Archive for the ‘TOPICS’ Category

by Professor Ernesto Poza

Serious ethical issues have been raised recently regarding several News Corp. properties. Several of its British media outlets stand accused of illegal wiretapping and voice and email eavesdropping. Should these prove to be true and indicative of a culture that is truly about corporate irresponsibility, both the Murdoch family’s reputation and News Corp’s institutional footprint and brand will be irreparably damaged. I am of the opinion that this will not happen. There is overwhelming research evidence suggesting that family business owners care about their reputation and their companies’ with a zeal unknown to mere executives and top managements. There is also plenty of anecdotal evidence that in the newspaper business, the legacy is not just the business but an institution that represents a public trust. Historical accounts at the New York Times, the Washington Post, the Seattle Times and El Nuevo Día certainly all claim these newspapers to be a public trust. Yes, there is always Martha Stewart, but is that not more the exception than the rule?)

Time will tell whether I am right or wrong on my assessment of James and Rupert Murdoch and the culture of News Corp. But News Corp. and the Murdochs are newsworthy on another very important subject; their strategic behavior, which is profoundly different from that of most S&P500 companies and decidedly long-term oriented.  News Corp.’s controlling Murdoch family stands in sharp contrast to the strategic behavior of shareholders of most large U.S. companies where the average shareholding period is down to nine months. In other words, these days shareholders are renting, not buying an ownership stake.

The Murdochs’ strategic behavior is also profoundly different from the actions of the Bancroft family, previous owners of The Wall Street Journal.  Just prior to their decision to sell Dow Jones and The Wall Street Journal to Rupert Murdoch, the Bancrofts squabbled over their legacy and their sense of responsibility towards the institution that their family had founded and built. Crawford Hill, a Bancroft family member in Spain at the time, spoke by phone with his cousins and other members of his family on the eve of the vote to approve the $60/share offer by News Corp. He said: “With all due respect, it is time for a reality check. What is missing from this discussion about Dow Jones and the Bancrofts is a sense of historical perspective and evolution…What most of you do not know is that the very same Jessie B. Cox that is mentioned at every turn as “family matriarch” and to whom many of us owe “the legacy” forced her incredibly talented husband, William C. Cox, top student at Milton and Harvard luminary, to retire prematurely from Dow Jones at age 40 so he could be full time in the social swirl of Cohasset. He was a star at the company! As to promoting legacy, neither she nor her daughter Jane, my mom, ever spoke of the legacy of Dow Jones, much less the possibility of actually working there or what it meant to be a steward of the business. There was no effort at promoting legacy, or educating the next generation, whatsoever…We talked about everything under the sun…but never Dow Jones…We never had, by the way, conversations that Sulzbergers (The New York Times), Grahams (The Washinton Post) and, yes, Murdochs, had every day! There has absolutely never existed any kind of family-wide, cross-branch culture of teaching what it means to be an active, engaged owner and more crucially, a family director. ¹

Meanwhile, in New York, Rupert Murdoch remained committed to the purchase of Dow Jones and The Wall Street Journal and appeared endowed with a sense of optimism in its long term value (at a time when media and newspaper entities were in crisis) that the Bancrofts could no longer fathom.

Across the Atlantic, James Murdoch (Rupert Murdoch’s remaining son in top management) was also behaving like a committed owner and making significant investments in expanding British Sky Broadcasting’s bundled services to subscribers. This at a time when nonfamily shareholders (BSky Broadcasting in London is Murdoch family-controlled but publicly-traded) fretted over the company’s debt. Here is how a Financial Times of London report in 2005 described it: “A chip off the old block – If investors in British Sky Broadcasting Group think that James Murdoch is spending too much money, they only need to look to Rupert. Just as Rupert Murdoch had done on many occasions, James has been incurring short term losses in search of a winning long term strategy. This time he has decided to invest 1.33 billion euros in an expansion to the Internet, broadband and telephony. The strategy appears to be crucial to the extent that competition has increased in the cable, satellite TV and telecommunications industries. He wants to offer customers a bundle of services. Even though his actions promise to reduce profits by 760 million over the next three years, the Murdoch family is very willing to bet on these long term strategies. But many of the nonfamily investors have their doubts.”

