefs throughout the year, find some time this season to give calm to yourself (and your friends and family) and reclaim what fuels your passion.

From Entrepreneurs to Enterprises to Extremophiles – Why not all family businesses are small, and why others last for more than one hundred years.

NOT ALWAYS SMALL

There is a common myth that family business equals small business. It’s natural. Family is the building block for most of what we know. Early memories of trips to the corner store, the local hardware shop or the town garage and getting to know those proprietors personally frequently fuel the notion that family businesses are small businesses and vice versa.

While many family businesses are small, they are also mid-size, large, and even huge. In most countries around the world, family businesses are between 70 and 95% of all business entities and often dominate their industry sectors. Regardless of size, these firms have retained what makes them distinctive, family. From start-up, where 77% of all new business ventures established in the United States are founded with significant involvement of family in the business, to the more mature and successful, family-controlled firms now make up 19% of the companies in the Fortune Global 500, up from 15% in 2005.

What makes family businesses unique? The alignment of family, ownership and business can create strategic advantages and the ability to make adjustments to the market quicker and seize fleeting opportunities. Furthermore, a shared history and social bond often pull families towards sustaining their legacy. These can be counter-productive as well. Knowing when it’s time for an owner to exit the business or even when the family must sell can be excruciatingly painful decisions.

FAILURE, SUCCESS or SUCCESSION

Welch Allyn, one of the foremost medical products manufacturers, has been in family ownership for 100 years and four generations. A global leader in the innovation of diagnostic devices, they have also remained a family owned business, until recently. With significant changes in the industry and consolidation in the global marketplace, the Welch Allyn Board of Directors, together with the Allyn family, decided to sell its interest in Welch Allyn to Hill-Rom for $2.05 billion. “It was an agonizing decision,” states Eric Allyn, Chairman of the Board of Directors, and great-grandson of William Noah Allyn, who founded the company with Dr. Francis Welch in 1915. A decade ago, Welch Allyn transitioned from family-owned and family-managed, to family-owned with non-family management; since then, it has been led by a non-family CEO, and a majority independent Board of Directors.  Although the new governance structure worked well, major changes in the US and global healthcare markets changed substantially forced the company to consider a sale.  “The healthcare landscape shifted so substantially that we could no longer compete on a global scale. We needed to think about what was best for the company, and truly had to put the needs of the Welch Allyn ahead of the desires of our family,” said Allyn. “We loved owning Welch Allyn, and it was painful to realize that its future would be better as part of a much larger, multi-billion dollar company”.

Not all families are as honest with themselves. By the second generation, about 70% are no longer in family ownership, only 12% pass into the third generation and less than 3% endure into the fourth generation or beyond. Many of these businesses are successful and sell, much like Welch-Allyn, but many fail miserably, often bringing the family down with it (see Anheuser-Busch, Gucci, Market Basket, et. al.)

Creating lasting success is the goal of many, if not every business, regardless of size. Ernst and Young recently completed a survey of nearly 2400 of the largest family owned businesses in the world (figure 1). They key factors that often led to sustained success for many of these businesses; having a clearly identified successor, implementing numerous levels of governance, and communication within the family. Additionally, family businesses are creating opportunities for females, specifically daughters. Currently, 24 % of family businesses are led by a female CEO or President, and as many as 70% of family businesses indicate that the next successor is a female.

Figure 1.

ey-secrets-to-lasting-success

Source: Staying power: how do family businesses create lasting success? EY Report 2015

EXTREMOPHILES?

While the challenges to business and maintaining harmony in the family are many both here in the U.S. and abroad, most do not face the challenges of starting or sustaining a business in emerging markets. Many see the opportunity of those emerging markets from afar; 58% of small to medium enterprises are looking to emerging markets to sell their goods. Yet for those that face the reality of operating amongst political strife, financial turmoil or environmental crisis on a constant business, their daily reality is much different.

Even still, these businesses find a way to survive and even thrive amidst the chaos. A new term has emerged for these businesses, extremophiles, a phrase coined by Devin DiCiantis of Lansberg Gersick.  Why do family businesses make natural extremophiles? According to Devin, their investments extend beyond the high risk episode, they are skilled at tactical triage AND strategic planning, they have strong ties to a city, country or region which often pre-date the current episode and they possess robust social networks. And, like most successful businesses everywhere, they have found necessity is the mother of invention.

FAMILIES in BUSINESS across CORNELL

On October 9, the Smith Family Business Initiative (SFBI) and Cornell University will celebrate “Families in Business across Cornell” day. The inaugural Families in Business across Cornell Day will be a full day celebration on the Cornell campus and will showcase the range and impact of family enterprise, from entrepreneurs to global enterprises and legacy families. Alumni, business owners and students are all invited to take part in this day-long series of keynotes, networking and workshops. Registration is open to all.

Founded in 2014 from a generous gift from John and Dyan Smith, the Smith Family Business Initiative provides education, networking and research for family business owners, successors and students from across the globe. Now entering its second year, the SFBI has established the Johnson Family Business Club, now with 90 members, and created numerous connections with campus supporters, Cornell alumni and educational partners. In July of 2015 the SFBI completed the first iLEAD program, a 20 immersion program with 20 next generation leaders from the US and China. For late 2015 and early 2016, a series of executive education programs will be delivered to a network of Latin American business owners as part of the Owners and Officers Institute in Miami.

John Smith, MBA ’74, and Chairman of CRST International, shared upon announcing the gift, “It is in the best interest of family businesses and the country for these businesses to be carried on for many generations. With a focus on family businesses at Johnson, good research will be conducted, educational seminars will address the unique needs of family businesses, and prospective students will be drawn to Johnson because of the family business expertise on campus.” Dyan Smith adds.

“One of the main reasons we are moving forward with CRST remaining within our family is because of education. The initiative is the next step to putting Johnson in the forefront of family business management.” (Cornell Chronicle, Jan. 21, 2014) The history of the Smith family business traces back to its entrepreneurial founder, Herald Smith. In 1955, Herald and Miriam Smith started Cedar Rapids Steel Transport out of a refurbished chicken coop they bought for $125. At the time, they had no trucks and no customers, but Herald, known as “Smitty,” convinced firms he could save them money. He contracted with owner/operators who were hauling livestock to Chicago to return to the Cedar Rapids area with loads of steel instead of empty trucks. Family owned to this day, CRST has evolved from a trucking firm to one of the nation’s leading providers of transportation solutions. (CRST website)