In every first-generation family business there comes a critical point when the owneroperator has to acknowledge the need for a management team. The business can no longer be run by one or two people at the top. Instead, the founder has to learn to rely more on colleagues, both family and nonfamily; he has to trust them and hold them accountable.
When we talk about team management we do not mean that a company doesn't need strong leadership. We see too many second- and third-generation businesses in which the successors try to operate by
committee. Rather than deal with the tough question of who is in charge, they attempt to make decisions by consensus. Nothing can slow down a growing business more dramatically.
A growing business needs centralized, direction-setting leadership. But wise leaders recognize that success often depends on the energies and ideas of others. A balance has to be achieved between participative management and entrepreneurial management. That isn't easy for many entrepreneurs, whose very success seems to spring from a fierce need for independence and a singleminded belief in their own ideas and judgment.For the entrepreneur-founder who is a one-man band to become an orchestra leader requires a leap of trust. Family businesses have a real edge here. The leap of trust can be easier if it's to blood.
In his 1985 book Innovation and Entrepreneurship, Peter Drucker suggests that an entrepreneur in a growing business must ask himself what type of management the company needs. If he concludes that the time has come to adopt team leadership, he must then address three other questions:
1. Is the company at the turnover point?
Management experts say that for a manufacturing company, the rule of thumb is $5 million to $8 million in sales and more than 125 employees. The process of shifting gears in management style should begin earlier, however &3151; when the number of employees reaches 50 to 75. In our firm's experience, the turnover point occurs much sooner in the growth of service companies.
Another way to determine whether your business has reached that point is to measure its growing pains. Eric G. Flamholtz, a professor of management at UCLA and author of Growing Pains Jossey-Bass Publishers, San Francisco, 1990), has developed a questionnaire which probes for subjective evidence of loss of control. It asks respondents to what extent they agree with such statements as: "People [in the company] feel there aren't enough hours in the day," or "People spend too much time putting out fires," or "Many people are not aware of what others are doing."
2. What am I good at? Which of the company's needs could I meet with distinction?
Even entrepreneurs who are willing to give up some control struggle with the question of what their new role will be. To be successful in delegating to other members of a team, the owner-manager has to have a clear idea of what his or her role will be. That means drawing clear boundaries.
At the turnover point, one of the owner's essential responsibilities is, obviously, to help build the management team. The owner has to set the basic direction of the company and delegate functional authority. Beyond that, he or she is responsible for making sure that the money, the marketplace, and the people are managed. But the owner can also delegate any of these functions.
3. What do I really want to do and believe in doing? Is this something the company really needs?
The inventor-entrepreneur may wish to focus on R & D and let others manage. The sales marketing genius may choose to concentrate on developing a marketing plan and extending the company's sales territories. The founder should remain in charge of at least one key activity that he excels in and that the company needs.
Even more important, the owner must remain responsible for articulating a vision for the business. Vision is essential to building a management team it is the team's inspiration and main energy source.
When we with members of successful family businesses, we usually sense their special pride and commitment to the heritage and future of their enterprise. The danger is that the vision may get lost or damaged in the leadership change from one generation to another. Unless the family has a shared commitment to goals larger than its own ambitions, the management team may easily implode because of family arguments and power plays.
So what is vision anyway? The best way we've heard it described is "a convincing image of the future." The vision should put into words what everyone intuitively knows is the right path for the company. When others in the business hear it, they should go "Aha!"
Once set by the founder, the vision has to be sold and nurtured. This isn't accomplished by simply putting the vision down on paper and distributing it. Inside the business, it is fostered by one-on-one dialogues with each employee. Within the family, it's fostered by an ongoing discussion of values, with the members constantly raising points like: "Here's what I think our business objectives are. We want to be in this kind of marketplace. This is the kind of relationship we want to develop with employees."
The family team should ask themselves questions such as: "Have we stayed true to our family's original vision of the business? Have we improved on it, kept it current? If we walked out on the floor and asked an employee about the company's mission, what would the employee say?"
The next step in building a team is to get the right people in the right places. In a family business, this is likely to require some tough, objective decisions. How does one find the courage to tell a brother that he's not cut out to head sales? What argument will convince your oldest son that he's better off as second in command?