Why are two different classes of shareholders at odds over the strategy of the enterprise? Why are the Murdochs and the Bancrofts opting for such different futures? What role is the Murdoch family’s control playing in News Corp.’s strategic decision-making?

For that matter consider several other well-known family-in-business cases:

• The Ford family values its independence and long-term investment horizon. The Ford Motor Company did not need to sign up for US government bailout funds in early 2009 when both Chrysler and GM did. The company had secured private loans to see them through the worst recession for the auto industry since the Great Depression.
• Back in 1930, in the heels of the Depression, the family owned DuPont boosted its R&D spending in the interest of future innovative products.
• More recently in China, it is private ownership and free-market finance, not state control, that according to Yasheng Huang, an associate professor at the MIT Sloan School of Management, writing in McKinsely Quarterly, Q1, 2009, has led to China’s economic dynamism.

The strategic behavior of owners matters. The long-term family capital perspective exhibited by the Murdochs, the Fords, the Marriotts and millions of families that own and run smaller family enterprises throughout the world, makes a difference; it makes capitalism sustainable. Perhaps economic policy-makers in Washington should listen. And a hint to policy-makers, look at Germany; a country that is shouldering the European bailout and is still creating jobs and wealth. All of this largely on the backs of mid-sized family enterprises that make up the bulk of the world renowned German Mittelstand.

1. Wall Street Journal, July 27, 2007, p. B12.

About the author:

Ernesto Poza is a professor of global business at Thunderbird School of Global Management and director of Thunderbird’s Global Family Enterprise Center. He is the author of Family Business, 3e (2010) and has advised top managers of privately-held and Fortune 500 companies in strategic management, intergenerational entrepreneurial activity, succession planning, and governance.

In my academic career, I have never been more proud!

For the first time, I’ve been able to really connect my research interests, my interest in working with women for economic development, and my teaching together in a worthwhile way. This summer, Thunderbird offered and conducted the first Emerging Market Women Entrepreneurs Business Plan Consulting course. This course connected Thunderbird MBA students (Rebecca Knowles, Reem Nassar, Italia Quitral, James Hammons, Nimin Chen, Kenji Fuma, and Kristi Judd) with three Afghan women entrepreneurs with high growth potential businesses. The purpose was for the students to learn the anatomy of a business plan, starting businesses in developing countries, and the difficulties facing women in war zones. The other purpose was to provide in-depth consulting to help these Afghan women entrepreneurs get these worthwhile businesses off the ground (a women’s hospital, an organic composter fertilizer, and a particleboard/cardboard manufacturer).

 Here’s how my students impressed me, even more than I hoped they would:

 I knew all along what kind of impact we would make through this course for the Afghan women. I also knew that each student would walk out of the course with a lot of new insights and skills. It didn’t occur to me what kind of impact the experience would have on their views of others in the world around them. For example, I have always stood in awe of these ladies. They face such discrimination and discouragement throughout their entire lives, and yet they persevere in the most astounding ways. They don’t fear negativity, they don’t fear failure, and they don’t let fear for their lives stop them. I am moved by learning that my business students are humbled by these women and have learned as much from them as they’ve given. Even more so, the students are aware of how fortunate their lives have been in comparison and they have a high level of respect for these underprivileged, yet amazing women. I will remember each student in this class better than previous classes because of the more intense working relationships we had on these projects. Here are some highlights of what they shared with me at the conclusion to the course:

 Aside from this being a course for practical purposes on business plans, it seems that while the students learned the mechanics of the business plan, they were more moved by the plight of Afghan women, and Afghan businesswomen in particular.

1. People in Afghanistan are much less supportive of women in business even though a thriving business could benefit the community, because their families fear for their security.
2. Lack of adequate funding and market research are huge hindrances. Those businesses that are too big for microloans are difficult to find funding for. The banks seem to be largely dysfunctional and much of the aid money coming in from the West is targeted toward political, community, and expat associations, rather than indigenous businesses.
3. The lack of business associations, education, infrastructure, and security can be crippling for the development of the private sector, and subsequently the economic development of the country.
4. When dealing with people in locations plagued with severe adversity, in developed countries we must be able to exercise patience and try to understand that operations in these places may not function as smoothly as we are used to, for a myriad of reasons.
5. Some have a passion for working more with women in developing countries after this course is over.
6. Some have more of a belief in their abilities (self-efficacy) as potential entrepreneurs in the future, now that they understand the anatomy of a business plan, or in their ability to adequately consult on others’ business plans.
7. There is a lot of room for philanthropy from other organizations in the form of talent development, rather than the traditional aid handouts.
8. The contribution they all made to these ladies is huge. Some of them received feedback from the ladies already, saying how helpful their ideas, questions, and recommendations were.

