Family-owned businesses are a unique and integral component of our economy with distinct competitive advantages over non-family, management-based businesses.

There are, in family businesses, like in entrepreneurial businesses, concentrated ownership structures with overlapping responsibilities of management that enable speed in decision-making and “getting to market.” Family businesses, however, benefit further from its single family-ownership-management interaction.

A desire to protect the family name translates into high product and service quality, and a higher return on investments, which being a high-quality leader produces. Sons and daughters growing up in the business develop a deep understanding of the history and culture of the family firm as well as of the industry, the market, and the products. They watch leadership in action and decisions being made; they learn the benefits of patient money; and they develop a vision towards generations into the future.

Yet, while family businesses account for approximately 85% of all businesses in America, less than 30% survive to the second generation and 10% may make it into the third generation.

The problem is that most business owners have never participated in a succession process before. They started as an entrepreneurial business and grew into a family business. The focus has been on their growth; and they are unaware of best management practices of “family” in a family business. And, like most, passing it on some day – not being a part of the business – is not part of their thinking.

Children may participate in the business to help out, and stay because it is the path of least resistance. Perhaps they are expected to, or are needed. Or it becomes assumed that they will take it over, whether they are best suited or not, whether they want to or not. Or whether the founder is ready to leave or not.

The challenges to succession in a family business grow more complex as the business and family grows. Handing over the keys one day without consideration to nepotism, fairness, sibling rivalries, non-family members working in the business, birthright, estate planning, and an understanding of how the family operates in the context of the business is a prescription for failure.

The heads of family businesses should care. They have a number of unique competitive advantages, and when developed with a perspective of the next generation can become a very powerful force supporting the family and serving the community in which it operates, for generations.

Like everything else – your business, your investments, and a vacation benefit from planning. As the founder you may be struggling with how to leave, no clear successor, what’s next for you, or what this means to you, the business and the family; and as a sibling you may be encountering responsibility without authority, shareholder second-guessing, or sibling rivalry.

Needed are clarity on the goals, identification of the alternatives, and understanding of steps to get there, and the means to discuss them with the family and the managers of the business.

I grew up in a third-generation family construction business. In my business I work with the heads and next generation siblings of family businesses on developing the relationships and implementing family business best management practices to help them grow their business across generations. Last year I started teaching, as an adjunct professor, Family Business Management in the Zicklin School of Business, Baruch College, City University of New York. More importantly I have begun working with my siblings – all who are small business owners and self employed – to use our collective experience, knowledge and resources to benefit our children in generations to come.

Five insights on family and business from a fourth-generation family business member. I am interviewing family business leaders – asking their advice on developing a family business mastermind. Along the way I am picking up valuable front-porch wisdom, such as:

1. If the current head of the business is dragging their feet on retiring it’s probably because they don’t want to. Rather than force the issue, find ways for them to continue doing something meaningful in the business.
2. The leader who says he or she cannot take a vacation is full of b.s. No one is that important.
3. My relationship with my kids is more important than having them work in the business.
4. Encourage your children to follow their own vision, goals and dreams.
5. It takes a team to build a successful business. A lone-ranger cannot do it.

There are two stories I often find myself telling in conversations to emphasize that multi-generational success in a family business requires intention and is a process that begins early … because while the actual transfer of the operating and ownership agreements might be done in short period of time, developing the next generation to lead takes a lifetime.

I grew up in a family business in Scranton Pa. I had 2 friends, also from family businesses. Both were second generation, and both became involved in the businesses started by their fathers.

The father of one friend passed away suddenly when the son was in his late 20’s.  Shortly afterwards the son threw a party for the business that cost over $35,000 just for the music … in 1980 dollars. Most people pause hearing that, trying to get their mind around all the implications.

I can only speculate about the meaning of this for the son. Was it a celebration of a life well lived by the father, or, on the other side of the spectrum, that the son was now able to run the business his own way?

What was father and son’s relationship toward the business and each other? Did they have different leadership styles – each effective but held competitively rather than collaboratively?

I expect the family did not have the experience of openly discussing a vision and their values (what’s important to them) as a family business. To their defense, though, this process is more learned than intuitive. Too frequently, talking about the family in the context of the business is entrusted to a second priority, after achieving viability and profitability of the business itself.

The second family, with the help of a consultant, developed a number of policies for family members working i n the business. The first policy helped the next generation understand the family values and culture, and it emphasized the family’s commitment to a family business. If a family member had an interest in the family business, it was required of them, starting as early  as 15 years of age, to attend the annual family business retreat. There, they saw who the leaders were, and watched decisions being made about the family and the business. They learned about the values, vision and goals of the business, and the saw the family in the context the business. They saw how next-generation leaders contributed, and they became part of the discussion of the family’s legacy.

A second policy was, if a family member wanted a management role in the family business they were required to work somewhere else in the industry, and get a raise and promotion, before applying to work in the family business.A third policy was that family members were hired according to need, and were given raises and promotions based on merit comparable to their industry standards. This family business is now in its 5th generation.

