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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

Chapter 2Chapter 2

Family Business Family Business OpportunitiesOpportunities

What is a family business?What is a family business?

• Two or more family members are involved Two or more family members are involved – involvement may vary:– involvement may vary:Several family members work in the businessOwnership has passed to a second or third

generationChildren are being groomed for leadership

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

The Overlap of Family Concerns and Business Interests

Family Concerns Business Concerns

• Nurturing• Development

• Profitability• Survival

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

Advantages of Family InvolvementAdvantages of Family Involvement

• Strength of family relationshipsStrength of family relationships

• Willingness of family members to make Willingness of family members to make sacrifices for the good of the firmsacrifices for the good of the firm

• Demonstration of high levels of concern for Demonstration of high levels of concern for employeesemployees

• Ability to plan for the long haulAbility to plan for the long haul

• Emphasis on quality and valueEmphasis on quality and value

CultureCulture

• Culture: unwritten, customary ways of Culture: unwritten, customary ways of doing things; shared beliefsdoing things; shared beliefs

• Organizational Culture: practices Organizational Culture: practices distinguishing a given firm. (working late)distinguishing a given firm. (working late)

Family Roles in BusinessFamily Roles in Business

• NegativesNegatives

• Stress – Stress – emotional/financialemotional/financial

• Dividing personal & Dividing personal & business dutiesbusiness duties

• Power strugglePower struggle• Lack of personal timeLack of personal time

• PositivesPositives

• TrustTrust• Loyalty/CommitmentLoyalty/Commitment• CompatibilityCompatibility

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

Parental Concerns About Passing the Parental Concerns About Passing the Business On to the Next GenerationBusiness On to the Next Generation

• Does my child possess the temperament and ability necessary Does my child possess the temperament and ability necessary for business leadership?for business leadership?

• How can I motivate my child to take an interest in the business?How can I motivate my child to take an interest in the business?

• What type of education and expertise will be most helpful in What type of education and expertise will be most helpful in preparing my child for leadership?preparing my child for leadership?

• What timetable should I follow in employing and promoting my What timetable should I follow in employing and promoting my child?child?

• How can I avoid favoritism in managing and developing my How can I avoid favoritism in managing and developing my child?child?

• How can I prevent the business relationship from damaging the How can I prevent the business relationship from damaging the parent child relationship?parent child relationship?

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

Key Concepts in Family Business Management

1. Create a flexible, creative organization1. Create a flexible, creative organization

2. Require competence in family members.2. Require competence in family members.

3. Prepare successors for leadership.3. Prepare successors for leadership.

4. Attract and retain excellent managers4. Attract and retain excellent managers.(family/non-.(family/non-family)family)

5. Discuss plans openly.5. Discuss plans openly.

6. Avoid favoritism in personnel decisions.6. Avoid favoritism in personnel decisions.

7. Exploit unique advantages of family ownership.7. Exploit unique advantages of family ownership.

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Small Business Management, 11th editionLongenecker, Moore, and Petty© 2000

South-Western College Publishing

A Model of Succession in a Family BusinessStage I

Pre-Business

Child becomes aware of some facets of firm and/or industry.

Orientation of child by family member is informal.

Stage IIIIntroductory Functional

Child works as part-time employee. Work gradually becomes more difficult.

Includes education and sometimes work for other firms.

Stage IIIntroductory

Child is exposed to business jargon, employees in the business, and the business environment.

Entry of Successor Stage IVFunctional

Potential successor begins work as full-time employee.

Includes all nonmanagerial positions.

Stage VAdvanced Functional

Potential successor assumes managerial position.

Includes all management positions prior to becoming president.

Transfer of Leadership Stage VIEarly Succession

Successor assumes presidency.

Includes period in which successor becomes de jure head of company.

Stage VIIMature Succession

Successor becomes de facto head of company.