Leading in Crisis: Key Takeaways from Latest Family Business Seminar

by Gale Martin, Director of Marketing and Member Relations, S. Dale High Center for Family Business

Day to day, some executives never get to directly save lives in the course of running their family business. Then again, their mission isn't shooting astronauts into space and bringing them back alive either.

Make no mistake about it, however. Today's stalled economy shows no signs of catching on fire soon, according to one of the presenters, Scott Heintzelman, a partner with McKonly and Asbury, who is better known by his moniker, "The Exuberant Accountant." Though personal savings are up, the current employment recession shows no signs of abating. It's Heintzelman's prediction that economically businesses will have to accept a new normal, which looks very little like the old economic environment, and that leaders need to adapt their business plans and models accordingly.


Mike McGrann, family business consultant

Leading a family business in today's economic climate may feel manning a rocket launch into outerspace, at least in terms of the risks and pitfalls involved. It's fraught with challenges such as diminished sales, labor shortages, poor employee morale because of layoffs and downsizing, paying for the ever increasing costs of fringe benefits, complying with new regulations, etc. The economic downturn has been cause enough to throw businesses into tailspins and test their ability to lead through crises.

Presenter Mike McGrann, executive director of the S. Dale High Center, suggested that leading in crisis demands that executives ask and answer some hard questions:

1. Are you honest about the brutal facts? Are you willing to face them?
   A few years ago, US Airways management would not accept responsibility for the severe employee morale problem and slowdowns following a 20% pay cut; and instead of containing the performance problems, they exacerbated their woes--dramatically--imperiling their corporation. "The difference between a good leader and a great leader is the amount of information they receive," says management expert Michael Useem.
2. Can you let go of the need to be right? Convergent vs. divergent issues.Great leaders build a participatory culture. That means giving team members a voice (though not necessarily a vote), a right to express their opinions and challenge others' assumptions, a role in establishing their goals, and a feeling that their voices are heard. Leaders need to let go of the need to be right. As leaders, they get to make the final call. "Arrogance makes failure," says Millard Drexler, CEO of the Gap, Inc. "Once you think you know the answer, it's almost always over."
3. Are you willing to conduct "constructive post-mortems" that get to the real cause?Problems are multi-layered and systemic and not linear. There is rarely one single cause for a problem. Leaders are part of the circle that is seeking processes of change and mutual solutions. Ask questions with the goal of seeking knowledge and understanding. "Don't push growth; remove the factors limiting growth," says Peter Senge, organizational learning specialist.

4. Where is the unique opportunity within the crisis?There are very few quick fixes. At the same time, even crises offer opportunities to examine where business leaders are spending their time:  managing the present, selectively forgetting the past, or creating the future? Typically, leaders, especially those in crisis spend too much time and energy managing the present and selectively forgetting the past. Management expert Peter Drucker has said, "New opportunities rarely fit the way an industry has approached the market, defined it, or organized to serve it."
5. Have you clarified your values and your vision? You can't make it through a storm without a compass.Effective business leaders have clarified their values and honor certain precepts such as integrity and transparency. Strong leaders have articulated their vision for their organization, too. They have also put practices and procedures in place to ensure their organization feels an urgency for achieving the vision, which shapes everyone's daily thinking. Leaders need to be true to their values, even when it hurts. "A vision provides, both the stability to stay the course and the inspiration to change."

A great summation of a business leader's most important job can be found in The Entrepreneurial Mindset by Rita Gunther McGrath and Ian MacMillan: "Their job isn't to find opportunities or identify critical competitive insights but to create an organization that does these things for you as a matter of course."

Learning from a book about visionary family businesses

by Gale Martin, Director of Marketing, S. Dale High Center for Family Business

The S. Dale High Center offers a Generation Next Affinity Group for young people committed to their family businesses. We meet every other month between October and June to discuss issues concerning their work and work life as they prepare to assume responsibility for running their family businesses.

Since one of the members requested more information on best practices, for the last several meetings we have discussed Managing in the Long Run: Lessons in Competitive Advantage from Great Family Businesses by Danny Miller and Isabelle LeBreton-Miller (Harvard Business School Press) as part of our work in this group.