10.  They view the women less as victims after working with them these past weeks, and more as strong forces to be embraced and encouraged for the development of their countries. They are starting businesses not only for need, but because of a belief in their abilities and their resilience to grow from adversity. When the students try to put themselves in these ladies shoes and think of how determined they would be after roadblocks, closed doors, and failed attempts throughout their entire life, they have a new found respect for just how strong and resilient these ladies are. This seems to have left some of the students humbled by how fortunate they have been in their own upbringings.

11.  They were moved by how the women we worked with were not only motivated to generate an income for their own personal households, but they also quite passionately want to do what they can to change their whole country and other people’s lives through their businesses.

12.  What the students seemed to learn the most and benefit from as students was derived from having the opportunity to apply classroom material (outside readings and the textbook on how to write a business plan) to the real world through research and consulting for real women entrepreneurs’ businesses.

Each of these students should feel very proud of their work and dedication to this course and these ladies!

 Amanda Bullough Ph.D. is the Academic Director for the Goldman Sachs 10,000 Women Initiative and an Assistant Professor in Entrepreneurship and Management and Organizational Behavior at the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.  Dr. Bullough’s research focus is on women and their potential to be economic producers and business leaders in the developing world.

Naomi Gunnels ’11 was Vice President of the Thunderbird Entrepreneurship Network (TEN) when  she discovered Lemonade Day.   Lemonade Day introduces kids to entrepreneurship through the front yard lemonade stand.  Naomi and a crew of classmates came in contact with 1,400 kids ages 3-17 to engage them in Lemonade Day.  T-birds spent several Saturdays mentoring kids about how to run a business including marketing, signage, and money management that involved in running a lemonade stand.

National Lemonade Day was May 1^st and lemonade stands popped up throughout Glendale and surrounding communities.  Glendale Mayor Elaine Scruggs came out and tasted lemonade from several stands to determine the “Best Tasting Lemonade.” Naomi and her Thunderbird team raised $16,000 from a variety of organizations and businesses to bring Lemonade Day to Glendale.   Thunderbird currently holds the only Lemonade Day license in the state of Arizona.

(Photo: Glendale Mayor  Elaine Scruggs (l) with Naomi and a Lemonade Day participant.)

Manuela Emmrich ‘11 is the winner of the 2011 Thunderbird Business Plan Competition.   Her patented tennis racquet has captured the interest of several Thunderbird Angel Investors.  Manuela is also a former NCAA Tennis player and champion.

What is Swirve?

Swirve produces an ergonomic tennis racket, the CarvingStar. The unique shape of this racket ensures a natural wrist position at all times and reduces vibrations. This reduces the onset of injuries such as tennis elbow and enhances play through a faster serve and a better slice.

How long have you had the idea to bring the Swirve racquet to the US market as a business venture?

I moved to the US in 2002 and was first introduced to the racket during a vacation in Germany in 2004. I was immediately impressed by the design and functionality. Most importantly, after using the racket for a few months, I experienced significantly less wrist pain that I had developed over the years playing with a regular racket.  In addition, I could finally play a great slice. It was only until I started my MBA at Thunderbird in 2009 that I realized that I can turn this product into a business venture.

Who is your market?

The primary target market is the senior tennis player who suffers from tennis elbow and wrist/arm problems. The secondary market is kids and teenagers who start playing tennis at an early age and should use an ergonomic racket in order to prevent overuse injuries early on.

What do you see as your biggest challenges in launching Swirve?

Tennis has been a very traditional industry and innovations have been minimal. The biggest challenge is to overcome the mental barrier that a tennis racket is “supposed” to be straight. Marketing and consumer education will be very important.

What opportunities has Thunderbird provided you in bringing Swirve closer to reality?

