Michael J. Roszkowski

Introduction

The family-owned business has become a major focus for the financial services industry, for justifiable reasons. It is estimated that family-owned businesses account for 90 percent of all businesses, employing 50 percent of all American workers and contributing over 50 percent to the U.S. Gross Domestic Product. Certain sectors of the economy are dominated by family-owned businesses, namely real estate, construction, and distribution. Although most of these family-owned firms are small, some of the world’s largest companies are also family-owned or -controlled concerns (for example, DuPont). Approximately 20 percent of Fortune 500 firms can be considered family businesses. Family-run firms differ from other businesses. There is evidence to show that such firms tend to treat workers more fairly and provide better customer service. Compared to other businesses, family-owned firms tend to be younger and have fewer formalized operating procedures and less bureaucracy. Decision making tends to be centralized, frequently in the hands of an autocratic, patriarchal founder. Family firms tend to resist change more than non-family-owned businesses and have greater aversion to debt. Transitions in leadership are usually difficult in family-owned businesses. An often-quoted statistic is that only about 30 percent of family businesses successfully pass to the second generation and only 15 percent into the third generation. Because family members who work in the family business have multiple roles (employees, owners, relatives), many of the family difficulties spill over into the business.

The family-owned business market can be lucrative to the financial services provider; but to be successful, the professional must understand its unique characteristics. Many professionals, including attorneys, accountants, insurance agents, financial planners, and psychologists, are involved in advising or servicing the family-owned business. The training and expertise of each professional differs, and no one can be an expert in all aspects of the family business. While the serious psychological problems confronting the family business should be referred to therapists specializing in this area, all professionals involved with the family business should have at least some exposure to the psychological issues confronting the typical family business. This chapter deals with some of the psychological issues involved in working with the family firm.

What Was the Situation Before?

Founders of family-owned businesses are generally entrepreneurs. Until recently, studies considering the psychological characteristics of entrepreneurs tried to isolate personality factors that distinguish between entrepreneurs and other occupations. A large variety of personality characteristics have been examined, with most studies not able to differentiate very well between entrepreneurs and nonentrepreneurs on most such characteristics, leading to the conclusion that there is no one "typical" entrepreneurial profile. Usually the differences that have been found between entrepreneurs and nonentrepreneurs, while statistically significant, are fairly small.

A list of personality characteristics that at one time or another have been used to describe the entrepreneur is shown below. As one can see, some of these traits are even contradictory (for example, dominant and easygoing).

Note that the above list contains the word "innovative." While it is true that entrepreneurs are somewhat more innovative than managers, this is not always so. Most entrepreneurs are not "inventors" in the strict sense of the word. Rather, most get their ideas for starting their businesses by working in that particular field and merely replicating or simply modifying an existing concept. Furthermore, the longer the entrepreneur has been in a particular business, the less innovative he or she tends to be. The more innovative entrepreneurs tend to have started a larger number of businesses but not to have endured in them for long. The reasons for this are not understood fully, but it is believed that the innovative entrepreneur gets bored with the existing venture and desires to move on to another one. As evidence, note for example that in one study the innovative entrepreneurs spent only 18 percent of their time on administration, compared to 45 percent for the less innovative. Innovativeness does not necessarily equate with survival. 

The personality characteristics that have been linked with entrepreneurship most consistently are (1) need for achievement, (2) risk tolerance, (3) internal locus of control, (4) need for autonomy, and (5) optimism. These are the personality dimensions most likely to separate the entrepreneur from the nonentrepreneur.

• Need for Achievement. Most studies find that entrepreneurs have a very strong drive to achieve.
• Risk Tolerance. While ability to deal with risk is part of the definition of entrepreneur, most studies find that entrepreneurs are moderate risk takers rather than either very high or very low risk takers. Moderate risks are preferred because they allow the entrepreneur to use skill to control his or her exposure to risk. With too much risk, success is strictly a matter of chance. With too little, anyone can do it.
• Locus of Control. When asked to account for success or failure in their life, most entrepreneurs ascribe their fate to their own personal efforts rather than to luck or chance factors. This type of attribution is called internal locus of control, whereas attribution of success or failure to chance or luck is termed external locus of control. People with an internal locus of control can handle stress better, and being an entrepreneur has been shown to be quite stressful.
• Need for Autonomy. Entrepreneurs do not like being under the control of another person.
• Optimism. Entrepreneurs are willing to start another venture even after repeated failures. They believe that they have learned from past mistakes and that the current venture will be successful.

