1. Pursuing New Venture Opportunities
part 3
Pursuing New Venture Opportunities 7
The Family Business
PowerPoint Presentation by Charlie Cook
12e
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2. Looking Ahead After studying this chapter, you should be able to:
Discuss the factors that make a family business unique.
Explain the cultural context of a family business.
Outline the complex roles and relationships involved in a family business.
Identify management practices that enable a family business to function effectively.
Describe the process of managerial succession in a family business.
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3. What Is a Family Business?
A company in whose ownership and/or functioning two or more members of the same family are directly involved.
A firm whose ownership passes from one generation of a family to another
Smith Family Hardware Est. 1935
Welcome
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4. The Three-Circle Model of Family Business1 6 3 7 5 2
Business
Ownership 4
Source: Three-Circle Model developed by Renato Tagiuri and John A. Davis. Found in “Bivalent Attributes of the Family Firm,” Working paper, Harvard Business School, Cambridge, MA. Reprinted 1996, Family Business Review, Vol. IX, No. 2, pp. 199–208.
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Fig. 7-1

5. Family and Business Overlap
Family Concerns
Care and nurturing of family members
Employment and advancement in the firm
Loyalty to the family
Business Concerns
Production and distribution of goods and/or services
Need for professional management
Effective and efficient operation of the firm
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6. Advantages of a Family Business
Strength of family relationships during challenging periods of business change
Financial sacrifices that family members make for the good of the firm
Operation as a family business distinguishes the firm from its competitors.
Higher levels of concern for its community and non-family employees
Capability to plan and prepare for the long haul
Emphasis on quality and value
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7. Advantages of a Family Business
Family Business Advantages
Emphasis on Quality
Products and Services
Use of Family Theme
in Advertising
Emphasis on Humanity
in the Workplace
Focus on
Long-Run Aspects
Strong Motivation
of Family Members
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Fig. 7.2

8. The Culture of a Family Business
Organizational Culture
Patterns of behaviors and beliefs that characterized a particular firm
Cultural Configuration
The total culture of a family firm, consisting of the firm’s business, family, and governance patterns
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9. Cultural Configuration of a Family Firm
Business Pattern
Paternalistic
Laissez-faire
Participative
Professional
Cultural
Configuration
of the
Family Firm
Governance Pattern
Paper Board
Rubber-Stamp Board
Advisory Board
Overseer Board
Family Pattern
Patriarchal
Collaborative
Conflicted
Source: Adapted from W. Gibb Dyer, Jr., Cultural Change in Family Firms (San Francisco: Jossey-Bass, 1986), p. 22.
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Fig. 7.3

10. Family Roles and Relationships
Parental Concerns in Passing the Business On:
Does my child possess the temperament and ability necessary for business leadership?
How can I motivate my child to take an interest in the business?
What type of education and expertise will be most helpful in preparing my child for leadership?
What timetable should I follow in employing and promoting my child?
How can I avoid favoritism in managing and developing my child?
How can I prevent the business relationship from damaging/destroying the parent–child relationship?
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11. Family Roles and Relationships (cont’d)
Husband–Wife Teams
Opportunity to share more in each other’s lives
Business differences interfere with family life
Work doesn’t leave time for family life
Sharing family responsibilities eases the load
Sons and Daughters
Personal preferences different from the business
Personal qualifications insufficient to assume role in business
Desire for personal freedom to choose another career
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12. Family Roles and Relationships (cont’d)
Sibling Cooperation, Sibling Rivalry
Best case: siblings work as a team
Worst case: siblings compete as rivals
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13. Family Roles and Relationships (cont’d)
In-laws In and Out of the Business
Disagreements about how to treat and reward in-laws and family members/children
The Entrepreneur’s Spouse
Communication between entrepreneur and spouse is critical for them to perform as an effective team for both the business and the family.
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14. Family Business Relationships
Welcoming New In-Laws into the Family Business:
Introduce them to the family business.
Give them an overview, and send them to a family business seminar.
Act as an ambassador and show empathy with the newcomer.
Emphasize strengths and achievements of sons- and daughters-in-law.
Give newlyweds emotional space; allow them to develop their own traditions.
Source: Sharon Nelton, “Marrying into a Family Business,” Nation’s Business, April 1989, p. 48.
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15. Professional Management of the Family Firm
“Best Practices” (John L. Ward)
Stimulate new thinking and fresh strategic insights.
Attract and retain excellent managers.
Create a flexible, creative organization.
Create and conserve capital.
Prepare successors for leadership.
Exploit the unique advantages of family ownership.
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16. Professional Management of the Family Firm (cont’d)
Nonfamily Employees in a Family Firm
Hazards:
Competition with family members for advancement
Getting caught in the crossfire and politics of family competition within the firm
Solution:
Identify family-only reserved positions in advance.
Treat both family and nonfamily employees fairly in matters of reward and promotion.
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17. Professional Management of the Family Firm (cont’d)
Family Retreats
A gathering of family members, usually at a remote location, to discuss family business matters.
Use of an outside facilitator may be necessary.
Family Councils
An organized group of family members who gather periodically to discuss family-related business issues.
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18. The Process of Leadership Succession
Available Family Talent
Mentoring
Guiding and supporting the work and development of a new or less- experienced organization member.
Allowing only qualified competent family members to assume leadership roles in the firm increases the value of the firm for all who have an ownership interest in it.
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19. A Model of Succession in a Family Business
Stage I Pre-Business
Stage II Introductory
Entry of Successor
Child becomes aware of facets of firm and/or industry. Orientation of child by family member is informal.
Child is exposed to business jargon, employees, and the business environment.
Stage III Introductory Functional
Child works as part-time employee. Work becomes more difficult. Includes education and work for other firms.
Stage IV Functional
Potential successor begins work as full-time employee. Includes all nonmanagerial positions. .
Stage V Advanced Functional
Potential successor assumes managerial position. Includes all management positions prior to becoming president.
Transfer of Leadership
Successor assumes presidency.
Includes period in which the successor becomes dejure head of company.
Stage VII Mature Succession
Successor becomes defacto head of company.
Stage VI
Early Succession
A Model of Succession in a Family Business
Source: Adapted from Justin G. Longenecker and John E. Schoen, “Management Succession in the Family Business,” Journal of Small Business Management, Vol. 16 (July 1978), pp. 1–6.
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Fig. 7.4

20. Conditions Favoring Successful Leadership Succession in a Family Firm
A sound, profitable business
Stable, healthy family relationships
Advance planning for leadership succession
Positive family leadership and a team-oriented management structure
Presentation of career opportunities without pressure
Open communication on family business issues
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