Thus far we have learned about four categories of exemplary family businesses:

• Brand Builders
• Craftsmen
• Operators
• Innovators

According to the authors, Brand Builders are image masters who create perceptions of themselves and their prompts that prompt customers to buy from them. Estée Lauder, Hallmark Inc., and L.L. Bean, Inc., are all family businesses who have created a brand that is highly sustainable as a competitive resource. The authors stated that Estée Lauder dominates the United States cosmetics markets with a 40 to 45 percent share. Hallmark lays claim to 55 percent of the U.S. market and is the only brand name card 80 percent of Americans can name. Miller and Le-Breton-Miller stated that L.L. Bean is the world's number one outdoor specialty products and sport catalogue retailer. Each of these companies, several generations old, had the vision to make choices in brand building that would position them competitively in the market. They committed themselves to offering a distinctive product that creates an emotional link with customers and to promote that product in unconventional ways--Hallmark, for instance, was told they can't sell a greeting card by turning it over and reading the name of the company that created it, which is exactly what they've done since the 1930s Hallmark they first advertised their cards on the radio.

The Craftsmen are family controlled businesses for whom nothing less than perfection is acceptable. They craftsmen they cited included the Adolph Coors Company, The New York Times Company, and Nordstrom, Inc., to name a few. Craftsmen adopt the highest standards for their products, are willing to wait years for decent ROI, and are known to sacrifice a great deal just to do things right. The pursuit of quality has served as their conduit to sustaining their reputation and economic well-being of the family.

The Operators focus on efficiency, making great use of routines, procedures, and automation to sustain their efficient model. Cargill, IKEA, and Tyson have all refined their operations based on sustaining a vision of an economy-driven business model that targets value-sensitive clients. Operators are also highly committed to consistent senior leadership.

The last group we studied were the Innovators, or family controlled businesses who have distinguished themselves by taking risks and by continually challenging the frontiers of their industries. Corning, Fidelity, and Motorola were all mentioned as Innovators for whom renewal is a guiding precept. They exhibit an unfailing discipline, committing unprecedented resources to R&D, to sustaining a culture of creative new ideas that keeps moving the company forward.

No matter the category, all these extraordinarily family businesses possessed guiding principals--a vision--of the kind of company they wanted to be and what they needed to do, in the long run, to get there. The family businesses have embraced different paths to success, carefully examining what kind of business they wanted to be, based on their values, staking their reputation, their viability, on their values and vision.

What is your vision for your family business? Have your staked your business model to your vision, your operations, your brand?

Harvard Business Review Press has made an excerpt of Managing in the Long Run available here.

Simple, eloquent, practical--author Bo Burlingham inspires with six precepts for great businesses

by Gale E. Martin, Director of Marketing, S. Dale High Center for Family Business

Someone once relayed an anecdote about a well-respected navy admirable, much admired for his military acumen, for his courage, but above all, for his leadership. What was the secret to his success, he was asked.

The admirable relayed the following story: Every day, he goes to his personal safe, takes out a piece of paper, unfolds it and reads this message:

Port-left. Starboard-right.

So, there you have it. Simple precepts reinforced daily made this navy man one of the most admired leaders in our modern day.

In the same way, Bo Burlingham, author of Small Giants: Companies Who Choose to Be Great Instead of Big, identified a half-dozen qualities common to the great businesses he studied. He shared them with his signature blend of credible enthusiasm during his presentation to the S. Dale High Center membership yesterday at a breakfast seminar at the Lancaster Marriott.

Were the guiding principles that Bo shared unwieldy and complex? Were they radically different messages for seasoned business leaders? Frankly, they could not have been more simple. Most likely, many of them have already been intuited by business leaders who have enjoyed a measure of success.

Yet, according to member evaluations, they found Bo's simple message compelling and reaffirming. Basically, Bo said that the businesses he explored for Small Giants all had an off-the-charts kind of "mojo," or business charisma, resulting from the synergy of six factors:

1. The leader factor--owners and leaders know who they are, what they want out of business and why
2. The community factor--the companies are rooted in the communities in which they do business.
3. The customer/supplier factor--the companies enjoy close personal relationships with their customers and suppliers.
4. The employee factor--the customers come second. Employees come first.
5. The (missing) margin factor--the companies have a sound business model and protect their gross margins.
6. The passion factor--the owners and leaders are in love with what their companies do.

None of those precepts is complex though I'll admit one of them is provocative. I'd never heard the counsel to put employees before customers though it is apparently the central premise of the book Nuts: Southwest Airlines' Crazy Recipe for Business and Personal Success by Kevin Freiberg and Jackie Freiberg.

By embodying the six factors Bo identified, the small giants he studied surmounted incredible odds and obstacles felling other good and near-great businesses--challenges such as competition from giant corporations, the humblest of humbling beginnings, and crushing debt, to name a few. 

Following Bo's talk, in response to the question, "What did you find most valuable about the presentation?" attendees said things like:

• A great perspective on the importance of culture in making a great company;
• Bo's confirmation of the importance for community involvement;
• He reinforced the need to maintain and grow company culture; and
• After listening to Bo, he made me feel as though I can move forward as a leader in a small family business as an employee not family member.