A significant factor in the success of any family business is good communication based on shared values. I thought it would be helpful to demonstrate a statement of purpose and values. S.C. Johnson, A Family Company, prepared their statement, This We Believe, in 1927.  They continue to bring them into their conversation with their family members, employees, product and service providers, and customers today. Click on the link to see them: This We Believe.

Seven ways for preparing the next generation to lead the family and the business … to the next, and the next generation.

1. Be a model of leadership yourself.
2. Demonstrate honor and respect for family members who are leaders.
3. Provide younger family members with opportunities to lead.
4. Encourage the development of individual & innate leadership styles, recognizing that all leadership is not same.Gabrielle Gillfords, Martin Luther King, Oprah Winfrey, Ronald Regan, General Patton, and Steve Jobs were all leaders with distinct effective leadership styles and traits.
5. Encourage their involvement in leadership activities elsewhere – school, professional associations, in the community, etc.
6. Encourage the attitude of “What do I want to accomplish for the family and in the business?”
7. Help them learn to identify leadership opportunities within and outside the family business.

At some point all successful organizations encounter the challenge of key people retiring. Whether they are part of the leadership team or the head of a family business, planning a successful and seamless leadership transition is a major challenge.

Succession planning can be one of the most important processes to ensure the legacy of the organization. Mentoring and leadership programs help potential successors develop their skills, and are useful to the existing leadership in selecting successors. The challenge, however, goes beyond identifying who receives the new leadership mantle. The organizational knowledge, embodied in team leaders and developed over time, is critical for the long-term success, and needs to be conveyed from generation of leader to generation of leader.

Organizational knowledge, unlike data or information, exists within people. This knowledge is derived from their experiences, and it includes elements key to the organization’s success, such as judgment, values and insights. Most importantly, in a succession process, you need to recognize that this knowledge is not easily replaced.

Often, in the selection of a successor, it can take many years to tap into individuals who have the requisite skills and abilities to replace the CEO or a long-tenured employee. The process can be expedited, however, by thoughtfully transferring this knowledge from the current incumbent to the next generation; and the more time and energy that is invested into the knowledge transfer process, the more likely the success of the successor.

The process requires understanding the intellectual capital and competencies needed to lead the organization. It is also requires knowing where the gaps are, understanding the vulnerabilities that could inhibit a good succession process, and, of course, developing specific strategies and mechanisms to close the gaps.

Ultimately, the leader’s role is to take the organization into the future; and in that sense it is one of stewardship, of continuing the health and viability of the organization for the next generation.

A transition process presents an exciting opportunity for a firm to develop new competencies. The next-generation of leaders bring complementary skills and perspectives that can be precisely what your business needs as it seeks to update itself and to continually create value for its customers over time.

And what do the future leaders look like? There are characteristics that you want to look for and nurture in people vying for the next chapter of leadership. You will see in them that:

• They love the nature of the business
• They know themselves, and their strengths and weaknesses
• They want to lead and serve
• They have good relationships and the ability to accommodate others, especially if part of a successor team
• They have earned respect of employees, suppliers, customers, and other leadership team members
• Their skills and abilities fit the strategic needs of the business not only for this time and place, but also for expected future needs
• They respect the past and focus their energies on the future of the business and the industry

The current leadership, in addition to having responsibility for the profitable growth of the firm, also needs to see themselves as stewards carrying the organization into the future, developing and preparing the next generation of leaders to lead.

I was recently introduced to The Rockefeller Habits (Verne Harnish, Mastering the Rockefeller Habits, Select Books) and thought you might find them valuable too.

They are a model for achieving real and positive change, for positioning your business to take advantage of emerging opportunities as the economy improves, and for achieving profitable growth. The clients that I have been working with, who are using the habits, have seen increased effectiveness and productivity.

The habits are John D. Rockefeller’s management and leadership principles. Harnish gleaned them from Ron Chenoa’s biography of Rockefeller’s, The Titan. The 3 key principles are: Priorities, Data and Rhythm:

• Priorities. Growth requires an alignment within the organization on goals and priorities. Does your organization have a large, long-term goal or vision? What are your top 5 short-term goals or priorities for the year and the next quarter ? Is the number 1 priority understood through the organization? Does everyone in the organization have their own 5 priorities that align with the organization’s priorities?
• Data. It is important to have metrics that cover an extended period of time as well as metrics that provide a short-term focus on an aspect of the business or someone’s job. Do you have data on a daily and weekly basis to provide insight into how the organization is running and what is happening in the marketplace? What real-time feedback do you provide as to how your organization or team is performing consistent to your priorities? Does everyone in the organization have at least one key daily or weekly metric driving his or her performance?
• Rhythm. “Being in a groove” with the business requires a well-organized set of daily, weekly, monthly, quarterly and annual meetings keeping everyone aligned and accountable. The agenda for each provides the balance between the short and long term. While many businesses leaders may feel that they are spending too much time in meetings, in fact, they may be spending too much time in ineffectual meetings.

