Thoughts and ideas on growing a business

7 Attributes of Enduring Family Businesses

There are c. 200,000 family owned businesses in Ireland.

Recently I was contacted with a query on support for family businesses, and it led me to think about the many family owned companies we work with in Celtar. The high proportion of our family business clients is not surprising.

Family owned and managed businesses have their own unique characteristics, a shared history and experience, loyalty and deep commitment.

In any SWOT Analysis there will be recognition of specific Strengths associated with a family enterprise. In the next column these self same Strengths can also be identified as Weaknesses.

As specialist SME advisers we have worked with first, second and third generation family owned businesses. These include business services firms, specialist contractors, distributors, a private hospital, manufacturers, tour operators, a materials handling company and many more.

Consulting firm McKinsey produced a paper called “The Five Attributes of Enduring Family Businesses” in 2010 (I have added two more attributes). They noted that one-third of the companies in the S&P 500 and 40% of the 250 largest companies in France and Germany were family businesses. Of course the term “family business” does not necessarily mean “small business.” While many of the conclusions McKinsey drew were applicable only to the largest multi-generation companies, there are lessons that apply to family businesses of all sizes and types. In this blog, I’ll describe McKinsey’s key success attributes along with some comments from our experience in Celtar.

1.  Governance and business growth

“As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. The generations that follow the founder, for example, may insist on running the company even though they’re not suited for the job. And as the number of family shareholders increases exponentially generation by generation, with few actually working in the business, the commitment to carry on as owners can’t be taken for granted. Indeed, less than 30% of family businesses survive into the 3rd generation of family ownership.

“To be successful as both the company and the family grow, a family business must meet two intertwined challenges: achieving strong business performance and keeping the family committed to and capable of carrying on as the owner.”

The number of family members owning or working in the business should not, in fact, increase “exponentially generation to generation.” Inevitably there will be conflict about future direction of the company if there are too many family shareholders. From experience some may look to sell up and asset strip the business, others will take a longer view and wish the company to continue growing, and trading whilst maintaining family ownership.

2.  Recognising the need for external talent

“Family businesses can go under for many reasons, including family conflicts over money, nepotism leading to poor management, and infighting over the succession from one generation to the next. Regulating the family’s roles as shareholders, board members, and managers is essential because it can help avoid these pitfalls. Large family businesses that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose…….long term survivors usually share a meritocratic approach to management.”

For business survival and growth, family members must accept that the best people to manage the business are not necessarily members of the family.

3. Raising capital, effects on ownership

“Maintaining family control or influence while raising fresh capital for the business and satisfying the family’s cash needs is an equation that must be addressed since it’s a major source of potential conflict, particularly in the transition of power from one generation to the next. Enduring family businesses hold family councils and regulate ownership issues – for example, how shares can (and cannot) be traded inside and outside the family – through carefully designed shareholder agreements. Raising capital from Venture Capital firms will dilute family ownership and lessen family control.

4.  The struggle for talent

“Family businesses, like their non-family peers, face the challenge of attracting and retaining high class talent to key management positions. In this respect they have a handicap because non-family executives might fear that family members make important decisions informally (over meals in the family kitchen?) and that a glass ceiling limits the career opportunities of outsiders.”

Family businesses do have a problem retaining and attracting talented managers. Non-family executives fear that their contributions are not recognised, and that they are “out-of-the-conversation” when important decisions are taken.

5. Too risk averse?

“Too much prudence can be dangerous. Family owners, who usually have a significant part of their wealth associated with the business, face the challenge of preventing an excessive aversion to risk from influencing company decisions. Excessive risk aversion might, for example, unduly limit investments to maintain and build competitive advantage and diversify the family’s wealth.”

Many Irish family businesses will have invested in our property boom/bubble, so in fact more prudence should have been employed.

6.  Develop your own talent – succession planning

Working in the family business has become a more attractive option for many sons and daughters, as the recession hinders career development and limits job opportunities.

We advise that the family members work elsewhere, possibly the UK, before they join the family business. Away from the family enterprise they learn professional management skills and different approaches – and thus bring new ideas and outside experience to the family firm when they join 4 or 5 years later.