More than a few guests mentioned the practical wisdom of Bo's presentation.

Sometimes, keeping your family business on course to success, to realizing its potential, can be as simple as reminding yourself daily of what's truly important: Employees. Community. Customers/Suppliers. Leadership. Passion.

Leading a family firm might simply be a case of telling yourself "port-left; starboard-right" more often than you think anyone needs to hear it.

For slides of Bo's presentation from the S. Dale High Center website, click here. For a link to another great summary of Bo's presentation by Scott Heintzelman, "The Exuberant Accountant," click here.

Quote of the week

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” 
-- Jack Welch  

           

3 things values can do for family businesses

At a recent meeting with a third generation family business, it became apparent that the values that drive their business—the organizational culture around how they treat customers and employees, i.e., what’s important in the workplace—had never been set down on paper. When questioned about it, they explained that everyone at their place of business understood their values intuitively—that writing them down hadn’t been necessary.

Occasionally, when led by a strong first generation family business leader, businesses can get around clearly articulating your family values with little negative impact. However, when leadership passes to the successor generation without intentionally articulating and sharing their values, that company risks a scenario where the employees are all marching in different directions, as if to different drumbeats. If that’s disastrous for a marching band, it takes an even heavier toll on any family business’ ability to compete and be successful.

To put it simply, everyone within your organization needs to know the drumbeat. They need to know how to march. Just as surely as the drum major must lead with his baton, it is the responsibility of family business leadership to move from intuitive to intentional by driving organizational values into their organization, especially in successor generations.
How can strong organizational values impact your family business? Here's three ways:

1. It can improve your top line. What do customers want? Unless they are buying a commodity product, they want to be treated well and with respect. And that only happens when your employees feel as though they are treated well and with respect. Contented employees equals happy customers. Happy customers want to do business with organizations that make doing business pleasurable. If customers and employees are treated well by a company, it is no coincidence. These companies have a really strong culture built on a foundation of well defined values.
2. It can improve your bottom line. Good values also reduce costs by improving productivity and reducing turnover. Firms that have strong values and deliberately drive those into the business have less turnover than their competitors. Values-driven companies have significantly less turnover than their competition. There is a clear bottom line impact from reduced turnover. The cost of turnover has been reasonably estimate at 150% of salary because of expenses such as recruitment, training, low productivity and new hires.
3. It can make you feel great about where you work. What could be better than coming in the door every day to a place you want to be, where you feel passionate about the work you're doing and where meaningful relationships are growing right alongside profitability.

Values-based organizations support a vision for the kind of workplace in which you and your employees want to spend the better part of your day and the best years of your lives. It isn't easy to uphold your organizational values day in and day out. It means making tough decisions in terms of hiring, firing, incentive structures, and employee compensation and evaluation. But the outcomes justify the extra effort.

Strategy: Driving Organizational Change

by Nevin D. Cooley, President and Chief Executive Officer, High Real Estate Group, LLC

Based on the volume of unsuccessful attempts at organizational change, many leaders conclude such change is not possible without significant carnage. Nevertheless, given all the external forces driving organizations to be responsive and flexible, a process for constructive organizational change must be found. In his book “Leading Change,” John P. Kotter notes eight common errors in organizational change efforts. They are:

1. Allowing too much complacency

2. Failing to create a sufficiently powerful guiding coalition

3. Underestimating the power of vision

4. Undercommunicating the vision by a factor of 10 (or 100 or even 1,000)

5. Permitting obstacles to block the new vision

6. Failing to create short-term wins

7. Declaring victory too soon

8. Neglecting to anchor changes firmly in the corporate culture

Dream Teams

by Mary Beth Matteo, Founding Director of the S. Dale High Center for Family Business

Sibling teams have been much studied but little understood. Unfortunately, as ownership and management structures, sibling teams fail as often as they succeed. An article by researchers Farrington and Venter suggests that certain conditions increase the likelihood of success. Some of these are obvious, others not so much.

• Complimentary skills among siblings and a clear division of labor

• Existing financial success of the business

• Compensation issues resolved

• Common vision for the company

• Support of non-family managers

• Existence of an agreed-upon method for managing conflict

• Mutual respect

• Personal satisfaction with work and family relationships

• Voluntary participation in the sibling team

• Minimal involvement of other family members, including parents

Sum & Substance: Siblings can make dream teams, but they can't trust that a family bond alone will automatically yield a productive working relationship. Better to treat the partnership with as much care and attention as you would any professional team outside of the family unit.