1. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Building a New Venture Team and Planning for the Next Generation CHAPTER 16

2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 2 Ch. 16: Building a Team & Succession Planning Leadership The process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. The process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. Entrepreneurs must take on many roles in their companies, but none is more important than that of leader. Entrepreneurs must take on many roles in their companies, but none is more important than that of leader.

3. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 3 Ch. 16: Building a Team & Succession Planning Business Leaders Are… Innovative Innovative Passionate Passionate Willing to take risks Willing to take risks Adaptable Adaptable

4. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 4 Ch. 16: Building a Team & Succession Planning Effective Leaders Create a set of values and beliefs for employees and passionately pursue them. Create a set of values and beliefs for employees and passionately pursue them. Establish a culture of ethics. Establish a culture of ethics. Define and then constantly reinforce the vision they have for the company. Define and then constantly reinforce the vision they have for the company. Respect and support their employees. Respect and support their employees. Set the example for their employees. Set the example for their employees. Create a climate of trust in the organization. Create a climate of trust in the organization. Build credibility with their employees. Build credibility with their employees.

5. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 5 Ch. 16: Building a Team & Succession Planning Effective Leaders Focus employees’ efforts on challenging and driving toward those goals. Focus employees’ efforts on challenging and driving toward those goals. Provide the resources employees need to achieve their goals. Provide the resources employees need to achieve their goals. Listen to their employees. Listen to their employees. Value the diversity of their workers. Value the diversity of their workers. Celebrate their workers’ successes. Celebrate their workers’ successes. Are willing to take risks. Are willing to take risks. Encourage creativity among their workers. Encourage creativity among their workers. Maintain a sense of humor. Maintain a sense of humor. (continued)

6. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 6 Ch. 16: Building a Team & Succession Planning Effective Leaders Create an environment in which people have the motivation, the training, and the freedom to achieve the goals they have set. Create an environment in which people have the motivation, the training, and the freedom to achieve the goals they have set. Create a work climate that encourages maximum performance. Create a work climate that encourages maximum performance. Become a catalyst for change when change is needed. Become a catalyst for change when change is needed. Develop leadership talent. Develop leadership talent. Keep their eyes on the horizon. Keep their eyes on the horizon. (continued)

7. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 7 Ch. 16: Building a Team & Succession Planning Three Vital Tasks of a Leader 1.Add the right employees and constantly improve their skills. 2.Create a culture for retaining employees. 3.Plan for “passing the torch” to the next generation of leadership.

8. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 8 Ch. 16: Building a Team & Succession Planning Building an Entrepreneurial Team Study: 80% of employees turnover is caused by bad hiring decisions. Study: 80% of employees turnover is caused by bad hiring decisions. Leadership IQ study: Leadership IQ study: 46% of newly hired employees will fail in their jobs within 18 months. 46% of newly hired employees will fail in their jobs within 18 months. 19% of newly hired employees will achieve unequivocal success. 19% of newly hired employees will achieve unequivocal success. Study: 34% of hiring managers admit to making bad hiring decisions because they were under pressure to fill a job. Study: 34% of hiring managers admit to making bad hiring decisions because they were under pressure to fill a job.

9. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch. 6: Franchising and the Entrepreneur FIGURE 16.1 Annual Growth Rate in the U.S. Labor Force Source: U.S. Census Bureau, 2008. 16 - 9

10. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 10 Ch. 16: Building a Team & Succession Planning How to Hire Winners Commit to hire the best talent. Commit to hire the best talent. Elevate recruiting to a strategic position. Elevate recruiting to a strategic position.

11. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 11 Ch. 16: Building a Team & Succession Planning Strategic Recruiting Look inside the company first. Look inside the company first. Encourage employee referrals. Encourage employee referrals. Make employment advertisements stand out. Make employment advertisements stand out. Use multiple channels to recruit talent. Use multiple channels to recruit talent. Recruit on campus. Recruit on campus.

12. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 12 Ch. 16: Building a Team & Succession Planning Strategic Recruiting Get involved in a college internship program. Get involved in a college internship program. Recruit “retired” workers. Recruit “retired” workers. Consider using offbeat recruiting techniques. Consider using offbeat recruiting techniques. Offer what workers want. Offer what workers want. (continued)

13. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 13 Ch. 16: Building a Team & Succession Planning How to Hire Winners Commit to hire the best talent. Commit to hire the best talent. Elevate recruiting to a strategic position. Elevate recruiting to a strategic position. Create practical job descriptions and job specifications. Create practical job descriptions and job specifications. (continued)

14. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 14 Ch. 16: Building a Team & Succession Planning Conducting a Job Analysis Create a job description - a written statement of the duties, responsibilities, reporting relationships, working conditions, and materials and equipment used in a job. Create a job description - a written statement of the duties, responsibilities, reporting relationships, working conditions, and materials and equipment used in a job. Handy tool: Dictionary of Occupational Titles Handy tool: Dictionary of Occupational Titles Create a job specification - written statement of the qualifications and characteristics needed for a job, stated in terms such as education, skills, and experience. Create a job specification - written statement of the qualifications and characteristics needed for a job, stated in terms such as education, skills, and experience.

15. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 15 Ch. 16: Building a Team & Succession Planning Sample Job Description from the Dictionary of Occupational Titles Worm Picker - gathers worms to be used as fish bait; walks about grassy areas, such as gardens, parks, and golf courses and picks up earthworms (commonly called dew worms and nightcrawlers). Sprinkles chlorinated water on lawn to cause worms to come to the surface and locates worms by use of lantern or flashlight. Counts worms, sorts them, and packs them into containers for shipment. (# 413.687-014 in D.O.T) (# 413.687-014 in D.O.T)

16. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 16 Ch. 16: Building a Team & Succession Planning How to Hire Winners Commit to hire the best talent. Commit to hire the best talent. Elevate recruiting to a strategic position. Elevate recruiting to a strategic position. Create practical job descriptions and job specifications. Create practical job descriptions and job specifications. Plan an effective interview. Plan an effective interview. (continued)

17. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 17 Ch. 16: Building a Team & Succession Planning Planning an Effective Interview Involve others in the interview process. Involve others in the interview process. Develop a series of core questions and ask them of every job candidate. Develop a series of core questions and ask them of every job candidate. Ask open-ended questions rather than questions calling for “yes or no” answers. Ask open-ended questions rather than questions calling for “yes or no” answers. Create hypothetical situations candidates would encounter on the job and ask how they would handle them. Create hypothetical situations candidates would encounter on the job and ask how they would handle them. Situational interviews Situational interviews

18. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 18 Ch. 16: Building a Team & Succession Planning Planning an Effective Interview Probe for specific examples in the candidate’s work history that demonstrate the necessary traits and characteristics. Probe for specific examples in the candidate’s work history that demonstrate the necessary traits and characteristics. Ask candidates to describe a recent success and a recent failure and how they dealt with them. Ask candidates to describe a recent success and a recent failure and how they dealt with them. Arrange a “non-interview” setting that allows others to observe the candidate in an informal setting. Arrange a “non-interview” setting that allows others to observe the candidate in an informal setting. (continued)

19. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 19 Ch. 16: Building a Team & Succession Planning How to Hire Winners Commit to hire the best talent. Commit to hire the best talent. Elevate recruiting to a strategic position. Elevate recruiting to a strategic position. Create practical job descriptions and job specifications. Create practical job descriptions and job specifications. Plan an effective interview. Plan an effective interview. Conduct the interview. Conduct the interview. (continued)

20. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 20 Ch. 16: Building a Team & Succession Planning Conducting an Effective Interview Break the ice. Break the ice. Goal: to diffuse nervous tension. Goal: to diffuse nervous tension. Ask questions. Ask questions. Puzzle interviews. Puzzle interviews. Remember the 25/75 Rule. Remember the 25/75 Rule. Be respectful and keep it legal! Be respectful and keep it legal! Sell the candidate on the company. Best candidates will have other job offers. Your job: to convince the best candidates that your company is a great place to work. Sell the candidate on the company. Best candidates will have other job offers. Your job: to convince the best candidates that your company is a great place to work.

21. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 21 Ch. 16: Building a Team & Succession Planning How to Hire Winners Commit to hire the best talent. Commit to hire the best talent. Elevate recruiting to a strategic position. Elevate recruiting to a strategic position. Create practical job descriptions and job specifications. Create practical job descriptions and job specifications. Plan an effective interview. Plan an effective interview. Conduct the interview. Conduct the interview. Contact references and conduct a background check. Contact references and conduct a background check. (continued)

22. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 22 Ch. 16: Building a Team & Succession Planning Checking References Checking an applicant’s references is an important part of protecting a company against making a “bad hire.” Is it really necessary? Yes ! According to a CareerBuilder survey, 49% of all candidates either exaggerate or falsify information about their previous employment on their résumés.

23. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 23 Ch. 16: Building a Team & Succession Planning Company Culture Distinctive, unwritten, informal code of conduct that governs the behavior, attitudes, relationships, and style of an organization. Distinctive, unwritten, informal code of conduct that governs the behavior, attitudes, relationships, and style of an organization. “The way we do things around here.” “The way we do things around here.” In small companies, culture plays as important a part in gaining a competitive edge as strategy does. In small companies, culture plays as important a part in gaining a competitive edge as strategy does.

24. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 24 Ch. 16: Building a Team & Succession Planning Characteristics of a Positive Culture Respect for work and life balance Respect for work and life balance Sense of purpose Sense of purpose Sense of fun Sense of fun Engagement Engagement Diversity Diversity Integrity Integrity Participative management Participative management Learning environment Learning environment

25. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch. 16: Building a Team & Succession Planning FIGURE 16.2Composition of U.S. Workforce Source: Jennifer Cheeseman Day, “Population Profile of the United States,” U.S. Census Bureau, July 8, 2008, http://www.census.gov/population/www/popprofile/natproj.html. 16 - 25

26. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 26 Ch. 16: Building a Team & Succession Planning Job Design Strategies Job simplification - breaks work down into its simplest form and standardizes each task. Job simplification - breaks work down into its simplest form and standardizes each task. Job enlargement (horizontal job loading) - adds more tasks to a job to broaden its scope. Job enlargement (horizontal job loading) - adds more tasks to a job to broaden its scope. Job rotation - cross-trains workers so they can move from one job in a company to others, giving them a greater number and variety of tasks to perform. Often used with a skill-based pay system. Job rotation - cross-trains workers so they can move from one job in a company to others, giving them a greater number and variety of tasks to perform. Often used with a skill-based pay system.

27. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 27 Ch. 16: Building a Team & Succession Planning Job Design Strategies Job enrichment (vertical job loading) - builds motivators into a job by increasing the planning, decision making, organizing and controlling functions (which traditionally were managerial tasks). Job enrichment (vertical job loading) - builds motivators into a job by increasing the planning, decision making, organizing and controlling functions (which traditionally were managerial tasks). Five core characteristics: Five core characteristics: 1. Skill variety 2. Task identity 3. Task significance 4. Autonomy 5. Feedback (continued)

28. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 28 Ch. 16: Building a Team & Succession Planning Job Design Strategies Flextime - an arrangement under which employees build their work schedules around a set of “core hours” - such as 11 a.m. to 2 p.m. - but have flexibility about when they start and stop work. Flextime - an arrangement under which employees build their work schedules around a set of “core hours” - such as 11 a.m. to 2 p.m. - but have flexibility about when they start and stop work. Job sharing - a work arrangement in which two or more people share a single full-time job. Job sharing - a work arrangement in which two or more people share a single full-time job. (continued)

29. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 29 Ch. 16: Building a Team & Succession Planning Job Design Strategies Flexplace - a work arrangement in which employees work at a place other than the traditional office, such as a satellite branch closer to their homes or, in some cases, at home. Flexplace - a work arrangement in which employees work at a place other than the traditional office, such as a satellite branch closer to their homes or, in some cases, at home. Telecommuting - an arrangement in which employees have employees working from their homes use modern communications equipment to hook up to their workplaces. Telecommuting - an arrangement in which employees have employees working from their homes use modern communications equipment to hook up to their workplaces. (continued)

30. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 30 Ch. 16: Building a Team & Succession Planning Rewards and Compensation The key to using rewards to motivate workers is tailoring them to the needs and characteristics of individual workers. The key to using rewards to motivate workers is tailoring them to the needs and characteristics of individual workers. Money is an effective motivator … up to a point. Money is an effective motivator … up to a point. Pay-for-performance systems Pay-for-performance systems Profit-sharing plans Profit-sharing plans Open book management Open book management Cafeteria benefit plan Cafeteria benefit plan

31. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 31 Ch. 16: Building a Team & Succession Planning Rewards and Compensation Intangible rewards – such as praise, recognition, celebrations, and others – can be powerful, yet inexpensive, motivators. Intangible rewards – such as praise, recognition, celebrations, and others – can be powerful, yet inexpensive, motivators. Entrepreneurs tend to rely on non-monetary rewards. Entrepreneurs tend to rely on non-monetary rewards.

32. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch. 16: Building a Team & Succession Planning FIGURE 16.3 U.S. Workforce by Generation 16 - 32

33. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 33 Ch. 16: Building a Team & Succession Planning Family Businesses Make up 90% of all U.S. businesses. Make up 90% of all U.S. businesses. Account for 64% of U.S. GDP. Account for 64% of U.S. GDP. Employ 62% of private sector work force. Employ 62% of private sector work force. Comprise 37% of the Fortune 500 companies. Comprise 37% of the Fortune 500 companies. Created 80% of the U.S. economy’s net new jobs over the last two decades. Created 80% of the U.S. economy’s net new jobs over the last two decades.

34. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 34 Ch. 16: Building a Team & Succession Planning Family Businesses Unfortunately, only 30% of first-generation businesses survive into the second generation. Unfortunately, only 30% of first-generation businesses survive into the second generation. Of those that do survive to the second generation, only 12% make it to the third generation. Of those that do survive to the second generation, only 12% make it to the third generation. Only 3% make it to the fourth generation and beyond. Only 3% make it to the fourth generation and beyond. (continued)

35. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 35 Ch. 16: Building a Team & Succession Planning Why is Management Succession So Difficult? 81% of all business founders intend to pass their companies on to their children. 81% of all business founders intend to pass their companies on to their children. Just 29% of family business owners have prepared written management succession plans. Just 29% of family business owners have prepared written management succession plans.

36. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 36 Ch. 16: Building a Team & Succession Planning How to Develop a Management Succession Plan Step 1. Select the successor. Step 2. Create a survival kit for the successor. Step 3. Groom the successor. Step 4. Promote an environment of trust and respect. Step 5. Cope with the financial realities of estate and gift taxes.

37. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 37 Ch. 16: Building a Team & Succession Planning Coping with Estate Taxes Buy/Sell agreement Buy/Sell agreement Lifetime gifting Lifetime gifting Setting up a trust Setting up a trust Bypass trust Bypass trust Irrevocable life insurance trust Irrevocable life insurance trust Irrevocable asset trust Irrevocable asset trust Grantor Retained Annuity Trust (GRAT) Grantor Retained Annuity Trust (GRAT) Estate freeze Estate freeze Family Limited Partnership (FLP) Family Limited Partnership (FLP)

38. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 38 Ch. 16: Building a Team & Succession Planning Exit Strategies Entrepreneurs planning to retire often use two exit strategies: Entrepreneurs planning to retire often use two exit strategies: Sell to outsiders Sell to outsiders Sell to insiders Sell to insiders Leveraged buyout (LBO) Leveraged buyout (LBO) Employee Stock Ownership Plan (ESOP) Employee Stock Ownership Plan (ESOP)

39. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 39 Ch. 16: Building a Team & Succession Planning Conclusion Leadership is the process of influencing and inspiring others. Leadership is the process of influencing and inspiring others. Leadership shapes company culture. Leadership shapes company culture. A succession plan is a crucial element in transferring leadership. A succession plan is a crucial element in transferring leadership. An exit plan allows entrepreneurs to step down and benefit most from the sale of the company. An exit plan allows entrepreneurs to step down and benefit most from the sale of the company.

40. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 40 Ch. 16: Building a Team & Succession Planning All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.