Thunderbird has been a tremendous experience and catalyst. Through the Global Business Plan class I was able to thoroughly think about the idea and write a comprehensive business plan. The Thunderbird Business Plan Competition was another big stepping stone and after winning this competition I was invited to present in front of the Thunderbird Angel Network. Since that presentation I have had several meetings with investors and I am now close to launching the venture with my business partners. All in all, I would not be in the position I am in now without all the support and guidance from the Thunderbird Walker Center for Global Entrepreneurship.

What do you believe is your strongest personal trait that will make Swirve happen?

I have been a passionate tennis player since age 6 and my entire family loves this sport. My drive to succeed combined with this lifelong passion will hopefully enable me to launch Swirve successfully.

Why did you choose to attend Thunderbird?

I was backpacking overseas for 3 years; at the end of that period in my life wanted to become involved in international business and trade. Even in 1978, Thunderbird was the leading institution in global business education and served as a model for other schools.

What was your first job after graduating from Thunderbird?

My first job was with an industrial hand tool manufacturing company, Armstrong Bros Tool Co. I was the international sales representative for Latin America (less Mexico) and the Caribbean. I traveled a great deal throughout the region with trips running about 3 to 4 weeks at a time. While I worked hard building the distribution channel for Armstrong Tools, I always used my free time to see the sights like Machu Picchu, Iguazu Falls, and of course the beautiful beaches of the Caribbean.

Tell us about your entrepreneurial ventures?

I had a great experience working for two start-ups in the water purification business. One failed and another was tremendously successful. I bring this up because they provided examples of what not to do as well as what to do when I started my own companies.

My first attempt to start a business was in the premium trade providing custom printed Tyvek jackets to a variety of small to medium sized companies. It was a failure! But again, a lot was learned and the mistakes were never repeated.

I founded TUBS, Inc. in 1991. It was based on a concept I discovered in Australia while traveling for business there. TUBS, Inc. provides small dumpster to homeowners (DIY) and contractors. We were the first ones in the US waste industry to specialize in this niche market and we thrived! We built a brand around TUBS in our first metro market, Minneapolis, and as we expanded to Denver and Cleveland began to work on developing our brand in those markets. TUBS, Inc. designed proprietary equipment to efficiently pick-up, deliver, and dispose of the TUBS 3 cubic yard containers. We are currently licensing the TUBS concept to operators in other metro markets.

In 2005 we were introduced to the dumpster bag concept from Europe. It fit so well with our TUBS business, we immediately set about to build what became Bagster. This venture involved brand building, customized collection equipment, technology for tracking, call centers, trademark and patent registration, and a higher degree of web site development to allow customers to schedule collections and pay on line. It also introduced a new factor for us, the DIY retail business. Bagster bags are sold in hardware stores and Home Depots. This required us to design packaging and point of sale units. It demanded a thorough logistics plan to include remote warehousing to provide bags to our retail network.

Our group set up a franchising unit under Bagster, LLC. By 2009 Bagster was in 15 major metro areas.

Bagster was recognized as one of the hottest brands in the US for 2009 by Ad Age.  In the same year, 2009, Bagster caught the attention of a Fortune 100 company and Bagster was acquired by mid-year.

What are the most valuable lessons you learned from being an entrepreneur?

1) Persistence does pay. If you believe in your concept, don’t give up!

2) Don’t be afraid of failure but to reduce your risk of failure, do your homework – build a plan

3) Know your weaknesses. This will help you find a means to shore up those weaknesses.

4) Even in areas where I thought I “knew it all”, I learned to listen to others to at least check my thinking. Sometimes you tend to become myopic because you are too close to your work.

5) Be careful! There are a lot of predators out there! On the other hand there are even more people willing to help you succeed.

6) You need to answer some very personal questions such as: Am I building a legacy business to pass onto my family or am I building a business to exit in X number of years? These questions are important in the way you will structure and build your business.

Why did you become an Angel investor?

I enjoy building and developing businesses. I have learned a set of skills that can be valuable to a new entrepreneur. Nothing would be more gratifying than helping someone else succeed.

There are Angel groups closer to your home in Minnesota what were the deciding factors to join the Thunderbird Angel Network?