7. Values of family businesses can be different

A fair share of family owned businesses offer a higher then average commitment and loyalty to staff.  I have observed business owners of small companies taking hits in their pockets instead of taking the option to make staff redundant. Larger companies can appear heartless in making redundancies when their sales fall and profits decline. Small family owned businesses are often different. This difference is based on close relationships with individuals built up over years and of working together to serve customers.

In conclusion

The keys to long-term success for a family business are professional management gained from harnessing the experience of outsiders, and keeping the family committed to the responsibilities of ownership.

See the original McKinsey article at

http://www.mckinsey.com/insights/organization/the_five_attributes_of_enduring_family_businesses

To discuss how the issues in this article affect your family business you are welcome to contact me at billy.linehan@celtar.ie

Other resources

http://www.deloitte.com/ie/succession-planning

Deloittes Ireland ‘Planning for family business succession’

http://download.pwc.com/ie/pubs/2012_family_business_survey_findings_for_ireland.pdf

Family business survey 2012 from PWC Ireland

http://www.enterprise-ireland.com/en/Events/OurEvents/Family-Business-Conference-21-May-2013

Enterprise Ireland are hosting a  “Family Business Conference” on the 21^st of May 2013, in Dublin

http://www.enterprise-ireland.com/en/Events/OurEvents/Family-Business-Conference-21-May-2013/

There used to be a family business centre in UCC, www.ucc.ie , but I can’t find any recent links to it.

And there is a new family business initiative from Plato in Cork which I am researching.

Billy Linehan, Celtar, family business advisers Dublin

Growth, recognition & quality in management consulting

The IMCA has recently released the highlights of a survey on the Irish consultancy market in 2011/12*. A briefing is being held for members on February 27^th.

(You might be interested, Celtar offers advice to new consultants, follow http://celtar.ie/blog/advice-for-new-consultants/ )

The main points are described below with additional commentary:

                         1.  In 2011 the Irish market is estimated at €538m with 3,700 consultants – the increase on previous years (€438m in 2010) is based on extra practices rather than market growth alone;

                          (Market size is possibly larger as I suspect this is an understatement of the number of “management consultants” in the Republic of Ireland. The full number of IT consultants or new self-employed consultants may not be taken into account).

                       2.  Practices with turnover greater than €0.5m (9% of practices) account for 68% of turnover with the remainder 32% across a large number of small practices and individual consultants;

                          (I suspect that the largest practices generate higher then 68% of the income looking at the size and number of assignments they deliver for MNCs, state sponsored companies, the banks including IBRC and the Central Bank, and the public sector. Much of the advice deals with the aftermath of the banking crisis).

                        3.  Consultancy has a relatively low share of the economy in Ireland – 0.3% of GDP as against 1.14% in the UK and a 0.69% FEACO average; 

                          (Anecdotally management consultancy is not well developed or formally regarded in Ireland. Take for example public procurement – including supplying of services to Enterprise Ireland and state sponsored agencies and quangos. The CMC accreditation is still not formally recognised, or sought for, in the public procurement of consultancy services. This lack of recognition of an international quality standard has the greatest effect on the smaller end of the market in Ireland, independent consultants and small firms).

                       4.  Revenues in Ireland were 8% up in 2011 with an increase of 9% projected for 2012, both mainly driven by larger practices; all countries surveyed, apart from Greece and Portugal, reported growth in 2011;

                          (There are two consultancy markets in Ireland; the top 5 or 6 firms dominate and grow their business in terms of revenue. For the rest, independent consultants and small firms, most have experienced considerable declines in profits and turnover since the demise of the Celtic Tiger.

                     5.  Consultancy in a recession is often an attractive career option for the newly unemployed executive. I have observed that many of these “temporary” consultants have returned to the job market after two or three years trying to build up business. Consultancy in the Recession is not for the faint hearted).

                    6.  The market is mainly domestic with only 10% exported – at the lower end of the spectrum of countries surveyed; exports are mainly within Europe;

                          (One legacy of the Celtic Tiger was to keep consultants focused on opportunities in Ireland, like many other professional advisers they did not have to go abroad to find work. The Enterprise Ireland supported initiative Consulting Ireland www.consultingireland.org was designed to encourage consultants to win overseas contracts. It now appears to have lost momentum. And focus. It now includes consulting engineering firms as well as a broad range of management consultancy. There is a great opportunity now for Enterprise Ireland to revive this initiative, and ask the IMCA to run it on their behalf with appropriate funding).

