5 Simple Rules For Transitioning a Family Business to the Next Generation

The idea of passing along a business to one’s children—and hopefully again to their grandchildren—is one that appeals to many business owners that have started and grown a company. However, making the initial transition from Generation #1 to Generation #2 can be more difficult than it seems.

However, there are a few helpful considerations to make if you have begun to start thinking about a generational shift in your business:

(1) Determine whether or not your children are truly interested in inheriting the business, along with its responsibilities.

(2) If your son or daughter is in fact interested in the business, adequately preparing them for the role is a must. This may include majoring in a related field, or gaining 5-10 years of experience with another business in a similar industry.

(3) In the case that more than one of your children is interested in getting involved with your business, you should establish clear domains for them to navigate and assume responsibility for.

(4) Strategize an “exit” in a way that makes sense. Specific considerations to make include recognizing the fact that you may lose any longtime executives serving under you that may have hoped for the chance to run the company themselves if you choose your child as a successor, as well as ensuring that you are around long enough after bringing on your children to ensure that they understand the ins and outs of the business.

(5) Do not be afraid to consult outside sources (ideally, skilled experts in helping family businesses) as a means of navigating the generational shift in ownership. Avoiding the splitting of family ties over questions about fair distribution should be a top priority at all stages of the process.

For more information on successfully transitioning a family business to the next generation, read the following article from Inc.com:


Photo Credit: Getty Images

Search Funds: Big Opportunity and Big Returns

Did you recently earn an MBA? Do you want to own a company? What factors are keeping you away from this goal? For some recent graduates, they may not have the funds, or they don't have CEO experience, or they just can't think of an idea to create a business out of. A good way to start achieving this goal, and to combat the mentioned obstacles, is to buy a small company. 

Such a strategy derives from the idea of search funds, a fast-growing niche in the private equity market. By participating, recent graduates and entrepreneurs find investors to fund the former's search for a promising small company. The investors can also mentor the entrepreneur in building up the company from where it was in the market, potentially earning very high returns for both parties. In the very long term, this experience makes the entrepreneurs look incredibly attractive as CEOs for larger companies. 

For more information and examples of search fund successes, read the following article from Market Business News: 


Photo by Olu Eletu on Unsplash

Mergers & Acquisitions & Mergers & Acquisitions…

Large M&A transactions are becoming a key to survival for companies. In today’s globalized economy, a company’s own resources can only help them grow so quickly; acquiring and merging with other firms is necessary to keep up with the competition.

M&A has been especially prevalent in the tech and telecommunications industries. In the race to 5G, T Mobile and Sprint announced their merger which will help them pool resources to get the network up and running. AT&T’s acquisition of Time Warner represents the consolidation happening all over the streaming services industry- the Department of Justice finds the consolidation monopolistic and is taking a closer look at the deal.

The most recent news in M&A is with Apple- the company has purchased Dialog, a major supplier of iPhone parts. This is Apple’s biggest deal, but not the first of its kind; the company has a history of acquisitions in an effort to vertically integrate its manufacturing.

Could corporate consolidation pose a danger to the competitive landscape in tech and telecommunications? What will this landscape look like in a decade if consolidation continues and hypervaluations in tech stocks don’t hold? Make sure to keep a close eye as it all unfolds.

GTE Moves Its Office Into the New Swartz Center for Entrepreneurship at the Tepper School of Business

As the public Thursday tours Carnegie Mellon University's futuristic new business school complex, with sweeping views of Oakland and amenities from smart-looking classrooms to an espresso bar, some may be moved to ask:

"What exactly is supporting all this?"

Business Value and Lottery Tickets

In my previous post, a fictional owner, Carl, had just met with an exit-planning advisor, Jane, not because he thought he needed to, but rather out of an abundance of caution. After meeting with Jane, he learned that he needed $6 million of assets to maintain financial security post-exit, but his current assets (including his wholesale bakery business) were worth only $3 million. As so many owners do, Carl discovered—only when he was ready to exit—that the assumptions he’d made about the value of his company, its likely sale price and the rate at which he could safely withdraw funds from his nest egg were incorrect. To retire as he desired, Carl faced years of building value in his business.

We pick up our story as Carl briefly ponders the option of buying hundreds of lottery tickets before his natural cautiousness returns.

