The Ultimate Legacy

Passing Down the Farm

Planmaker

Someday It'll All Be...Who's?

Home





Surviving Survival

5 Key Approaches to Managing Success as a Family Farm

Home


 
Family Business Management Homeabout usEvents & NewsBrochures and ExcerptsPrograms for GroupsVisit our Bookstore!contact us



click to see larger image
1997 Donald J. Jonovic, Ph.D.
All Rights Reserved.
The Ultimate Legacy
How Owners of Family and Closely Held Businesses Can Achieve Their Real Purpose
Donald J. Jonovic, Ph.D.


Buy Online Now!


(Forward)

This book is not focused on achieving a smooth family business succession, nor is it centered around special techniques for growing a closely held business. It does deal with issues related to growth, profitability, and succession, of course, because they are closely related to achieving our objectives as business owners. The real subject, however, is more fundamental than even these important issues.

We can have many reasons for being in business:

Because we must.
Because it's what we know best.
Because we love what we do.
Because we want to assure career opportunity for our heirs and descendants.
Because we're committed to our partners, employees and our community....

Fill in your own blanks. The reasons for remaining committed to a business are, in fact, as varied as the population of business owners.

Underlying all the reasons, however, is a central purpose, a purpose that justifies commitment to our businesses despite the stress, frustration, and risk we face every day. Beneath all the logos, product lines, price lists, and organization charts, a business is an investment of precious capital for the purpose of achieving a return on that investment. There may be a lot of reasons for the existence of a particular business operation, but, without that return on the value invested by the owners, that business has failed to achieve its purpose.

This is Economics 101, I know, a seemingly bald statement of the obvious. Even so, I've learned over a quarter century building my own business and working closely with business owners that periodic restatement of the obvious can be a very healthy exercise. There's an old saw in agriculture about the farmer who won $3 million in the state lottery. When asked by a reporter what he planned to do with the money, he replied: "That's easy. I'm going to use it to farm, and I'll keep farming 'til it's gone."

With the pressures and intensity of business ownership, to which most of us add enjoyment, enthusiasm, and even habit, it's all too easy to drive forward, day after day, keeping on "farming" (until it's gone.) Business ownership is an extreme challenge, even for the most able and committed. Markets are volatile, competition is unrelenting, governments (even the most capitalistic, it seems) are intrusive and confiscatory. Tough as things are, though, we know these challenges can be met. We meet them successfully every day.

Ultimately, our most critical responsibility as business owners is not meeting the endless challenges in the business environment. Much more critical, and important, even, to survivability of the business, is giving continuing care and attention to our real purpose as business owners: preserving owner value for ourselves and for all stakeholders in our businesses. Managing this value, not merely the business itself, is what will ensure adequate investment returns for ourselves and our "ultimate legacy" to those who follow.

Without this focus on value, owners will almost inevitably disagree on results and direction, boards will remain fictional or paralyzed, managers will drift and dissipate essential energies, and the business will fail to respond to challenges in the environment. This is the true chain of failure in family and closely held businesses.

Value can be defined many ways by business owners, but in order to be preserved, it must, in fact, be defined. Value can also be preserved in many ways, but we must agree on those "ways," too. These are important issues that provide focus for what I discuss on the pages and chapters that follow.

It is the preservation of wealth and opportunity, not just successful management of the business, that will assure our ultimate legacy.

DJJ

August 15, 1996

Chapter 3: Understanding the Players

(Excerpt)

The meeting was showing no signs of running down. Jack glanced surreptitiously at his watch and wondered, again, if the battery had died. One of the outside directors was droning on about coming changes in the supplier relationship. Everybody else listened politely (and, Jack thought, a little vacantly) to these observations they'd all heard from him before at prior meetings.

Jack's eyes stopped at the head of the table, on the familiar face of his father-in-law. Joe gave every appearance of rapt attention to the director's words, the warmth in his eyes reflecting the long years of friendship between the two industry statesmen. Respect for Joe was universal throughout the company and he had earned the same from just about everybody in the industry as well. From the day he founded the company, 30 years before, to this moment, when he presided over a $150 million international manufacturer, his guidance had been firm and visionary.

Well, Jack reminded himself, not quite to this moment. Those so-called "changes" were actually world-shattering revolutions. Joe simply didn't see it. One of the builders in his field, he was now blinded to changes in his own industry which were as obvious as the rising sun. Why I left IBM to work for Joe I'll never know, Jack thought glumly. He brought more outside experience than anyone else in the company, yet Joe simply thought of him as a "manufacturing type," who didn't understand the nature of entrepreneurship. Whenever Jack tried to discuss what he saw as a potential strategic threat, Joe would smile patiently and tell him he needed more time in the industry to get a better perspective. You worry too much, Jack, Joe would advise him. And you, Old Man, don't worry enough! Jack and Joe each have business "visions." So do the directors in that room. Same company. Same facts. Very different conclusions.