                      7.   The support staff / consultant ratio was estimated at 12%, similar to the UK;

                          (Consultants now utilise technology and the requirements for support staff are limited. If required even the smallest firm can access support services through subcontracting and outsourcing).

                 8.  Average annual revenue per consultant ranges from €125k for practices of four and below to €160k for larger practices;

                          (As mentioned the predominance of the large consulting firms skews the average consulting fees).

                     9.  Business Consulting is the largest service line (58%) followed by IT Consulting (16%); Outsourcing comprised 7% of the total as against 9% in both the UK and the FEACO average;

                          (Here we depend on a common understanding of the terms ‘business consulting’, ‘management consulting’, ‘IT consulting’ etc.)

                      10.  Public Sector and Industry are the largest industry sectors with 25% and 21% of the market respectively. 

                          (Yes the unreformed Public Sector absorbs the greatest proportion of consulting fees, even in recessionary times. Unfortunately the Public Sector does not seek local providers of consultancy, or other SMEs, as priority suppliers of services in its procurement processes. In fact state agencies and enterprise quangos negatively impact on the growth of a healthy consultancy market by the use of nominally paid business mentors in quasi-consultant roles).

Quality in consulting

Clients look for qualified consultants with experience and practical expertise to assist them. The internationally recognised and accredited Certified Management Consultant accreditation is a quality benchmark that should be recognised as a start by Enterprise Ireland, and all government departments, local authorities, funded agencies and quangos in their procurement processes.

The IMCA should rigorously enforce the CMC Standard, ensuring that an appropriate barrier to entry exists so new members are of a high standard, and that existing members maintain their professional practices to the highest level.

Billy Linehan, February 2012

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* The 2011 / 12 FEACO (European Federation of Management Consultancies Associations) Survey of European Consultancy, for which a survey of the Irish consultancy market was completed in July / August 2012, is now available in the Members Area of the IMCA website together with a commentary on the key issues of relevance to the Irish market.

Note: the IMCA is the professional institute of management consultants and advisers in Ireland. The IMCA is authorised to award the CMC (Certified Management Consultant) designation in Ireland. The initials CMC following a consultant’s name means that he or she meets the strict certification requirements of the IMCA which are based on world class standards of competence, ethics and independence set by the ICMCI  (International Council of Management Consulting Institutes). To find out more about joining the IMCA email info@imca.ie  www.imca.ie

Billy Linehan is a business consultant, a CMC (Certified Management Consultant) since 2004 and MD of Celtar. Formerly a director of the IMCA, Billy works with the leaders of SMEs bringing clarity to business objectives and success in achieving goals.

See more about Billy  http://www.linkedin.com/in/billylinehan

” Business advice Dublin “

The largest facilities outsourcing deal in history

Working with property management organisations, we can appreciate the potential of this example for outsourcing core operations. The focus on what is described as  ”win-win” relationships enables companies to drive innovation and increase their competitive edge.

Smaller property management companies being more flexible and quick witted – with closer relationships & smaller spans of control –  can adapt to this partnership approach.

Many companies have outsourced non-core operations, but few have managed the real estate outsourced relationship as effectively – and unconventionally – as Procter & Gamble (P&G), according to Kate Vitasek, author of the recently published Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships.

In the book, Vitasek,  tells the story of how the multinational consumer product manufacturer’s relationship with Jones Salle Lang (JLL), a global financial and professional services firm specialising in commercial real estate services, transformed the contracting approach to corporate real estate in what was the largest facilities outsourcing deal in history.

In today’s rapidly evolving world, business relationships based on an outdated, “win-lose” mentality will not withstand a market that demands constant change and adaptation. Only by focusing on “win-win” relationships can companies drive innovation and increase their competitive edge, the book suggests. Vitasek illustrates this through an in-depth look at how JLL and P&G have worked together in a win-win fashion. In P&G and JLL’s agreement, both companies shared in the risk and the reward of the business with an approach that focused on mutual success. Their contract covered 40 separate areas of shared responsibility, including facilities management, project management and strategic occupancy services in 60 countries, an uncharted scope that neither company had achieved prior to this, the author explains.