Carl Faces The Facts

Of course, no true exit plan would ever rely on the lottery to deliver success. But what can Carl do, knowing that he needs more money to exit his business on his terms and that that will require him to stay in the business for longer than he wants? The ever-studious Carl sat down with Jane and faced four facts regarding his business exit:

  1. Carl knew he needed to figure out how to create $3 million of additional capital as quickly as possible.

  2. He knew that the likeliest source of that capital was his business: He must increase its value and cash flow before he began to seriously consider the lottery as his only out.

  3. Carl begrudgingly understood that he needed to delay his desired exit date. He decided that he was willing to stay in his business for six years—no longer. (This assumes that Carl invests the increasing cash distributions, after-tax, for six years.)

  4. To grow his business’ value and cash flow by 60% in six years, Carl needed to increase business value and cash flow by 8–10% annually.

Have You Faced Facts?

Jane kicked off Carl’s fact-finding mission by having him articulate and quantify his goals and resources. With that information, they ran a Gap Analysis. You, too, must ask:

  1. How much cash must I have when I leave my business to live the post-exit life I desire?

  2. What is my business’ likely sale price, after taxes, debt repayment and transaction fees?

  3. What is the current value of my non-business investment assets?

  4. At what rate do I think I can safely withdraw funds from my nest egg?

If you find that you must cultivate growth in your business’ value and cash flow at an annual rate of 8–10%, you too might be tempted to buy lottery tickets, especially because few businesses over the last decade have maintained annual earnings and revenue growth rates of 10%. According to James Allen and Chris Zook of Bain & Company,

As a benchmark, consider an annual growth rate in revenue and earnings of 5.5%. Most companies expect to attain that level or better—at least that’s what their strategic plans call for. But a [2012] Bain & Company study of more than 2,000 companies indicates that only about one in 10 actually achieves that relatively modest goal over a 10-year period while earning its cost of capital. In other words, nearly 90% of companies fail to achieve that modest growth objective.

Most owners, including me, are convinced that our businesses will grow faster than 8% each year. Sadly, facts and our own histories indicate otherwise.

Get Real About Your Business

The first step in increasing the rate of growth in your business is to know your history : What is your company’s average growth in revenue and earnings over the past five years? If, like most owners, you need to increase that rate to exit on your terms, ask yourself, “What must I do to grow my business at a rate that allows me to achieve my financial security goals within my exit time frame?” As you think about this, realize that only you have the authority, responsibility and skills to effect this change.

Get Real About Yourself

I don’t know the exact answer for growing your company, but I do know that you can’t do business as usual. Change, to be effective, must begin at the top, with you and your management team. Let’s look first at the most common owner-based problems.

  1. Relying on assumptions: Don’t rely on assumptions. Your exit is too important. Recruit an experienced exit-planning advisor to help you accurately determine whether there’s a gap between the resources you have and the resources you need to exit.

  2. Trying to do it all: Successful exits require you to delegate. Peter Drucker, the world’s foremost authority on management theory and practice, says it best:

Long before the time has come at which management by one person no longer works and becomes mismanagement, that one person also has to start learning how to work with colleagues, has to learn to trust people, yet also how to hold them accountable. The founder has to learn to become the leader of a team rather than a “star” with “helpers.” (The Essential Drucker, 2001, 155–156)

  1. Remaining stagnant: Successful exits often require owners to assume a new role. You must take on a different role in the business, such as overseeing and directing strategic planning decisions, and offering advice. Most importantly, your business must be able to thrive without you to give it the most important characteristic for buyers: transferable value (a company’s ability to maintain and grow cash flow without its current owner’s involvement).

Get Real About Your Management Team

The other chokepoint for growth is your management team, regardless of whether you can afford one or not. Again, Drucker explains: “[Entrepreneurial management] requires . . . building a top management team long before the new venture actually needs one and long before it can actually afford one” (145). To Drucker, “new” means companies whose “products are first-rate, the prospects are excellent, and yet the business simply cannot grow” (152).

Your management team, not you, must lead the charge into faster growth. If members of your team do not have the skills, support them via additional training. If they are not willing or able to change, replace them or add new employees who have necessary skills and drive. Outside consultants can help you assess your team and hire to fill its weaknesses.