Thunderbird is such a valuable world resource. To be able to become active again with Thunderbird was too enticing to pass up and since becoming involved it has greatly surpassed my expectations. The quality of the faculty and participants has been outstanding.

 by Professor Melissa Samuelson

 A story of protests in India is getting little coverage here in the United States.  The protest leader, Anna Hazare, began a fast, calling for the anticorruption agency to have enforcement power over the entire government.  His opposition wants the agency to have only an advisory role. Undoubtedly, this movement has many political implications, but most interesting is the breadth of support Hazare has gained.  In a country where social issues are usually drawn along party lines, socio-economic status, or caste, the anti-corruption movement has united much of India.  In fact, polls find that 87-93 percent of Indians nation-wide support Hazare.

 In the United States, many people are quick to point to other cultures and claim that ethics and business practices are relative.  That it would be culturally insensitive to impose our laws or standards on the rest of the world.  In some ways I agree with this: cultures and values do vary around the world, sometimes greatly, and imposing your culture on others can have disastrous consequences.  But I think this viewpoint comes with a great danger: we ignore the voices of those in communities who want to change the prevailing system, we ignore the rights of people who suffer from unjust systems by claiming that the injustice is “cultural”.

 There is no doubt that the poor suffer greatly from bribery and corruption, yet prevailing systems leave them trapped.  This movement in India shows that we cannot ignore corruption as something is culturally determined or even as a culturally accepted “cost” of doing business.  By fighting corruption, or even recognizing and supporting those who fight it, we help to create systems that are more conducive to business, development, and true expression of human values.    

 Recommended reading link

 Melissa Beran Samuelson, is a clinical professor at the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management. Her research focuses on enhancing effectiveness of microfinance programs. She teaches business ethics and sustainability in the Entrepreneurship program in addition to a course on Microfinance and Microenterprise in India.  She oversees programs that enhancing entrepreneurship capacity in emerging economies.

One Afghan woman dreams of opening a badly needed maternity hospital staffed entirely by women. Another wants to create manufacturing jobs for women at a particle board factory. Another wants to turn food waste into organic compost fertilizer to nourish Afghan crops.

All of the entrepreneurs are graduates of Thunderbird programs designed to help Afghan women launch or grow their businesses, but they need extra help implementing their plans.

“These are businesses that never launched because they were more complicated than your standard small business,” said Thunderbird Professor Amanda Bullough, Ph.D., academic director of Goldman Sachs 10,000 Women in Afghanistan.

Thunderbird operates the program in partnership with the American University of Afghanistan in Kabul. Thunderbird also supports Afghan women through Project Artemis, a separate program that brings participants to Glendale, Arizona, for two weeks of business education.

To help Afghan women navigate the barriers they encounter after completing the Thunderbird programs, Bullough has launched a new course for full-time students called Women Entrepreneurs Business Plan Consulting. Teams of MBA students who enroll in the course work side-by-side with Afghan women entrepreneurs to help them refine and implement their complex plans.

“This is very real, hands-on interaction at a micro level between the women entrepreneurs and our T-bird students,” Bullough says. “Our students are learning about entrepreneurship in a war zone, the ins and outs of being a businesswoman in Afghanistan and the anatomy of a business plan and how to stimulate entrepreneurial activity in emerging economies.”

Seven students in the pilot program provided more than 525 consulting hours for three Afghan businesswomen in summer 2011. They communicated with their clients through e-mail and other online services such as Skype.

“The T-bird students are helping their clients revise the business plans they wrote,” Bullough says. “They also are writing mini cases on each of the women, highlighting each personal story.”

Students in the pilot program included Nimin Chen ’12 from China, Kenji Fuma ’11 from Japan, Reem Nasser ’11 from Jordan, Italia Quitral ’11 from Chile and James Hammons ’12, Kristi Judd ’11 and Rebecca Knowles ’12 from the United States.

 By Steven Stralser, Ph.D.

I’m writing this on the way home to Arizona after a week teaching in Thunderbird’s Executive MBA program in Geneva and Luzern.  It was a rewarding experience working with global executives in a truly international setting.  I was teaching a highly-condensed version of the course I usually teach in a traditional 14 week semester that’s focused on taking an idea from it’s conceptual beginnings into a well-formed “innovation/commercialization plan”, where an entrepreneur or innovator takes a new business concept and expresses it in a form that can be communicated to others, and serves as an action plan to advance the idea into the marketplace.