While other traits such as leadership and creativity are frequently found among entrepreneurs, they are also characteristics of individuals who are successful managers and hence cannot be considered unique to entrepreneurs. The other reported characteristics have not been replicated sufficiently and may be descriptive of only certain types of entrepreneurs. For example, some studies note that entrepreneurs are lonely people who did not participate in group activities while in school (for example, team sports and clubs) and later in life were misfits in conventional organizations.

Environmental factors fostering entrepreneurship have also been studied. There are extensive data to show that entrepreneurs had parents who owned their own businesses and that such parents encouraged independence, responsibility, and achievement in their offspring.

Entrepreneurs generally grow up in middle- to upper-class families, although many were born to immigrant parents or are themselves immigrants. Only limited support can be gathered for the contention that entrepreneurs are first-born or only children, who presumably received more parental attention, which in turn leads to greater self-confidence and the willingness to engage in new ventures.

Data about the educational level of entrepreneurs are similarly equivocal, although a fair number of studies suggest that entrepreneurs have limited education, except for those engaged in high-tech ventures. Perhaps it is fairest to conclude that entrepreneurs are better educated than the general public, but less educated than managers, and that in school they were not the top students. Table 11-2 compares traits of managers and entrepreneurs.

What Is the Nature of the Change?

Until recently, research on entrepreneurs and the family-owned business did not consider women entrepreneurs. With the increase in the number of women in the workforce, the situation is changing. These days women are starting businesses at a faster rate than men. Presently about a third of businesses in the United States are owned by women. Research comparing male and female entrepreneurs is increasing. Although they are more similar than different, female and male entrepreneurs differ in the following ways:

• Women are somewhat older when they start their first entrepreneurial venture (35–45 years of age for women versus 25–35 for men).
• Women are more likely to start a service business.
• Male entrepreneurs generally have educational backgrounds in business or technical fields; female entrepreneurs are more likely to have a liberal arts education.
• Women are more likely to have an entrepreneurial mother.
• Women are more likely to use outside sources for support and information (for example, trade associations).
• Woman-owned businesses are smaller.
• Female small-business owners devote more time to family than do male small-business owners.
• Several studies document that women starting a business have a harder time securing new venture financing, perhaps because failure rates for woman-owned businesses are higher.

Women are still discouraged from joining the family business, especially as partners or in a leadership capacity. (How many times have you seen "Smith & Daughter" or "Jones Sisters" on a storefront?) Seldom are they the founders’ primary choice for a successor. If they are allowed to join, they are relegated to staff positions such as customer service or human resources and so are unable to make major decisions.

The 1995 MassMutual annual survey of family business owners showed that in 34 percent of the businesses, a son is involved in the business in some way, but only 16 percent of these businesses report the involvement of a daughter. Likewise, whereas 26 percent of the family business owners report that they have a brother involved in the business, only 11 percent report a sister’s involvement. While 72 percent of the brothers and 56 percent of the sons were key decision makers in the family business, only 37 percent of the sisters and 30 percent of the daughters were reported to be thus involved.

It should be noted, however, that although the representation of women in top management positions in family-owned businesses is low, it is still higher than in non-family businesses.

The reasons for this gender gap in the family businesses is probably attributable to the same factors as have been identified for women in the workplace in all types of settings. It has been shown that sexual role stereotypes are more prevalent among men and that men prefer promoting other men. Some research findings show that women have lower career aspirations than men, perhaps because women’s aspirations are limited by gender stereotypes. Older adults have been found to gender-stereotype more than younger adults. It is encouraging that if a man has been exposed to, read about, or even heard about a woman who was successful in a typically male occupation, the degree of gender bias decreases. Less encouraging is research showing that even though the percentage of dual-earner couples has risen dramatically, sharing of domestic responsibilities by husbands has not risen proportionately; working women are still handling the lion’s share of housework and child rearing.

Recent research on the characteristics of entrepreneurs is conducted under the assumption that there are different types of entrepreneurs and that each type probably has different personality characteristics. A number of different typologies have been proposed. For example, a recent study of Australian female business founders suggests three psychological types of female entrepreneurs:

1. need achiever
   

2. pragmatic
   

3. managerial

The need achiever entrepreneur has a high need for achievement; the managerial entrepreneur, for power; and the pragmatic entrepreneur, a moderate need for both achievement and power.