Once you and your best-in-class management team are in their proper roles, you are poised to consider specific strategies to drive business value, and that is the topic of my next post.

How to Lose Your Best Employees

You want to be a great boss. You want your company to be a great place to work. But right now, at this very moment, one of your key employees might be about to walk out the door.

She has consistently brought her best game to work and has grown into a huge asset. But her learning has peaked, her growth has stalled, and she needs a new challenge to reinvigorate her.

As her boss, you don’t want anything to change. After all, she’s super-productive, her work is flawless, and she always delivers on time. You want to keep her right where she is.

That’s a great way to lose her forever.

This was my situation more than a decade ago. After eight years as an award-winning stock analyst at Merrill Lynch, I needed a new challenge. I’ve always liked mentoring and coaching people, so I approached a senior executive about moving to a management track. Rather than offering his support, he dismissed and discouraged me. His attitude was, We like you right where you are. I left within the year.

This kind of scenario plays out in companies every day. And the cost is enormous in terms of both time and money. But if I had stayed and disengaged, the cost may have been even higher. When people can no longer grow in their jobs, they mail it in — leading to huge gaps in productivity. According to Gallup, a lack of employee engagement “implies a stunning amount of wasted potential, given that business units in the top quartile of Gallup’s global employee engagement database are 17% more productive and 21% more profitable than those in the bottom quartile.”

And yet engagement is only symptomatic. When your employees (and maybe even you, as their manager) aren’t allowed to grow, they begin to feel that they don’t matter. They feel like a cog in a wheel, easily swapped out. If you aren’t invested in them, they won’t be invested in you, and even if they don’t walk out the door, they will mentally check out.

How do you overcome this conundrum? It starts with recognizing that every person in your company, including you, is on a learning curve. That learning curve means that every role has a shelf life. You start a new position at the low end of the learning curve, with challenges to overcome in the early days. Moving up the steep slope of growth, you acquire competence and confidence, continuing into a place of high contribution and eventually mastery at the top of the curve.

But what comes next as the potential for growth peters out? The learning curve flattens, a plateau is reached; a precipice of disengagement and declining performance is on the near horizon. I’d estimate that four years is about the maximum learning curve for most people in most positions; if, after that, you’re still doing the exact same thing, you’re probably starting to feel a little flat.

Take my own career: I moved to New York City with a freshly minted university degree in music. I was a pianist who especially loved jazz. But I was quickly dazzled by Wall Street which, in the late 1980s, was theplace to work. I secured a position as a secretary in a financial firm and started night school to learn about investing.

A few years later, my boss helped me make the leap from support staff to investment banker. It was an unlikely, thrilling new opportunity that required his sponsorship and support. After a few years, I jumped again to become a stock analyst, and I scaled that curve to achieve an Institutional Investor ranking for several successive years.

When I began, I was excited to be a secretary on Wall Street. I was also excited to become an investment banker. And I loved being a stock analyst. Though I started in each of these positions at the low end of their respective learning curves, I was able to progress and achieve mastery in all of them.

Eventually, I became a little bored with each job and started looking around for a new challenge to jump to. Most of us follow similar patterns — our brains want to be learning, and they give us feel-good feedback when we are. When we aren’t, we don’t feel so good. The human brain is designed to learn, not just during our childhood school years but throughout our life spans. When we are learning, we experience higher levels of brain activity and many feel-good brain chemicals are produced. Managers would do well to remember that.

Because every organization is a collection of people on different learning curves. You build an A team by optimizing these individual curves with a mix of people: 15% of them at the low end of the curve, just starting to learn new skills; 70% in the sweet spot of engagement; and 15% at the high end of mastery. As you manage employees all along the learning curve, requiring them to jump to a new curve when they reach the top, you will have a company full of people who are engaged.

You and every person on your team is a learning machine. You want the challenge of not knowing how to do something, learning how to do it, mastering it, and then learning something new. Instead of letting the engines of your employees sit idle, crank them: Learn, leap, and repeat.

Generation X and millennials: Don’t screw up the largest wealth transfer in history

As we build families and age, the discussion of wills and estate plans becomes increasingly prevalent. Our financial planners (and children) want to make sure our assets go where we hope when we pass away — that nothing ends up in probate and that our money and valuables will be transferred seamlessly to those we love.

