Entrepreneurship – ‘If it isn’t broke, break it’

http://www.ifb.org.uk/ How do owners come to terms with selling a successful business? At a dinner co-hosted by Mike Southon, FT entrepreneurship correspondent and Beermat Entrepreneur co-author, the issue was debated by a group of enterprising business people. One of these explained how he was still struggling to come to terms with the void in his professional life following the successful sale of his business a few years ago.

When any family firm faces the same situation how does the family cope with the emotional stresses of deciding a sale, possibly after generations of ownership? Is the family prepared to sell the best business they will possibly ever own? When the family name is above the door the shadow of all who have toiled to build the business looms over their shoulders.

In any family business there can also be a magic glue present –shared values that bind the family owners together. All these factors can create a compelling set of reasons why deciding upon a sale may prove to be the hardest decision the family have ever faced.

Perhaps enterprising families however, should heed the motto of the dinner’s co-host Guy Rigby, an entrepreneurship mentor whose motto in his new book From Vision to Exit is, ‘If it isn’t broke, break it’. Successful family business owners heed this good advice constantly by challenging the status quo, whether they are considering exiting or not. Regularly they ask themselves - why is the family in business together?

Following Rigby’s advice, even if a sale is not on the cards, it is vital in today's hyper-competititve markets to ensure that there is a culture in your firm that embraces change. Finally when struggling to reach consensus on a big decision, such as selling the business, you will need experienced independent directors on your board to offer dispassionate advice.

Responsible capitalism: a contradiction in terms?

http://www.ifb.org.uk/ I was an invited guest at the Prime Minister David Cameron’s speech on the market economy where he invoked a wish to see the rise of popular capitalism with a social conscience. His speech followed close on the heels of Vince Cable, Ed Milliband and Nick Clegg, all of whom have been calling for a commitment to responsible capitalism.

Nailing his colours to the capitalist mast the PM acknowledged that the pursuit of enterprise and opportunity are what lies at the heart of a thriving economy, where the most capable are rewarded for success. At the same time he wants to promote an economy where more people have a stake in the success of their business- this could be by way of share ownership, or as being part of a mutual co-operative. Deputy PM Clegg has talked in a similar fashion wanting to support more of a John Lewis style economy with employees participating in ownership.

But are the market and a social conscience compatible bedfellows? The general media frenzy around pay echoes a popular view that big business has tarnished its reputation, driven by unjustified bonuses and pay differentials and excesses that lead to the financial crisis.

Maybe the key to success lies less in whether employees have shares in their employer, but more about how companies are driven by the right set of values, creating great workplaces.

It won’t surprise readers to hear that family businesses are often the winners in terms of employee engagement and commitment - because the best firms stand out for their clarity of purpose and values. Recent research showed that family businesses inspire greater worker loyalty, and feelings of greater job security and inclusivity than all other employers in the public or private sector.

Patient capital - the elephant in the room

http://www.ifb.org.uk/ I was part of a delegation of family business owners that met with Mark Prisk MP, the Business Minister, on Monday, together with other mid-sized business (MSB) leaders for a roundtable discussion on growing the MSB sector. In the recent Government report on MSB firms (turnover £25 - £500M) family businesses accounted for nearly half, (5,000 firms) making them critical to the success of the sector. The report also highlighted the strength of many of these companies as engines for growth, but also the challenges competing with countries such as Germany with its Mittelstand of mid-sized companies.

One of the lesser known values of MSBs is their belief in the benefits of “patient capital”. At the meeting John Cridland, Director-General of the CBI, which has published Future Champions - its own report on MSBs - described the issue of ‘patient capital’ as the elephant in the room. By mobilising this capital the CBI estimates that there is the potential for MSBs to contribute an additional £20bn to the economy by 2020 creating new ‘national champions’.

Critics could argue that a speed-dating culture has emerged in business where short-termism predominates - entrepreneurs start up ventures, grow them and exit at the earliest opportunity. Quoted Plcs have also been accused of taking short-term decisions driven by the stock market’s focus on quarterly results. Short-termism has become embedded in our DNA.

On the other hand the values associated with stewardship and long-termism have been less fashionable. Successful MSB family businesses often embody ‘patient capital’ values supported by stable ownership that prioritises long-term investment, progressive employee relations and a culture of continuous improvement within their businesses. The MSB Growth review is focusing Government’s attention on this vital part of the economy – and family buisnesses will be at the forefront of this drive for growth.

Succession planning in family firms - spreading best practice

http://www.ifb.org.uk/ The press has recently highlighted criticism of family firms by Professor John van Reenen, of the London School of Economics in a Department for Business, Innovation & Skills (BIS) sponsored report on UK Management Practices, who has blamed poor succession choices in some family firms (p34) for dragging down the sector’s overall performance. Perhaps not surprisingly his research highlights that family firms whose management is chosen on a merit-based policy, have higher productivity than if recruitment of a CEO is restricted to the family gene pool.