A typology of family business owners, encompassing founders as well as heirs, has been recently developed by Russ Alan Prince and Karen Maru File. Eight family business personality types have been identified, based on research on 985 family business owners. The system is detailed in Marketing to Family Business Owners. The eight personalities are shown in table 11-3.

What Should Be Done?

Financial services professionals need to be aware that these eight personalities are interested in various financial products to different degrees. Furthermore, the products must be positioned differently to appeal to each personality type. For example, Fortune Hunters are most likely to use life insurance to pay estate taxes, whereas Recruits are least likely to do so. (See table 11-4.)

Consider the differences in the importance of various executive benefits, as judged by the eight personalities, shown in table 11-5.

Positioning statements for six classes of products are presented: Executive Benefits, Retirement Planning, Business Succession and Estate Planning, Asset Protection Planning, Investment Management, and Charitable Estate Planning. Position statements advocated by Prince and File for the first two classes, by personality type, are shown below. The statement is meant to appeal to the core motivation driving the family business owner.

Positioning Statements on Executive Benefits:

• Loving Parents: An executive benefits plan enables you to take care of your family.
• Empire Builders: An executive benefits plan helps you keep people focused and committed to building the business.
• Autocrats: An executive benefits plan helps you keep employees motivated in the right direction.
• Rebels: A well-thought-through executive benefits plan allows you to be seen as a high-quality manager.
• Recruits: There are certain kinds of benefits family members expect.
• Fortune Hunters: Executive benefits allow you to maximize your wealth through the business.
• Status Seekers: Executive benefits allow you to reward yourself and to be recognized.
• Social Benefactors: Executive benefits reflect the social responsibility of every company.

Positioning Statements on Retirement Planning:

• Loving Parents: A retirement plan can be used to take care of future financial needs of the family.
• Empire Builders: A retirement plan is designed to maximize growth in the business faster.
• Autocrats: A retirement plan is an effective way of increasing and controlling managerial retention and commitment.
• Rebels: A retirement plan can be better than any large company’s retirement plan.
• Recruits: A retirement plan can be designed to meet your family’s expectations.
• Fortune Hunters: A retirement plan can provide a substantial payout to the owners.
• Status Seekers: A retirement plan enables you to live in the future with the same status you enjoy now.
• Social Benefactors: A retirement plan reflects your ethical responsibility to your people.

Where Can I Find Out More?

• HS 331 Planning for Business Owners and Professionals. The American College.
• GS 836 Business Succession Planning I. The American College.
• M. W. Begley and D. P. Boyd. "Psychological Characteristics Associated with Performance in Entrepreneurial Firms and Small Businesses," Journal of Business Venturing, 1987, vol. 2, pp. 79–93.
• R. H. Brockhaus, Sr. and P. S. Horowitz. "The Psychology of the Entrepreneur," The Art and Science of Entrepreneurship, D. L. Sexton and R. W. Smilor, eds., Cambridge: Ballinger, 1986, pp. 25–48.
• J. Langan-Fox and S. Roth. "Achievement Motivation and Female Entrepreneurs," Journal of Occupational and Organizational Psychology, 1995, vol. 68, pp. 209–218.
• M. E. Mangelsdorf. "The Entrepreneurial Personality," Inc. Magazine, August 1988, p. 18.
• S. Parasuraman, Y. S. Purohit, and V. M. Godshalk. "Work and Family Variables, Entrepreneurial Career Success and Psychological Well-being," Journal of Vocational Behavior, 1996, vol. 48, pp. 275–300.
• R. A. Prince and K. M. File. Marketing to Family Business Owners. Cincinnati: National Underwriter, 1995, 307 pages. (Along with data on purchasing behavior and positioning statements, the book contains exercises designed to help the financial services professional become proficient in classifying clients into the eight personality types.)
• E. H. Scheis. "The Role of the Founder in Creating Organizational Culture," Family Business Review, 1995, vol. 8, no. 3, pp. 221–238.
• H. P. Welsch and L. K. Gundry. "Differences in Familial Influence among Women-owned Businesses," Family Business Review, 1994, vol. 7, pp. 273–286.

What Was the Situation Before?