Through transformative contract parameters originally established in 2003, JLL was empowered to deliver on P&G’s goals of achieving cost efficiency while exceeding customer satisfaction targets for six consecutive years. During that time, P&G’s Global Business Services (GBS) division reduced cost as a percentage of sales by 33 percent for its outsourced operations, including the work with JLL, says P&G in Vested.

Vested further illustrates, through the P&G and JLL story, five rules of successful vested relationships:

Rule 1: Focus on outcomes, not transactions. JLL’s compensation was linked to its success in achieving specific outcomes established in collaboration with P&G — not on property commissions. Charged with bringing new ideas to the work and determining best methods, this structure ensures that both parties share a vested interest in driving transformation.

Rule 2: Focus on the what, not the how. Rather than defining service minutiae in the contract, P&G delegated these details to JLL. At the outset, approximately 550 P&G employees were transferred to JLL. Most had never worked for a real estate services provider or even any company other than P&G, but P&G trusted JLL to effect the change in mindset and motivate the new employees to drive innovation for their former employer.

Rule 3: Establish clear and measurable desired outcomes. JLL worked with P&G to define big picture results rather than measuring the program against task performance. Each year the two companies jointly review the defined measures to determine the extent to which the desired outcomes were achieved. For example, in 2005, the companies focused on the successful integration of P&G’s Gillette and Wella acquisitions.

Rule 4: Create a pricing model with incentives. Four key components define the incentivisation model in the JLL-P&G contract. The cost pass-through arrangement is structured so JLL manages the budget and costs, but P&G retains responsibility for the bills, while the management fee at risk structure creates increased accountability for results with P&G, withholding a portion of the JLL management fee until results are achieved. The model also includes a structured approach to compensation for above-base scope projects; and lastly, JLL receives shared savings incentives when it helps P&G reduce costs.

Rule 5: Insight versus oversight. P&G and JLL incorporated a proactive governance structure into their contract to ensure an ongoing “win-win” relationship, establishing both companies as co-owners of the corporate real estate function, with shared goals and communication processes aligned with both organizations.

Article from the FM Link Newsletter, http://goo.gl/TQPnC

Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships, by Kate Vitasek, published by Palgrave Macmillan

For your property requirements check out the website of the Society of Chartered Surveyors in Ireland  www.scsi.ie

Celtar, business advice from Dublin

See our sister blog Doing Business in Ireland

This is a curated blog, showing a variety of articles taken from the web, Twitter & the blogosphere generally on the theme of business news and updates from Ireland.

Much of the news features Enterprise Ireland initiatives, Irish business success overseas, Foreign Direct Investment wins, opinions from Irish business managers, policy statements from the Irish government and commentary from diverse sources. News from Celtar clients is also featured, as well as occasional commentary from Celtar.

We use the free ScoopIT curating tool.

See all at  www.scoop.it/t/doing-business-in-ireland

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“Strategy?  Strategy! I never got to where I am today thinking about strategy.”

There are two types of people who run businesses. Those whose eyes glaze over when they hear the term “strategic planning”, and those who are over enthusiastic when the phrase is mentioned and embrace it fully.

Most business owners I work with share the former trait, they are very operationally focused.  Sales and selling, new customers, people performance, maintaining margins and an obsession in meeting customer needs are where they feel most comfortable.

Now is the time of year to stick their heads above the parapets, to gather their management teams to review 2012 and plan for 2013. To get down and dirty, dust off last year’s  SWOT and bring it up to date.  To review last year’s targets and performance, set targets for 2013, first identify and then plan to align resources, and re-plot the path to the long-term objectives.

Yes, that’s what I will be working on – strategy – over the next two months with clients old and new.

See the recent recommendation from Walter MacDonough of property specialist Alan Caren and Partners Ltd.

“Billy Linehan of Celtar business consultants facilitated the development of a new strategic plan for our company. He worked with us in a time of challenge and change and shared a framework for long term business planning, aligning company objectives with departmental & staff goals.

He identified critical business issues to target as part of the strategic review and together we developed a growth plan for the business.

Billy has provided excellent advice to the directors of Alan Caren and Partners Ltd (Property, Facilities & Building Consultancy specialists), and we recommend his services to other growing companies.

Contact us at info@celtar.ie for more information & if you would like an external input into your  company’s plan for growth.

Celtar, business advice in Dublin