A family firm runs too lean to pick up the slack that is created by a poor fit. The team has to address questions like: What skills are essential to the company's success? What strengths are represented on our team? Where are the gaps? What is our plan for filling them in?
Forget about job descriptions for awhile. Give each member of the team honest, respectful feedback on how you see his or her special talents and weaknesses. Based on your discussion, create the best niche in the business for each person. Then go back and write job descriptions that formalize each position.
Many family businesses have good department heads on their management team. Fewer of them have management teams that work together across functions and that consistently put the company's overall objectives ahead of their departmental goals. In working with teams, we like to stress four things:
1. Team-building is a process not an event. It takes an estimated three years for a team to come together. Again, families have an edge; if they are not torn by rivalries, the members are usually well-versed in each other's ways of thinking and acting. However, they still must develop business relationships parallel to family relationships.
2. Spend time on key relationships. Get in the habit of thinking and talking about relationships on the team. Have regular, ongoing discussions of how you work together.
3. Be ready to openly discuss conflicts and ways of resolving them. Nothing destroys a team faster than an unwillingness to bring disagreements and bruised feelings to the surface and discuss them. One of the best investments of time a team can make is on developing a common language and skill for conflict management.4. Learn to manage big egos. Any entrepreneurial firm has at least one and often several of them. The trick is to become an active proponent of each's particular genius. Once such people see you are on their side and are a champion of their talents, you will have more leverage to confront them with the downside of their expansive character.
Throughout the process of team-building, take time to celebrate good news. In working with family businesses, we notice an almost universal hesitancy to celebrate victories whether large or small. There seems to be a superstition that if you talk about good news let alone celebrate it fortune will no longer smile on you.
The entrepreneur has a built-in warning device against any temptation to relax. But teams gain confidence from celebrating victories: It is one of the most powerful and least expensive ways to maintain morale and build a strong culture of cooperation. Stories honoring the team come out of these celebrations stories that carry the vision of the family business forward faster than any other means.
Lila A. Lewey, a psychologist, is professional services director of McGladrey & Pullen's Management Development Institute for Family Owned Businesses in Mineapolis. Stephen B. Swartz is a principal in McGladrey & Pullen's Family Business Group.
Tom Hawkins built a successful, $15 million manufacturing operation in the Midwest in just 13 years. During that time, he operated much like a benevolent dictator, building both loyalty and dependency in his staff. Tom believed in management by walking around and, through his constant, physical presence and talk, be nurtured a spirit of craftsmanship in his employees that has been the company's hallmark.
By the time he reached 63, Tom's visits to the plant floor had become less frequent. Frustrated by increasing industry regulation and a much more complex business, Tom began spending more time at his vacation home in the South. His energies seemed to wane. Employees remarked on how their CEO was changing; he no longer had a strong hands-on presence.
Tom was leaving the business "under cover." His absence left the rest of the management team in a vacuum. The basis of their job security had been their carefully tended relationships with Tom. Most key transactions had been one-on-one with the founder, who was the hub from which all decisions radiated to the rest of the organization.
Meanwhile, Tom's son, Terry, who had been with the company for five years, naturally assumed he would take his father's place at the hub. But while the son had a strong appetite for power, he lacked his, fathers benevolence and vision. When Terry tried to move in and make decisions on his own, he immediately came up against more experienced senior managers.
Tensions in the business reached a crisis when the head of sales and marketing decided to give his notice. For Tom, this was a wake up call that forced him to return full time to the business and resume hands- on control. He then tried to sell the business, but without an effective management team in place, it could not be sold.
Tom's story, based on an actual case, demonstrates that team building is critical to succession planning. Tom had not devoted enough time to preparing his company for a new, more cooperative style of management in which all decisions did not flow from the center.
We see this pattern repeatedly in family businesses. An aging owner gets worn down by the stresses of the business; he finally decides to reap the rewards of his lifelong efforts and retires without laying a firm foundation for teamwork. In no time, he is forced to come back to save his investment and his own future.
L.A.L. and S.B.S.