Research results show that family business owners with children encourage their offspring to become involved in the family business, based on the belief that it is a good opportunity for the children and a worthwhile continuance of a family tradition. According to the 1995 MassMutual survey of family business owners, only 19 percent of parents either "somewhat" or "strongly" discourage their offsprings’ participation in the business.

Until recently, advisers of family businesses also believed that liquidating or selling a family-owned business to a nonfamily member should be avoided at all costs. The family-owned business was considered a legacy that was to be passed on to one’s children or some other close relative. The family-owned business was to remain in the family at all costs because it was intrinsically good to have a family business.

What Is the Nature of the Change?

It is now recognized that "success" should not always be equated with "succession." Some family businesses should be liquidated rather than passed on to the next generation because of the misery they can create for individuals who are pressured to take over and who are ill-suited to fulfill this role (the so-called "trapped child syndrome"). Furthermore, in some dysfunctional families the founder uses the family business to keep children and grandchildren close by, preventing the offspring from finding their own identity. The offspring are forced to subordinate their needs to those of the family. In a recent study 14 percent of college juniors and seniors felt that they would let someone down if they did not enter the family business. The pressure seems to come more from the father than the mother. Approximately 38 percent of the sample indicated that their father would like them to enter the business, compared to 24 percent who stated that this sentiment came from their mother. Frequently the founder’s children are reluctant to reveal their true feelings about the family business to their parents because they fear the disclosure would hurt their parents’ feelings.

The following reasons have been identified for children’s reluctance or refusal to get involved in the family business:

1. lack confidence in ability to live up to parents’ expectations
2. fear sibling rivalry
3. see limited career growth opportunities
4. want to establish own identity
5. lack interest in the particular business
6. see family-owned business as too all-consuming

One study suggests that father-son working relationships in the family business are fairly harmonious when the father is 50 to 59 years of age and the son is 23 to 32 years old. The relationship is problematic when (a) the son is 17 to 22 and the father is 41 to 45 years old and (b) son is 34 to 40 and dad is 60 to 69.

Other research shows that the more mutual respect there is between father and son, the more successful the succession. Unfortunately, according to a recent study, the level of mutual respect between father and son in the family-owned business leaves a lot of room for improvement. The percentage of the sons indicating that their degree of mutual respect/understanding was very high was 10 percent; high, 10 percent; moderate, 50 percent; and low, 30 percent.

In this same study, sibling relationships among the offspring of family business owners were also less than ideal. Asked about their degree of accommodation, over 15 percent of the siblings said it was very high, 60 percent said it was moderate, and the remaining 25 percent indicated that it was low (characterized by infighting).

What Should Clients Do?

If a child does not want to be the heir apparent to the family business, in most instances the person’s wish should be honored. As parental pressures increase, children experience identity difficulties and begin to doubt their ability to succeed outside the family business. Coercion will result in the offspring resenting and regretting his or her capitulation to the parents’ wish. The offspring will probably always have a feeling of having been deprived of a more fulfilling career. At best the offspring will be unmotivated, and at worst he or she will become rebellious.

If an offspring’s personality does not match the abilities and interests required by the job, then job dissatisfaction will result, and job performance may suffer. Psychologists have found that vocational interests can be reduced to about four to seven basic types. The most widely accepted typology, based on extensive empirical research, was developed by psychologist John L. Holland, who identified six basic occupational personality types: Realistic, Investigative, Artistic, Social, Enterprising, and Conventional. Adjacent personality types are more similar to each other, as shown in the diagram that follows.

The Realistic personality prefers to work alone in outdoor and manual activities. Most of these jobs are blue-collar in nature, except for a few technical positions, such as engineer. The Investigative personality type, which occurs among scientists, is marked by interest in working with ideas rather than people or things. Artistic personalities are most interested in working with ideas and things but like to create new ideas or things, rather than working within a conventional framework. Social personalities prefer to work with other people, especially those in distress, wishing to assist them (for example, social workers and teachers). The Enterprising personality type also likes working with people but wants to control and dominate rather than assist them. The Enterprising personality is very goal oriented and likes to manage the work being done by others. The Conventional personality type likes to work with things rather than people or ideas, especially if the work is detail oriented. This type of individual prefers unambiguous routine tasks, characteristic of jobs such as a clerk.

Career interest tests are available to determine which type of pursuits an offspring prefers. Family business advisers should avail themselves of such career counseling services.