The only problem: no one talks about what happens after.  Why does it matter? Here’s why: We are at the brink of the largest intergenerational wealth transfer in history.

A $30 Trillion Wealth Transfer

Accenture reports that over the next 30 to 40 years, $30 trillion in assets will pass from boomers to their heirs in the United States alone. What many people don’t realize, however, is that 70 percent of those intergenerational wealth transfers will fail by the time they reach the second generation, according to The Williams Group, a financial advisory firm. Another study found that one third of people who received an inheritance had negative savings within two years of the event.

There must be a better way.

Many of those inheriting money are ill-prepared to manage it. A sudden windfall is often a huge temptation to spend and splurge, rather than an opportunity to make smart financial decisions. Without proper planning, the inheritance you pass on could easily dissolve, rather than providing your children and grandchildren with a solid financial future.

3 Ways to Pass on Values and Money

Luckily, you can turn the tide of failed wealth transfer. Here are three ways:

1. Make wealth a family discussion. Don’t wait until end-of-life to discuss what wealth means to you with your children and grandchildren. Let them know why financial security matters and how you would like them to use your money when you pass away. Yes, you might want them to take a family vacation to create special memories. But you might also want them to finish college, set up a retirement account or establish a foundation for a cause you love. They won’t know until you talk about it.

2. Focus on values — not balances. Many kids and grandchildren discuss how much they’ll get when someone in their family makes their transition. Instead of talking to your kids and grandkids about net worth, try talking to them about values. Forget your legacy — what is your family’s legacy? Do you want to instill the concept of giving to those in need? How about saving animals or serving refugees? When children grow up living certain values, they are far more likely to live them when you’re gone.

3. Establish a clear purpose for your wealth. You’re allowed. After all, you earned it. If you want your kids to use your wealth to launch a foundation, pay for their own child’s college or provide the down payment on a new home, let them know. Stipulate that those funds must be used as intended so they won’t go to waste. If you want a minimum of 50 percent of your wealth to be put toward a retirement nest egg or invested to launch a long-term scholarship fund for those in need, say it! Your children will likely thank you in the long run.

No matter how much or how little you are leaving to your children, it’s imperative that you take steps to keep that wealth safe. Money isn’t just for spending. It’s for building brighter futures, more secure retirements and safe living conditions. It’s for making a difference — and with your help, it can.

3 Important Ways Being Different Works to Your Competitive Advantage

"None can duplicate my brush strokes, none can duplicate my chisel marks, none can duplicate my handwriting... Henceforth, I will capitalize on this difference for it is an asset to be promoted to the fullest."

In Og Mandino's classic "The Greatest Salesman in the World," one of the ten scrolls (Scroll IV) devotes its theme to capitalizing on the unique angle that only you can bring to your professional field.

Far from just a pat on the back about being unique, it points to a universal truth about how capitalizing on your differences in the marketplace, rather than your similarities, will not only give you the competitive advantage but by its very nature bring out your best.

In the same spirit as the great Og Mandino, here are 3 reasons to use being different to your competitive advantage, rather than to spend your energy trying to better fit in.

1) Price is the last differential of the similar. The different can stand alone, and can base their price on value.

If you compete by being similar, your only differential will almost always end up being price. If you want to go that road, know that you will only win if your product or service is the lowest price, and this devalues not only your now smothered uniqueness, but your bottom line. If you are different, and in an authentic, meaningful way, you will be able to base your price off of the unique value you give, and since this difference is unique to you, it will be much harder to copy or undercut for your competitors.

2) If you're not providing a unique product or service, or a unique angle on a product or service, than it's likely you're not solving anyone's problems.

In order to have a competitive advantage implies there's a market in the first place. If that market is not already being served than you are unique by definition, but if there are already others serving that market, and providing for and solving those customer's needs and problems, than you must find out how you personally can do it differently, and of course better. Otherwise there's no reason for your presence there, unless you want to compete on price like the first example.

3) The leader is always different, first. If you are truly different you are always in first place in your niche.

Sure it is helpful at times to see what else is going on in your field, but only to see how it can help enrich your own vision, not to abandon your differences and follow someone else's path. The leader in any field is the one with the competitive advantage. Being similar and first are incompatible. Others may copy you, but that is a good problem to have, because if it's an authentic difference you will remain an original in spite of others flattering attempts to imitate you.