The short burst course was instructive and demonstrated a few perspectives about innovation and entrepreneurship:

1. Innovation today is about speed.  The students were able to take, what previously existed as simply an idea and shape it into an executable plan in about of week of collaboration.  In today’s fast-changing, dynamic environment, organizations must quickly adapt, and exploit, market conditions and opportunities.
2. Innovation is best practiced in teams.  The students, with a diverse background of skills and experience, brought individual perspectives and talents to together to form a well-balanced approach to take an idea and form it into an actionable execution plan.  While there is a big “I” in Innovation, it takes the all of the other letters to communicate the meaning of the word.
3. Innovation is an iterative process.  The innovation ideas presented on the first day of class were tossed around, reformatted, modified, debated, challenged, and came out of the process as different, and likely better, than originally presented.  It is likely that, once launched, these innovations will continue to morph, adapt and change to reflect market conditions and opportunities. 

Another takeaway from this EMBA teaching experience was the reminder about how innovation today is truly global—opportunities for entrepreneurs and innovators today are best leveraged by looking across borders and boundaries to find productive collaboration of global talent, skills and opportunities.

Steven Stralser Ph.D. is a clinical professor with the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.  He teaches courses in Innovation, Business Planning and Global Entrepreneurship.  Dr. Stralser is President of TiE Arizona and the author of MBA in a Day. Follow him on twitter @stralser

By Marty Zwilling

Friend of Thunderbird, Marty Zwilling is the CEO & Founder of Startup Professionals, Inc.; Callaman Ventures Board Member and Executive in Residence; Advisory Board Member for multiple startups; Arizona Angels Selection Committee; Entrepreneur in Residence at ASU and Thunderbird School of Global Management. Published on Forbes, Harvard Business Review, and Business Insider.  

 Every startup founder I know talks about the chaos of their business, which they usually attribute to that burst of growth that is required to get to positive cash flow. They envision a stable environment after that point, and may have convinced themselves that they will be safer and happier with a livable income, maintaining a loyal but flat customer base.

Sadly, this false perception often leads to the death of their business, or at least the end of their tenure as CEO. I second the message that chaos never subsides, from a couple of successful entrepreneurs, Clate Mask and Scott Martineau, in their book “Conquer the Chaos.” Your only choice is to live with it, and find a way to conquer it.

Some small business owners hope to reduce stress by keeping their business static, and believe that they can rely on referrals and repeat business to keep a consistent customer set. Even with this, there are important reasons why not innovating, or going into maintenance mode, will lead to your demise:

Click here for more of Marty’s blogs content

See Marty on Twitter as @StartupPro, and on LinkedIn and Facebook by name and visit his blog at http://blog.startupprofessionals.com/

 By Ernesto Poza

 In a world where only 32% of family businesses make it to the second generation and only 12 percent survive to the third still controlled by the founding family, it is worth looking at  family enterprises that have beat those odds and grown into multimillion-dollar companies. What are these long-lasting family businesses doing to survive and even thrive? How are they transferring the accumulated business wisdom and the spirit of enterprise from generation to generation?

 A few years ago, I examined the adaptability and continuity of family-owned and family-controlled companies by interviewing fourth-, fifth-, and sixth-generation leaders of companies that were at least 100 years old around the world. Those included 16 companies with annual revenues ranging from $18 million to $5 billion, and operating in industries including newspapers, textbook distribution, brick and tiles, food and beverage, wine producers, insurance, baked goods, leather accessories, farm equipment distribution, and automotive sales.

 It became clear that regardless of industry or home country, the common ingredient to success was advocacy of change by the next generation. This change was driven either by strategic planning, by promoting a spirit of entrepreneurship or by relying on a continuing series of entrepreneurial ventures; what I call “interpreneurship” or intergenerational entrepreneurial activity.¹  Every one of the companies had elements in their culture that enabled them to reinvent themselves with every generation.