If an offspring expresses interest in joining the family business, steps can be taken to prevent problems with the father and siblings. The following measures have been found to be effective:

1. Prior to entering the family business, children should work elsewhere for a couple of years. Furthermore, they should be eased into the business by assigning them progressively greater responsibilities.
2. It is better to place independent-minded offspring in a branch office than the headquarters, where friction between father and offspring is likely to occur. Similar autonomy can be provided by placing the offspring in a new division or in charge of a new product line.
3. To avoid sibling rivalries, assign them different jobs and responsibilities. Do not have one sibling report to another.
4. Spend time together outside the business.
5. Hold annual family retreats to bring problems out in the open.
6. Set up a family council to make recommendations on policy.
7. Develop formal codes of conduct, written for family members by family members.

Elaboration of some of these points is in order. The family council and the board of directors should not be one and the same. Even though they may appear to have similar functions, one major difference between these two bodies of overseers lies in their primary objective. The family council has the best interest of the family at heart, whereas the board of directors is more concerned about what’s best for the business. Given the differences in mission, tensions between the family council and the board of directors are likely to exist. One way of minimizing conflicts is to have some overlapping membership between these two boards.

An example of a family code of conduct developed by a successful family business appears in Arthur Andersen‘s Family Business Advisor (June 1995). It includes the following principles to guide family meetings:

1. Allow others to complete their thoughts without interruption.
2. Assume that others are acting in good faith.
3. Allow for the personal growth and development of others.
4. Involve as many family members as possible in a decision.
5. Respond to requests in a timely manner.
6. Seek consensus.

While this is just common sense, it frequently needs to be repeated, lest we forget.

Where Can I Find Out More?

• HS 331 Planning for Business Owners and Professionals. The American College.
• GS 836 Business Succession Planning I. The American College.
• GS 838 Business Succession Planning II. The American College.
• J. A. Barach and J. B. Ganitsky. "Successful Succession in Family Business," Family Business Review, 1995, vol. 8, no. 2, pp. 131–155.
• C. J. Eckrich and T. A. Loughead. "Effects of Family Business Membership and Psychological Separation on the Career Development of Late Adolescents," Family Business Review, 1995, vol. 9, no. 4, pp. 369–386.
• W. C. Handler. "Key Interpersonal Relationships of Next-Generation Family Members in Family Firms," Journal of Small Business Management, July 1991, pp. 21–32.
• K. Kaye. "When the Family Business is a Sickness," Family Business Review, 1995, vol. 9, no. 4, pp. 347–368.

What Was the Situation Before?

Most founders are very reluctant to give up control of the business. Succession and estate planning were once considered to be relevant issues only when the founder’s career was drawing to an end.

What Is the Nature of the Change?

A recent national survey of the heirs of failed family businesses indicates that the major trigger for the transition in leadership and ultimate collapse of the business was not the founder’s retirement, but the founder’s death (78 percent of the cases). In over a third of these instances, the death was "unexpected."

It is generally recommended that (a) succession planning start 5 to 20 years in advance of the anticipated date of retirement, (b) the succession plan be in writing, and (c) an advisory board be set up to help with the process. While advisers to the family business now realize that these issues need to be addressed continuously, because they are processes rather than events, the evidence suggests that this point of view is not yet accepted by the founders themselves.

A recent study shows that 63 percent of founders believe that the successor should be selected no more than 5 years prior to retirement. Only 35 percent feel it necessary for the plan to be in writing, and an even lower proportion (27 percent) feel that a board of advisors is necessary to assist in the process.

Recent research on the decision-making strategies of entrepreneurs sheds light on why this state of affairs exists. Most successful entrepreneurs are not long-term strategic planners. They tend to be intuitive thinkers who abhor what they perceive to be unnecessary bureaucracy.

On the Myers-Briggs personality scale, 60 percent of founders are intuitive decision makers, whereas 86 percent of managers are sensing types. Sensing decision makers need external information to make decisions, whereas intuitive types rely on their own internal judgments, such as imagination. It’s been observed that sensing types like to have specific detailed facts, whereas intuitives prefer to have just a general overview. It’s been reported that certain words are more likely to appeal to the intuitive type, whereas other words are more appealing to the sensing type. Their respective vocabularies are as follows:

New findings also indicate that many successful founders do not spend much time researching and analyzing. Entrepreneurs seize the moment. If something is analyzed too long, the opportunity could disappear. The analyses conducted by entrepreneurs are characterized by (a) a quick screening of opportunities, (b) focusing on just a small number of important issues, (c) acting without having all the answers (partial information). Most entrepreneurs feel that some unknowns cannot be answered through more research. They prefer informal methods of learning about their customers’ needs and indicate a mistrust of formal market research.