How to be a Super Connector

Building lasting relationships and connecting with people can be a valuable skill for any person in any business, industry, profession or position. It is one of the most common traits that successful people point to when asked about what helped them in their journey. Chris Fralic, widely known for selling his software to Oracle, being responsible for the first rounds of investments for Warby Parker, Roblox, Hotel tonight, and helping launch TED talks, considers staying super connected the biggest contribution to his successful career.  According to Fralic, going above and beyond with connections can really improve the quality of your career and life in the long run. His main advice is to add value to conversations by showing genuine appreciation and interest and truly engaging in your conversations. Here are the main takeaways from his comprehensive advice on how to do it right. 


Conveying genuine appreciation

Something that leaves a good imprint on anyone is if they listened to and appreciated what you had to say. Fralic suggests you offer short responses like “of course”, “that’s awesome”, “really” and ask follow-up questions in all your conversations. Back-channeling helps let the speaker know you are following what they are saying and value their input. A lot of the times people hear a person speaking but don’t really listen, and listening with intent not only adds value to the conversation on your part but allows the speaker to contribute more meaningfully to the conversation. 


Blue sky brain storming

Sometimes it just so happens that you have barely anything valuable or appreciable to respond with when a person approaches you with either an idea or plan or such. In those cases, Fralic says it is good to offer another way of looking the situation. Brainstorming with related ideas and newer perspectives with your acquaintances gives them something special and unexpected even if you could not provide what they were looking for. Fralic has been in those situations where an investment does not work out, but has been left impressed by the founders responding to it with optimism. 


Don’t fake it till you make it

Although a widely encouraged method of getting through intimidating conversations, Fralic says “fake it till you make it” does not work. Even if it superficially gets you through an interaction, bluffing your way through can lead to bad decisions. Especially during important meetings and interactions, it can make you lose more points than faking it can earn you. A much more genuine and organic way to be confident around, say senior management, is to sincerely find out their career milestones, why you care about this person and company, news and announcements about them, etc. 


Be honest in a useful way

Fralic points out that in most professions situations, people tend to keep it diplomatic and avoid being 100% honest due to the risk of tarnishing relationships and being disliked. Honesty in this case sets you apart from the rest, and shows that you prioritize the topic in hand over being liked. It however, does not mean that you should be completely socially oblivious and disregard everyone’s feelings. He suggests you be honest but also make sure to make it about something that is useful to them. After all, it is all about adding value to the interaction, so make sure you have something valuable when you take the risk of being 100% honest. 

Chris Fralic lives by these principles and believes they will take anyone a step closer to building a strong, high value network and exponentially contribute to your reputation if followed consistently.  

The Most Effective Way to Sell, Backed By Science

According to a recent survey by TOPO, it takes at least 18 touches to connect with a single buyer. With call back rates declining and consumers becoming increasingly wary of traditional sales tactics, it’s becoming more and more difficult for businesses to reach customers.

Thankfully, there’s one sure-fire way to effectively reach prospects and customers – personal referrals and introductions. From the top of the funnel to the bottom, personal referrals are the golden ticket to success in B2B sales.

1. Customer acquisition

Personal introductions are potent from a customer acquisition standpoint. When we hear about a company via a friend or a close connection, we are more likely to trust it as compared to other forms of advertising. This is why referrals convert at a 3-5x higher rate than average. We trust our close connections not to lead us astray.

2. Customer retention

Not only do referrals increase customer acquisition, they also increase retention rates. Personal referrals and introductions are, in essence, a form of precision targeting. Existing customers know their networks well and tend only to make referrals to those individuals they believe are best suited towards a particular offering. Referred customers are thus more likely to stay with a brand for a longer time. They boast a 37% higher retention rate compared to non-referred customers.

3. Customer value

What’s more, referred customers also contribute most positively to the bottom line. Referrals, because they’ve been vetted by current customers as a good match for a particular offering, tend to have higher levels of engagement. They also tend to be more likely to upsell. A study by the Wharton School of Business found that a referred customer has a 16% higher lifetime value than a non-referred customer. Referrals are a direct route to increased revenue.


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