 Guy Renkert, fifth-generation CEO of Ironrock Capital in Canton, Ohio, explains that since its founding in 1866 by his great-great grandfather, each generation of his family has paid close attention to the customer to adapt the business to the changing market. The company began as a manufacturer of paving bricks, becoming the largest such company in the world. As the demand shifted to concrete and asphalt, the company moved into producing structural bricks. In the 1960s, it exited the brick business and used its knowledge of clay extrusion and firing to enter the unglazed quarry-tile business, again becoming a market leader. In the 1980s, Guy’s mother convinced the company to add glazed decorative tiles with an American motif; much like Italian, Spanish and Mexican tile makers have successfully done. Now, under Guy’s leadership, the company still produces quarry and decorative tiles, but has returned to brick manufacturing, producing a “thin brick”, that allows architects and builders to construct buildings with all the richness of real brick, but with the speed and cost-effectiveness of bare steel structures.

 These NeXt Gens remind all family members that what is good for the business is good for the family. And what is good for the business is change. The premise is systemically elegant and robust: To the extent that next generation leaders bring more variety inside an organization, the company will have more resources to deal with the increasingly varied and changing marketplace outside. That often means NeXt Gens hire new people with new skills, implement new information and social media technology, take the company global, add younger independent outsiders to a board, and adopt team structures of work.

From this perspective, the conflict that is inherent across generations of owner-managers is often key to the survival of the family business. It provides the wake-up call needed to reinvent the business as conditions change.

 Sometimes that call comes from the family’s inability to sustain enough income to support, via dividends or distributions the living standard the younger generation expects. In the early eighties, McIlhenny, makers of the famous Tabasco sauce, was seeing a slow-down in growth. Edward McIlhenny Simmons, the fifth generation CEO of the Avery Island, Louisiana, company posed this question to family shareholders during a family retreat: Should we invest in growth so as to expand the profit-generating capacity of the firm or invest in a family assistance program aimed at helping family members adjust to their new, less affluent, reality? Naturally, the family members voted to support reinvestment in growth. New products, such as a steak sauce, and a Bloody Mary Mix, were created and revenues increased. The company currently ships over 175,000 two-ounce bottles of a variety of peppery sauces daily.

 Successful centennial family companies chose to change both family dynamics and business strategy in order to continue to realize, across generations, the value of their particular competitive advantages, advantages that were often rooted in the unique culture of a family-owned company.

 They did this by:

 1. Making next generation members that are active in management responsible for bringing their own vision for the enterprise in their generation. Samuel Curtis Johnson III did this at S.C. Johnson, a family company, when, as a junior chemist he brought with him his dream of a new class of insecticides and insect repellents that would become Raid and Off and grow the company from annual revenues of $60 million to yearly sales of $4 billion.

2. Creating a family venture capital company or bank that reviews and sometimes funds business plans by next generation members. These new ventures either took the business in new directions or facilitated the formation of separate entities for which next generation family members had entrepreneurial passion. (After all, what is the point of forcing or incentivizing a family member with a future as a world-renowned gourmet chef into the family’s construction company? And what is the long-term value of having the company remain the most recognized national brand if most of the sales growth will be taking place in other markets?)

3. Capturing the legacy and identity of the firm and its brand from previous generation leaders before they retire. While this used to be captured in special anniversary books, today’s digital media makes video recordings and multimedia collections a much more attractive way of engaging younger generation family members in the continued spirit of enterprise. Stories of wisdom plus innovation, coming from two generations with a common purpose, nurture the spirit of continued family enterprise.

4. Having well-qualified next generation members serve on the board of directors. And having this board hold management, which could be increasingly nonfamily in larger family companies, accountable for change and adaptation. Success often lulls professional management into the proven way of doing things. It often takes alert, responsible young owners to question the status quo and provide a needed wake-up-call as new technology, new supply chains and new customer preferences emerge. Next generation Hewlett and the Packard family members did this for a slumbering Hewlett-Packard while they were still active controlling shareholders.

5. Restructuring ownership and control of the company and pruning the family tree. Ownership structures don’t transfer well across generations. The speed and agility advantage of many entrepreneurial companies is easily dissipated as founding families and their businesses grow. Ownership is not an exercise in democracy. And loving all family members equally is no excuse for fair/equal distribution of company stock among the many heirs.

References:

¹Poza, Ernesto. A la Sombra del Roble, Editorial Universitaria, 1995 and Smart Growth: Critical Choices for Family Business Continuity, University Publishers, 1997.

Ernesto Poza is a world renowned expert on family enterprise. He is a clinical professor of global entrepreneurship at the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management in Glendale, Arizona and the author of Family Business, 3^rd edition.    Follow him on twitter @familybusiness