What arethe issues that give you nightmares?Ó That was the inquiryunderlying a 1995 survey of owners of the United KingdomÕs closely held businesses. The chiefexecutives were asked to contemplate 26 questions which reflected personal, family, and businessissues, and rate their reactions on a scale of 1 (I sleep easily) to 5 (I have nightmares). Theintention was to identify their priority concerns.
The responses from 274 chief executives showed eight major areas of worry: dilution of equity,security of income, company growth, personal conflicts, family in the business, employees and equity,control, and providing for children. The responses also indicated five types of owners who sharedcommon concerns: Focused (put the business above all else), Relaxed (worried far less about all theissues than the average owner), Family (intent on keeping ownership in the family), Worried (far moreconcerned about the issues than the average), and Loner (does not want business partners or familyemployees). All five types were distributed fairly evenly in firms small and large, employing few ormany family members.
The survey was designed by the authors in conjunction with Grant Thornton, the internationalaccounting firm. A random sample of 1,950 privately held businesses were contacted. The respondentsrepresented companies from a wide range of industries, from £1 million to £50 million ($700,000 to $34million) in sales, and from fewer than five to more than 20 shareholders. More than half had fewerthan 50 employees. Some 57 percent identified their firms as family businesses, from one to fourgenerations old. Respondents ranged in age from 20 to 70.
The 26 statements were grouped into eight areas of concern, which were ranked from most troubling toleast. The top five issues most likely to generate nightmares all involved ownership or income. Theywere: 1. If I introduce outside shareholders, how greedy will they be? 2. All my wealth is in thebusiness. What happens if it gets into trouble? 3. Would outside shareholders change the way I run thebusiness? 4. How much is the business worth? 5. Could the business do better for me?
In contrast, concerns about family members working in the business appeared at the bottom of the list:22. If my children donÕt join the business, how can I provide for them separately? 23. Should I bringfamily members into the business? 24. Should I give shares to my children even if they donÕt join thebusiness? 25. Do I make my children start at the bottom in the business? 26. How do I persuade myparents to relinquish control?
Given the emotional nature of many of the issues, differences were expected between the younger andolder respondents. However, this was not the case on any issue, except for one: Chief executivesyounger than 30 showed more anxiety than their middle-aged counterparts about their ability topersuade parents to relinquish ownership, often expressing worry that it would be years before theyare given control.
Clear groupings of worries were expressed by the respondents. For example, owners who worried aboutdilution of equity also tended to worry about control of ownership. By cluster analysisÑa statisticalmethod that grouped respondents according to common responses to the questionsÑwe identified fivetypes of owners.
Focused Owners. This group (19 percent) is the most preoccupied with business performance. The respondentsplace particular emphasis on growth and increased profits, and on the commercial consequences ofdilution of equity, financial security, and personal conflict. They have no apparent concerns aboutthe involvement of family in the business, often because few if any family members are owners or areemployed in the business as managers. This type of owner, however, is likely to have nonfamily companydirectors (the European equivalent of U.S. company board members) or nonfamily senior managers asshareholders.
Relaxed Owners.These lucky owners (40 percent) have peaceful nights. They show no real concern for any of the eightmajor categories of issues. It is interesting to note that they have diluted their equity more thanthe other types of owners, and have sold stock to a combination of family members, directors, seniormanagers, and external advisors.
Family Owners.This group (13 percent) is very concerned about potential dilution of ownership by outside investorsor employees, and the effect dilution could have on the business. They seem rather unconcerned aboutpotential conflicts between the family and the business. Indeed, they are quite happy to have familymembers in the company. However, they do express concern about how family members will perform,responding with more worry than average to the questions ÒWhat can I do if my children do not performwell in the business?Ó and ÒIf I pass the business on to the children, will it be in good hands?Ó
Worried Owners.How can these people (7 percent) sleep at all? They score higher than the rest in every category.
Loner Owners.This group (21 percent) is primarily concerned about the wisdom of bringing family into the business.In fact, they would rather keep them out. Loner Owners also typically have no nonfamily businesspartners, either. They have made a clear decision to keep work and family separate.
Surprisingly, the distribution of owner types varies very little with regard to industry, sales, ornumber of employees. For example, Worried Owners can be found in every industry. There are as manyBusiness Owners and Relaxed Owners in companies with sales less than £5 million ($3.4 million) asthere are in companies with sales greater than £20 million ($14 million). The companies of LonerOwners and Family Owners may employ any number of people.
Nevertheless, one sweeping conclusion emerges: Emotional factors play a major part in ownersÕ businessdecisions. For example, British venture capitalists commonly complain about the reluctance of ownersto close investment deals; the survey results suggest owners may be gun-shy due to a general suspicionof outsiders. In another example, experts at Grant Thornton note that a good number of Britishbusiness owners, having weathered a recent recession, are now thinking about selling, suggesting thatthe Òfeel good factorÓ is still missing.
From most intense to least intense | |
ISSUE | RANK |
Dilution of equity | |
If I introduce outside shareholders, how greedy will they be? | 1 |
How would they change the way I run the business? | 3 |
How do I finance growth but still retain control? | 11 |
Security of Income | |
All my wealth is in the business. What happens if it gets into trouble? | 2 |
Should I sell the business? | 9 |
How much is the business worth? | 4 |
How do I find a buyer for the business? | 10 |
Company growth | |
Could the business do better for me? | 5 |
Do I really need to grow the business? | 12 |
How much would life change if I grew the business? | 7 |
How do I motivate my key staff without losing control? | 17 |
Personal conflicts | |
What happens if my business partner and I have a serious disagreement? | 8 |
What happens if my spouse and I divorce? | 19 |
What can I do to protect myself? | 6 |
How can I balance the conflicts between the interests of my family and the commercial objectives of my business? | 20 |
Family in the business | |
Should I bring family members in to the business? | 23 |
Do I make them start at the bottom? | 25 |
What can I do if my children do not perform well in the business? | 13 |
If I pass the business on to the children, will it be in good hands? | 14 |
Employees and equity | |
Should I give key employees a share in the business? | 21 |
If I give away shares to employees, can I ever get them back? | 15 |
Control | |
How can I transfer ownership but still retain control? | 16 |
What happens to me if my partner transfers his/her shares? | 18 |
How do I persuade my parents to relinquish control? | 26 |
Providing for the children | |
If my children donÍt join the business, how can I provide for them separately? | 22 |
Should I give shares to my children even if they donÍt join the business? | 24 |