part vi – contemporary challenges in entrepreneurship chapter 18 – acquisition and valuation of...
TRANSCRIPT
Part VI – Contemporary Part VI – Contemporary Challenges in Challenges in Entrepreneurship EntrepreneurshipChapter 18 – Acquisition and Valuation of Chapter 18 – Acquisition and Valuation of Business Ventures Business VenturesChapter 19 – Management Succession andChapter 19 – Management Succession and Continuity: A Family Continuity: A Family Business Perspective Business PerspectiveChapter 20 – Women and Minority Chapter 20 – Women and Minority Entrepreneurship EntrepreneurshipChapter 21 – Total Quality Management: The Chapter 21 – Total Quality Management: The Continuous Improvement Challenge Continuous Improvement Challenge for Entrepreneurs for Entrepreneurs
Copyright (c) 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Chapter 19 – Management Chapter 19 – Management Succession and Succession and Continuity: Continuity: A Family Business A Family Business Perspective Perspective
Family–Owned BusinessFamily–Owned Business
Research has shown that Research has shown that approximately 92 percent of all U.S. approximately 92 percent of all U.S.
business ventures are under the business ventures are under the strategic control of a family and are strategic control of a family and are
intended to remain in the family.intended to remain in the family.
Advantages and Disadvantages of Family Advantages and Disadvantages of Family Controlled FirmsControlled Firms
AdvantagesAdvantages• Long-term orientationLong-term orientation• Greater independence of Greater independence of
actionaction• Family culture as a source Family culture as a source
of prideof pride• Greater resilience in hard Greater resilience in hard
timestimes• Less bureaucratic and Less bureaucratic and
impersonalimpersonal• Financial benefitsFinancial benefits• Knowing the businessKnowing the business
DisadvantagesDisadvantages• Less access to capital Less access to capital
markets may curtail growthmarkets may curtail growth• Confusing organizationConfusing organization• NepotismNepotism• Spoiled-kid syndromeSpoiled-kid syndrome• Paternalistic/autocratic rulePaternalistic/autocratic rule• Financial strainFinancial strain• Succession dramasSuccession dramas
The Management The Management Succession IssueSuccession Issue
Barriers to Succession Planning in Barriers to Succession Planning in Family FirmsFamily Firms
Founder/OwnerFounder/Owner• Death anxietyDeath anxiety• Dilemma of choiceDilemma of choice• Generational envyGenerational envy
FamilyFamily• Death as tabooDeath as taboo• Fear of sibling rivalryFear of sibling rivalry• Change of spouse’s Change of spouse’s
positionposition
Key Factors in SuccessionKey Factors in Succession
Pressures and Interests in a Family BusinessPressures and Interests in a Family BusinessInside the FamilyInside the Family
The FamilyThe FamilyManagersManagers
The RelativesThe Relatives
Insi
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Outside the FamilyOutside the Family
The EmployeesThe Employees
The OutsidersThe Outsiders
The Family ManagersThe Family Managers
Hanging onto orHanging onto orgetting Hold ofgetting Hold of
Company ControlCompany Control
Selection of FamilySelection of FamilyMembers as MembersMembers as Members
Continuity of FamilyContinuity of FamilyInvestment andInvestment and
InvolvementInvolvement
Building a DynastyBuilding a Dynasty
RivalryRivalry
The EmployeesThe Employees
Rewards for LoyaltyRewards for Loyalty
Sharing of Equity,Sharing of Equity,Growth, and SuccessGrowth, and Success
ProfessionalismProfessionalism
Bridging FamilyBridging FamilyTransitionsTransitions
Stake in theStake in theCompanyCompany
The RelativesThe Relatives
Income and InheritanceIncome and Inheritance
Family ConflictsFamily Conflictsand Alliancesand Alliances
Degree of InvolvementDegree of Involvementin the Businessin the Business
The OutsidersThe Outsiders
CompetitionCompetition
Market, Product,Market, Product,Supply, andSupply, and
Technology Influence Technology Influence
Tax LawsTax Laws
Regulatory AgenciesRegulatory Agencies
Forcing EventsForcing EventsForcing eventsForcing events are those happenings that cause are those happenings that cause
the replacement of the owner-manager:the replacement of the owner-manager:• DeathDeath• IllnessIllness• Mental or psychological breakdownMental or psychological breakdown• Abrupt departureAbrupt departure• Legal problemsLegal problems• Severe business declineSevere business decline• Financial difficultiesFinancial difficulties
Sources of SuccessionSources of Succession• AnAn entrepreneurial successor entrepreneurial successor is is
someone who is high in ingenuity, someone who is high in ingenuity, creativity, and drive.creativity, and drive.