It has therefore been pleasing to see that as a direct result of IFB lobbying the Government announced that it will work with business schools to enhance the family business management content in their MBA programmes, so that future family firm leaders are better able to deal with issues such as succession planning.

Indeed getting succession management right is critical to ensure the ongoing success of the organisation. For family firms it is especially important – to help owners the association has published a Family Business Perspectives guide on the subject and succession planning will continue to be a core theme at IFB Forum events.

We are also working with BIS to deliver additional resources to family firms, particularly mid-sized businesses, including more web based information and a new series of seminars on governance and succession planning. This call has been endorsed by Lord Heseltine (pictured), an IFB member, who advocates a stronger role for trade bodies, as is the case in Germany, by ‘spreading best practice and improving performance’.

Family business champions look to export markets

http://www.ifb.org.uk/ It was good to see family businesses taking centre-stage at the CBI national conference this week. Fiat, CEO Sergio Marchionne, and IFB members JCB represented by Corporate Development Officer David Bell and Kilfrost CEO Gary Lydiate took turns to share their success stories of business internationalisation.

They were addressing the conference theme as set out in the CBI report Winning Overseas which examines how the UK can boost its declining export performance. It was a subject also discussed by Jim O’Neill, Chairman of Goldman Sachs Asset Management who told delegates that the opportunities for growth were huge for firms focused on BRIC – a term O’Neill himself coined - and other emerging economic powerhouses including the Next Eleven.

Each of the family businesses dwelt on common themes; having a clear strategic vision underpinning the company’s export goals; training and developing the talent to deliver the plan; making investment commitments that can stretch out to long-term horizons; using wide ranging marketing tools - as simple as hosting client events in British Embassies; developing know-how and intellectual property; taking a strong ethical stance on bribery; and reaching decisions based on values – perhaps sacrificing short-term profit.

Gary Lydiate, CEO of Kilfrost, (pictured right) said he had gone “cold calling” for business in China five years ago. His advice was that “you must go and visit these places; understand the culture.”

Each of these family businesses have larger competitors, but through carefully developing and deploying their resources they all enjoy strong competitive positions and are all definitely family business champions.

Entrepreneurship in the family office

http://www.ifb.org.uk/ Family offices, perhaps driven by the need to support an expanding shareholder base, are turning more to entrepreneurship. This theme emerged at the recent IFB 7th Annual Family Office Forum Roundtable chaired by Family Office expert Daniel Goldstein.

While entrepreneurial activities are inherently risky a ‘stay rich’ approach will not usually generate big enough returns to create significant new pools of family wealth. Family offices face other pitfalls, such as a lack of new ideas or over investing, sometimes leading to stagnation or decline.

There is also the risk that family members become over dependent on dividends and are lulled into complacency and a false sense of financial security. Balancing a traditional financial investing strategy with an entrepreneurial approach can therefore play a central role in giving the family office a new lease of life.

A good starting point is setting out the family’s values - particularly making explicit the family’s appetite for risk taking. Keynote speaker and family adviser Francois de Visscher (pictured left) encouraged families to reach beyond ‘outer wealth’ such as assets and find ‘inner wealth’ embodied in the family’s values and legacy.

When successful families put family office entrepreneurship into practice they encourage those next generation family members, who have the passion, knowledge and drive, by lending them moral support and resources.

Once embarked on its entrepreneurial strategy the family office must stay focused: one boss, one team, one board for every project or investment is the answer according to one successful family. Failure should be expected, but as long as lessons are learnt it is not the end.

By each family office discovering its own entrepreneurial strategy not only can wealth be created, but family values will be sustained potentially paying rich rewards over the long-run.

Four ways to gain the best non-family executive talent

http://www.ifb.org.uk/ A recent survey by the global executive search firm Egon Zehnder International puts the spotlight on strategies for family firms to compete for top talent. Perhaps not surprisingly some of the main tips include: creating greater separation between owner and company interests, making decision making paths more comprehensible and offering stronger career prospects – with less glass ceilings. For family owners this should mean one thing - placing greater emphasis on governance to help focus on achieving these outcomes.

 

The survey has positive messages too about the family business model and how a long-term approach to stewardship helps support innovation. But conflict too often gets in the way, according to respondents, principally because of questions arising over the merit of family members working in the business. Lack of career prospects is also a major factor for those senior executives who might otherwise contemplate working in a family business. The best firms address these issues by

• improving family and corporate governance
• raising their profile promoting their corporate brand
• recruiting not only on skills, but also taking values into account
• having formal processes for integrating non-family managers

The next IFB Governance Forum in London, on 29 November, will continue this debate looking at the role of the non-executive director in upping the game in family boardrooms.