A typology of family business owners, based primarily on who makes the important decisions, is presented in the 1995 MassMutual Annual Survey of 1,029 Family Business Owners. Seven types of family businesses are identified, based on a statistical technique called cluster analysis:

1. Mom and Pop (17 percent of family businesses). A husband and wife run the business jointly, with two-thirds intending to pass the business to their children. The average age of the owners is 52. The businesses are smaller than average.
2. Sibling Team (6 percent). Two or more siblings run the business, which is typically a first-generation (78 percent) venture. Family disagreements regarding the business occur frequently.
3. Dominant Owner (12 percent). In this family business, "the owner is king," and this individual makes all the decisions. Family disagreements are infrequent because there is only one decision maker. These businesses are mainly first generation and smaller than average. The average age of the owner is 52. While 90 percent of these owners have offspring, less than half plan to transfer the business to the next generation.
4. Looking Ahead (16 percent). The average age of the owner is 62, and this individual is starting to recognize that the business will not remain in his hands forever. The children are becoming involved in decision making, but the final decision still rests with the owner.
5. Parental Oversight (13 percent). These are family businesses in transition from one generation to the next. Primary responsibility for decision making has been passed from parent to offspring (average age, 37), but the parent continues to be involved in the business, leading to frequent disagreements about how the business should be run.
6. Outside Assistance (33 percent). This type of family business has the smallest number of decision makers (average is 3), and it is also unusual because the primary decision makers are not family members. The average age of the owner is 49.
7. The Mega Firm (4 percent). The mega firm is at the opposite end of the spectrum from the "outside assistance" firm in terms of the number of decision makers (average is 10) and contains both family members and non-family employees as key decision makers. This firm is generally large (average number of employees is 347). A greater-than-average level of discord characterizes these family businesses.

What Should Clients Do?

Advisers working with the family business founder need to be sensitive to who makes the decisions, as well as the person’s decision-making style, when presenting information. When dealing with a founder, do not overload the person with too many details, because founders are usually good at extrapolating patterns and trends from limited data. Too much detail will bore them. Don’t expect them to have an orderly, disciplined approach to information collection.

Many decisions about the purchase of financial services for the firm often involve parties not directly working in the firm, the so-called "shadow influencers." Partly due to this situation, decisions about purchasing a financial service or product take longer for a family business than for another type of concern.

Efforts by advisers to alert family business owners about the dangers of not having a written succession plan may be having an effect, based on results of MassMutual’s third annual survey of family business owners. In 1993 only 21 percent of respondents had a written succession plan. By 1994 the comparable percentage was 28 percent. In the 1995 survey almost half (48 percent) of family business owners reported having a written succession plan in place.

Interestingly, the survey found that large family businesses (i.e., more than 100 employees) were no more likely than small businesses (i.e., fewer than 25 employees) to have a formal succession plan. Likewise, only a small difference was found based on the generation of the business (33 percent of first generation business owners had a succession plan, compared to 29 percent of third generation owners). However, women business owners were less likely to have a written succession plan (33 percent of women versus 46 percent of the men).

As might be expected, the older the owner, the more likely that a written succession plan exists.

While these statistics are encouraging, especially when compared to the earlier studies, it is still quite shocking that 37 percent of family business owners past the normal retirement age have not created a formal succession plan.

Founders are generally reluctant to transfer the enterprise to a successor because their own identity is tied to the business. Frequently the business becomes their sole interest, dominating all other aspects of their lives. A founder is especially unlikely to "let go" if he or she is involved in every detail of the business and has not regularly delegated the more routine and mundane tasks to subordinates. According to Prince and File, the "Autocrat" is the family business owner type least likely to consider the inevitability of having to get out of the business at some point. Consequently, this personality type is not very interested in retirement planning.