• The The managerial successormanagerial successor is is someone who is interested in someone who is interested in efficiency, internal control, and the efficiency, internal control, and the effective use of resources.effective use of resources.
Two Key StrategiesTwo Key Strategies
The The early entry strategyearly entry strategy versus the versus the delayed entry strategydelayed entry strategy. The main . The main
question is the ability of the question is the ability of the successor to gain credibility with the successor to gain credibility with the
firm’s employees.firm’s employees.
Legal RestrictionsLegal Restrictions• Oakland Scavenger Company (a garbage Oakland Scavenger Company (a garbage
collection firm).collection firm).• ““nepotistic concerns cannot supersede the nepotistic concerns cannot supersede the
nation’s paramount goal of equal economic nation’s paramount goal of equal economic opportunity for all.”opportunity for all.”
• It means, conceivably, that almost any small It means, conceivably, that almost any small business can be sued by an employee of a business can be sued by an employee of a different ethnic origin than the owner, based different ethnic origin than the owner, based upon not being accorded the same treatment upon not being accorded the same treatment of a son or daughter.of a son or daughter.
Developing a Developing a Succession StrategySuccession Strategy
Understanding the Contextual AspectsUnderstanding the Contextual Aspects
• TimeTime
• Type of VentureType of Venture
• Capabilities of ManagersCapabilities of Managers
• Entrepreneur’s VisionEntrepreneur’s Vision
• Environmental FactorsEnvironmental Factors
Identifying Successor Identifying Successor QualitiesQualities
Understanding Influencing ForcesUnderstanding Influencing Forces
• Family and Business Culture IssuesFamily and Business Culture Issues
• Owner’s ConcernsOwner’s Concerns
• Family Member ConcernsFamily Member Concerns
Carrying Out the Succession PlanCarrying Out the Succession Plan
• Identifying a SuccessorIdentifying a Successor
• Groom an HeirGroom an Heir
• Agree on a PlanAgree on a Plan
• Consider Outside HelpConsider Outside Help
The Harvest Strategy: Selling OutThe Harvest Strategy: Selling Out
Entrepreneurs consider selling their Entrepreneurs consider selling their venture for numerous reasons:venture for numerous reasons:
1.1. Boredom and burnoutBoredom and burnout2.2. Lack of operating and growth capitalLack of operating and growth capital3.3. No heirs to leave the business toNo heirs to leave the business to4.4. Desire for liquidityDesire for liquidity5.5. Aging and health problemsAging and health problems6.6. Desire to pursue other interestsDesire to pursue other interests
Steps for Selling a BusinessSteps for Selling a Business
Step 1: Prepare a Financial AnalysisStep 1: Prepare a Financial AnalysisStep 2: Segregate AssetsStep 2: Segregate AssetsStep 3: Value the BusinessStep 3: Value the BusinessStep 4: Identify the Appropriate TimingStep 4: Identify the Appropriate TimingStep 5: Publicize the Offer to SellStep 5: Publicize the Offer to SellStep 6: Finalize the Prospective BuyersStep 6: Finalize the Prospective BuyersStep 7: Remain Involved through the Step 7: Remain Involved through the
Closing ClosingStep 8: Communicate after the SaleStep 8: Communicate after the Sale