We all have visions. The very role of intelligence, in fact, is to construct a meaningful reality (i.e., vision) out of the bloomin' confusion that surrounds us. To make sense of things, and to be able to act effectively, we build frameworks in which to fit the important facts, which we also carefully select for "relevance." It's an obvious, but little considered fact that we are all separated from the outside world by a wall of flesh. Years ago, my doctoral research focused on the process of converting raw sense data(light waves, pressures, molecular shapes(into such brilliant results as Picasso paintings and Cole Porter compositions.

If each of us constructs his realities out of raw sense data, I reasoned (as had many others before me), to communicate effectively, we each need to have an accurate understanding of each others' reality. Complete understanding of another's reality is impossible, of course, but it is possible to discern general outlines, certain color schemes, overall themes in the way others approach the world. If we could achieve this sort of outline understanding, we could increase the probability that any discussion about decisions we needed to make will bear fruit. This isn't just theoretical psychology. It's a prescription for communication that can be very effective in developing agreement. While this understanding may never be complete, we can make a significant start. In working with clients, I generally start from basic templates developed over many years spent working with successful people,who, despite their unique personalities, tend share some consistent outlooks, based upon the role they play.

What follows are my personal working "templates." Inevitably, we each have our own, but these might help you refine yours: The Boss(s): I run the show We begin with "The Boss" for obvious reasons.Few men or women (maybe Federal judges on the bench, captains of ships at sea in wartime, but few others) possess the kind of power the business owner earns and eventually takes for granted. Armed with a power of control, or "The Vote," in the case of significant minority owners in multi-partner businesses, business owners hold in their hands a ring of keys to the kingdom. They have legal access to the confidential financial data. They can push business and personal agendas with some considerable influence. They can make decisions based on their own criteria and, generally, not have to explain those criteria or even justify them to nattering critics or side-line quarterbacks.

Owners are deferred to by non-owners. The bigger the business and the more wealth involved, the more this is true. They are courted by suppliers, solicited by consultants and advisors.They are cultivated by non-owner employees. They are treated with deference, if not respect, by fellow owners or partners, all of whom want to operate by consensus, not by vote, and, therefore, avoid outright conflict or disagreement. Owners are feted at Rotary meetings. They are offered leadership roles in trade associations. They are invited to serve on civic boards and are targets for "development" people looking to build boards of trustees. All of this is natural. It's one of the driving forces of western society and areal source of fulfillment for active people. It can become destructive, however, when the owner begins to confuse this respect for something like omniscience.

The Founders

For the lone founder/entrepreneur, this respect, power and influence is well-nigh absolute which, usually, is a good thing for the new business, because few new ventures could survive the confusion and waffling of a founding by committee.

Founders, generally, do run the show, and they run it very well, thank you. Their reality is formed around two simple, empirical facts: that nobody cares about their business the way they do, and that there are no free lunches. Anyone who hasn't "done it" themselves, and who disagrees with these truths, is suspect.

Successful business founders are geniuses, entrepreneurial virtuosos with an inbred artistry that allows them to juggle people, machines, markets, competitors, and customers into a stunning blur of profitable synergy. They run their businesses the way NASCAR drivers guide their machines, with an unconscious deftness drawn from technical understanding, superb reflexes, and superhuman vision.

How did I know exactly when to pass that guy ahead? I can't say. I just did it when it felt right. What's the difference. It worked, and that's what counts isn't it? It's easy to question and carp from the pits, thefounder thinks. But until you've spent the years I have hugging the groove, you'll never have the feel, that survival instinct...

You worry too much, Jack.

The Founders' Heirs

In subsequent generations, particularly after all that remains of the founder is an oil painting, this absolute power tends to dissipate somewhat, as ownership flows like sap along expanding "stirpes" or branches of descent from the original business pioneer(s). Still, even with dispersed ownership, the sense of being anointed lingers among shareholders. In multi-owner businesses, instead of an entrepreneur holding court in an office full of hard-won memorabilia and photos with the famous, power is exercised from "board rooms," co-presidencies, or "executive committees."

These multi-owner councils are made up of people acutely aware of their twin burden of business ownership and management responsibility. They attend meetings as a matter of both duty and right, to exercise oversight on issues ranging from the long-range strategy of the business to the color of the labels on the shrink-wrap package.