The possible reasons why founders are reluctant to plan succession are eloquently stated by Ernest A. Doud, who uses David Letterman’s "top ten" format to identify the reasons and then indicate why the rationale underlying this pattern of thought is wrong.With Ernie Doud’s kind permission, we have reproduced the list, which was presented on the World Wide Web by Doud Hausner and Associates of Glendale, California. Since there is some evidence that compared to other people, entrepreneurs like to employ metaphors in their speech, they will probably respond well to the arguments presented by Doud.

Top Ten Reasons Founders Won’t Let Go

Doud Hausner and Associates

10. "Too many people I’ve known have died soon after they retired (or acted like they were dead)." There’s no correlation between mortality and retirement. However, it helps to develop interests outside the business to which you can turn your attention.

9. "Without me, the business is nothing." Get your ego down to a more realistic size. In fact, under your successors, the business may evolve in ways you’ve never imagined.

8. "Without the business, I’m nothing." It doesn’t have to be an "all or nothing" proposition. There are many constructive ways you can maintain your identity and connection with the business, spend time with your successors and trusted advisors investigating all the possibilities.

7. "I hate gardening, find cruises boring, and get sunburned if I play too much golf." So find other leisure activities that excite you. Do those things you’ve always wanted to do, but for which you never had the time. (We know one founder who rekindled his interest in music. His combo now appears in jazz festivals all over the world).

6. "I need someplace to go." My wife keeps reminding me she married me for better or for worse—but not for lunch! There is no denying the fact that major changes can add new stresses to any relationship. If you don’t develop a new focus in your life, then you’re liable to have time on your hands while your spouse maintains her/his normally busy schedule. To help avoid unnecessary post-retirement stress in your marriage, re-read numbers 8 and 7.

5. "The ‘kids’ want to change the way the business is run. If I’m not there, they will change what I’ve built!" If the business doesn’t change to keep up with new demands, it will suffer. If you took over from a previous generation, you made changes. And if you are the founder, the business has changed from the first day it started. Businesses can thrive on infusions of fresh ideas and energy.

4. "I don’t want to choose between my ‘kids’ to name a successor." Well, you could let them "duke it out" after you’re gone. Better yet, involve them in the decision. If you have a strategic vision and plan for the business it will be easier to determine who has the skills and talents needed to lead it.

3. "The business is my major source of income. I have to stay active to protect it." There are a vast array of strategies for turning your illiquid business investment into an asset that can provide a stream of retirement income. Check them out!

2. "Nobody can run the business as well as I can." You may not realize it, but you’re probably not the only one running your business now. You may make major decisions, but chances are, you’re not involved in all the details. Step back! Look around.You may find untapped potential.

1. "They may run it better than I did!" And what’s wrong with that? Don’t let your ego get in the way. Comprehensive succession planning that is done well will help your business thrive under the next generation. This is one of the most important legacies you can create.

Where Can I Find Out More?

• HS 331 Planning for Business Owners and Professionals. The American College.
• GS 836 Business Succession Planning I. The American College.
• GS 838 Business Succession Planning II. The American College.
• J. A. Barach and J. B. Ganitsky. "Successful Succession in Family Business," Family Business Review, 1995, vol. 8, no. 2, pp. 131–155.
• A. Bhinde. "How Entrepreneurs Craft Strategies That Work," Harvard Business Review, March-April 1994, pp. 150–161.
• E. H. Buttner and N. Gryskiewicz. "Entrepreneurs’ Problem-solving Styles: An Empirical Study Using the Kirton Adaptation/Innovation Theory," Journal of Small Business Management, January 1993, pp. 22–31.
• T. J. Callahan and M. D. Cassar. "Small Business Owners’ Assessments of Their Abilities to Perform and Interpret Formal Market Studies," Journal of Small Business Management, October 1995, pp. 1–9.
• D. A. Kirby and T. J. Lee. "Succession Management in Family Firms in the Northeast of England," Family Business Review, 1996, vol. 9, no. 1, pp. 75–81.
• M. E. Mangelsdorf. "The Entrepreneurial Personality," Inc. Magazine, August 1988, p. 18.
• Mathew Greenwald & Associates. MassMutual 1995 Annual Survey of Family Business Owners, September 1995, Massachusetts Mutual Life Insurance Company, Springfield, MA, 59 pages.
• R. A. Prince and K. M. File. Marketing to Family Business Owners. Cincinnati: National Underwriter, 1995.

Chapter 10

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Chapter 12