Rockefeller attributes his success, in part, to meeting daily with key team members to discuss the priorities they were working on, the daily metrics for those priorities, and, importantly, where they were stuck. These daily meetings can be likened to huddles or, as I call them, “stand-up” meetings, because they are quick and focused. A sit-down meeting has a different culture.

Weekly meetings have a different purpose and therefore a different agenda. They are issue-oriented, and their success is depended upon the daily meeting. The monthly meetings are educational; and quarterly and annual meetings are about strategy.

As these habits begin to bear positive results for your organization, a parallel growth of the organization’s leadership is also needed. The role of a leader is to take the organization into the future. They will have to predict, delegate and teach, and perhaps the most important, to envision and speak about where you are headed.

CBS Money Watch recently published an article comparing and contrasting entrepreneurs and leaders.

The entrepreneurial leader, the author noted, are people who not only changed our lives but changed life as we know it. He noted as entrepreneurial leaders people such as Steve Jobs (Apple), Yvon Chouinard (Patagonia), Herb Kelleher (Southwest Airlines), Bill Gates (Microsoft), Henry Ford (Ford Motor Co.), and Sam Walton (Walmart).

While I very much liked the article, I thought it could possibly have been comparing leaders and managers.

And at the same time, I see significant value recognizing distinctions and nuances, when and where they exist, between manager, leader and entrepreneur. Awareness of and the ability to articulate distinctions demonstrate an intense knowledge and understanding. The Sami, for example, an Artic indigenous people, have hundreds of words for snow (Wikipedia).

What do you think? You can read the article at http://bit.ly/zvGiRl.

Approximately 85% of all businesses are family-owned – from neighborhood mom-and-pop stores, to the millions of small and midsize companies, as well as the household names such Wal-Mart and Ford Motor Company.

While not unlike most small businesses, less than 30% make it past the third generation. Family-owned companies, however, enjoy a comparative advantage over their management-based counterparts. A success stemming from shared values, industry knowledge, and skills learned over generations, as well as other traditional competitive advantages of small business.

Why family business? I grew up in a third-generation family construction business, listening to my father talk about business around the dinner table.

I started and sold an environmental management business, and completed training as a business coach. Since 1996 I’ve worked with closely-held and family business owners on leadership development and business growth; and now focus exclusively on working with 2nd-4th generation family-led businesses, out of a sense of a family business’s overall value to society. I also lecture on family business management in the Zicklin School of Business, Baruch College, City University of New York.

Why family business? Intriguing and extremely valuable, beyond their competitive advantage, family businesses contribute to the social and economic fabric of the community in which exist, upholding a sense of trust and unfailing values.

Entrepreneurs and owners of family-led firms rightfully focus on revenue and growth of their business. Unfortunately many never learned the unique needs and strategies for multi-generational success in a family business – strategies such as a requirement that family members wanting to join the family business work, get a raise and promotion somewhere else, thereby averting concerns of nepotism, or clear roles for family members that support the growth needs of the business. This is important, for if the business does not prosper than the family will not be prosperous.

“The fundamental task of parents is to raise responsible adults who have high self-esteem and can function independently in this world,” David Bork, The Little Red Book of Family Business.

The Family Firm Institute, a professional organization for individuals involved in family businesses have a list of recommended books on family businesses. The Little Red Book of Family Business is one of them. It is a pocket-sized book of wisdom about the complex and rewarding world of family businesses.

The advice in the book was culled from the author’s 40+ years of experience working as a family business counselor, covering topics such as family-work boundaries, competence, competition, being rich, sibling relationships, and spousal roles. Each point is brief, to-the-point, insightful and sometimes humorous. Their strength is probably as a conversation-starter for an indepth dialogue with family members.

The main focus of the book is helping owners manage their families rather than their business. Interference in business decisions, double standards in employment, and succession wars can make families the worst enemies of their own businesses.

Some of the advice from Bork includes:

• If the business does not prosper, the family will not be prosperous
• Money is a tool, but it should never be used as a hammer
• If the family ownership is used in marketing, then it is important for all family members to practice the values the family claims to have, and
• Sparking solitary soul-searching- from the section on wills: “Don’t try to legislate from ‘the other side.’”

Bork’s red book doesn’t provide a solution to every problem, nor does it claim to. “This is a little book, not a big one,” he writes. But its pithy phrases provide a benchmark for determining the strengths and weaknesses of a family’s relationship with their business.

Available from Amazon and other book sellers.

In the midst of a full staff meeting Jim’s father turned to him and announced loud enough for all to hear, “You’ll never have what it takes to run this business.”

When family issues overflow into the business it hurts the business, the employees as well as all family members, jeopardizing the sustainability of the family and the business.

Family businesses provide a unique cultural and economic tapestry within our society. Planning, starting with an end in mind of how the wealth within the business and familywill transition to the next generations, creates greater well-being within thefamily from one generation to the next.

Most programs and training of business owners and entrepreneurs, however, stop with maximizing the growthof the business – short of achieving the sustainability of the family and the business.

The fact is, though, family-business Best Management Practices, which support the growth of the business, grow the estate of the shareholders, promote the health and well-being of family members, and increase family harmony, can be learned.