At stake for these second-generation owners is nothing less than the survival of the entrepreneurial vision of the founder(s). They have their feet planted in two very different worlds: the history that bredsuccess, and the future that builds on, harvests, and, potentially, threatens that success.

Their challenge is to stay upright as those two worlds continually diverge, swaying precariously, one foot on a pier, the other in a tossing boat. In the second ownership generation, the founding King Arthur has vanished into the lake and the Roundtable of Heirs now governs the kingdom. Their duty is clear.

The strategy for success, however, is not clear at all. The evident genius of the founder(s), usually deeply respected by all, functions less and less effectively as a guide. Ultimately, the Old King become less relevant, less in tune with the marketplace. The battlements remain manned and the swords are kept sharp. The only trouble is, outside the walls of Camelot the world has discovered gunpowder!

Compared to the founders, second-generation owners are more likely to see value in outsiders, strangers (but not all that much more.) Steeped in the training of the suspicious founders, they, too, are hesitant, careful. They are secretive, still, but their genius is a recognition that, important as vision is to success, the key to the future is in the detail of implementation.

People from outside (either the business or the ownership group) are no longer suspect on their face. The insiders just don't know how to select them, use them, inform them, and/or trust them. But they do need help, and know it.

As a group, founders' heirs are not as homogenous as were their forebears. Founders, no matter what their social, economic, or financial background, tend to be mavericks at heart. Their heirs, some of them, can be mavericks, too, but that's not a requirement of survival as it was with the founder. Depending on upbringing, background, and genetics, heirs to founders are more likely than their predecessors to reflect the distribution of personality in the general population, as a class.

They see the business, not as a dream to be achieved, but as a tool to be used. They have more to gain with success than the founder, true, but also much, much more to lose. Also, they are seldom operating alone, given the rarity of only children having only children. They have "partners," some of whom are like them, usually more of whom are as different as can be. Thus, the second generation adds a new strategic variable to the business: internal conflict. One of the second-generation's greatest strategic challenges is to manage inherent differences and balance competing strengths so that they add to the business rather than paralyze and destroy it.

The Third-Generation (and After) Owners

In the third generation XE "generation, third and beyond" and beyond, the Roundtable becomes a Parliament. Arthur's legend (i.e., the business history and values) is all but forgotten. If the old swords still exist, they no longer inspire confidence in the users. The grandchildren, in short, barely knew their grandparents..

The new owners want very much to step into the shoes of the second-generation old knights, but they know less of actual battle. They have been apprentices in many guilds (the summer job is really an "exposure" program), but haven't fought any important battles. They haven't been tested under fire. They work diligently to learn and to be recognized, but seldom know what it takes to be considered a player. They look at each other and wonder about many things, including who will progress faster than I, under what circumstances, and will I be able to live with the result? In fact, it's not even a real competition. They hardly even know each other, having been raised in different families, under different rules.

Like all generations of committed people, grandchildren of founders (and beyond) generally are skilled and capable. They want to preserve The Dream that drove their forebears, but, in the confusion of change and complexity, they aren't quite sure what that "Dream" is, much less how to preserve it. They surely are confused, increasingly, about who should or can make it all happen.

Still, by definition and legal right, these owners, of whatever generation, do run the show.

Or do they? We would do well to check with the others involved.

Key Realities for Owners

Business ownership provides one of the few guarantees of power, respect and influence in life. Business ownership, like royalty, tends to be a lonely experience, even in the midst of many people. Partnerships (including multiple shareholders of corporations) are difficult and stressful.

Implications

Business owners should give priority to realistic self-evaluation and listening to others. Because the power of ownership is real and significant, it can not only isolate but corrupt the holder of that power. As the slave would whisper in the ear of the victorious Roman general as he paraded through the streets of the ancient capital: "Remember, you are only a mortal."

Secrecy in the organization should be regularly examined and questioned. Too often, the stated reasons for keeping important and essential information close to the chest (e.g., competitors might use it, the employees would want a raise) are only masks for distrust. Managing the way we will be connecting multiple shareholders into an effective team is a strategic necessity. Buy/Sell agreements, objective compensation systems, shareholder vision, formal channels of communication, all are tools for making sure businesses aren't torn apart by owner conflict from within


Excerpted from "The Ultimate Legacy: How Owners of Family and Closely Held Businesses Can Achieve Their Real Purpose." ©
1997 Donald J. Jonovic, Ph.D.
All Rights Reserved.
About Us | Events & News | Brochures & Excerpts | Programs for Groups
Bookstore | Contact FBMS | Home


Copyright 2006. Family Business Management, Inc.. All rights reserved.