MANAGING BUSINESS SUCCESSION

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MANAGING BUSINESS MANAGING BUSINESS SUCCESSIONSUCCESSION

ByByElisante Ole Gabriel (Tanzania)Elisante Ole Gabriel (Tanzania)

egabriel@edenconsult.net, egabriel@edenconsult.net, www.olegabriel.comwww.olegabriel.com+255-784-455-499+255-784-455-499

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ISSUES IN FAMILY ISSUES IN FAMILY BUSINESSBUSINESSMANAGEMENT SUCCESSION AND MANAGEMENT SUCCESSION AND

CONTINUITY: A FAMILY BUSINESS CONTINUITY: A FAMILY BUSINESS PERSPECTIVEPERSPECTIVE

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Family-Owned BusinessFamily-Owned Business• Stakeholders do not dictate operating Stakeholders do not dictate operating

strategiesstrategies• Willingness to sacrifice short-term profit Willingness to sacrifice short-term profit

for long-term gainsfor long-term gains• Family member are more productive Family member are more productive

than non-membersthan non-members• FlexibilityFlexibility• Image of stability by family membersImage of stability by family members

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Family-Owned Business: Family-Owned Business: Cont...Cont...• Preserving the humanity of the Preserving the humanity of the

workplace (high level of concern workplace (high level of concern and caring)and caring)

• Focusing on the long runFocusing on the long run• Emphasizing quality (culture of Emphasizing quality (culture of

providing quality and value to the providing quality and value to the consumers)consumers)

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AdvantagesAdvantages• Long-term orientationLong-term orientation• StabilityStability• Strong Strong

identification/commitment/motivatiidentification/commitment/motivationon

• Greater reliance in hard timeGreater reliance in hard time

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AdvantagesAdvantages• Less bureaucracy and impersonalLess bureaucracy and impersonal• Financial benefitsFinancial benefits• Knowing the business (early Knowing the business (early

training of the family members)training of the family members)

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DisadvantagesDisadvantages• Less access to capital marketLess access to capital market• Confusing organization (no clear Confusing organization (no clear

division of work)division of work)• NepotismNepotism• Spoiled-kid syndromeSpoiled-kid syndrome• Interncine strifeInterncine strife• Paternalistic/autocratic rule Paternalistic/autocratic rule

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Disadvantages: Cont...Disadvantages: Cont...• Financial strain (family members Financial strain (family members

milking the business, disequilibrium milking the business, disequilibrium between contribution and between contribution and compensation)compensation)

• Succession dramas Succession dramas

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Management Succession Management Succession IssueIssue• Lack of preparation for passing Lack of preparation for passing

managerial control to the next managerial control to the next generationgeneration

• If a key person is removed, the If a key person is removed, the business endsbusiness ends

• Fear of losing statusFear of losing status

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Key Factors in SuccessionKey Factors in Succession• Family succession includes the Family succession includes the

transfer of ethics, values and transfer of ethics, values and traditions along with the actual traditions along with the actual business itselfbusiness itself

• Pressure and interests inside the Pressure and interests inside the firm (family members and non-firm (family members and non-members being employees)members being employees)

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Inside the FamilyInside the Family• Getting hold of company controlGetting hold of company control• Family members as managersFamily members as managers• Continuity of family investmentContinuity of family investment• Building a dynastyBuilding a dynasty• RivalryRivalry

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Outside the FamilyOutside the Family• Rewards for loyaltyRewards for loyalty• Sharing of equity, growth and Sharing of equity, growth and

successsuccess• ProfessionalismProfessionalism• Bridging family transitionsBridging family transitions

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Outside the CompanyOutside the Company• The relatives of the family:The relatives of the family:• Income and inheritanceIncome and inheritance• Family conflicts and AlliancesFamily conflicts and Alliances• Degree of involvement in the Degree of involvement in the

business business

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Outside the Company: Outside the Company: Cont...Cont...• The outsidersThe outsiders• CompetitionCompetition• Market, product, supply and Market, product, supply and

technology influencetechnology influence• Tax lawsTax laws• Regulatory agenciesRegulatory agencies

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Sources of SuccessionSources of Succession• Entrepreneurial successor (high in Entrepreneurial successor (high in

ingenuity, creativity)ingenuity, creativity)• Managerial successor (efficiency, Managerial successor (efficiency,

internal control, effective use of internal control, effective use of resources)resources)

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Developing a Successor Developing a Successor StrategyStrategyUnderstanding the Contextual Understanding the Contextual

Aspects:Aspects:• Time (the earlier the better)Time (the earlier the better)• Type of VentureType of Venture• Capability of managersCapability of managers• Entrepreneur’s visionEntrepreneur’s vision• Environmental factorsEnvironmental factors

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Developing a Successor Developing a Successor Strategy: Cont...Strategy: Cont...• Identifying Successor Qualities Identifying Successor Qualities

(sufficient knowledge of the (sufficient knowledge of the business, position specially business, position specially marketing or finance, honesty, marketing or finance, honesty, capability, health, alertness, time, capability, health, alertness, time, etc)etc)

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Developing a Successor Developing a Successor Strategy: Cont...Strategy: Cont...• Understanding Influencing ForcesUnderstanding Influencing Forces• Family and Business Culture issuesFamily and Business Culture issues• Owner’s ConcernsOwner’s Concerns• Family members concerns.Family members concerns.

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Developing a Successor Developing a Successor Strategy: Cont...Strategy: Cont...Carrying out the Succession Plan:Carrying out the Succession Plan:• Identify a SuccessorIdentify a Successor• Groom an HeirGroom an Heir• Agree on a PlanAgree on a Plan• Consider outside help Consider outside help

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Steps for Selling a Steps for Selling a BusinessBusiness• Prepare a financial analysisPrepare a financial analysis• Segregate assetsSegregate assets• Value the businessValue the business• Identify the appropriate timingIdentify the appropriate timing• Publicize the offer to sellPublicize the offer to sell• Finalize the prospective buyersFinalize the prospective buyers• Remain involved throughout the closingRemain involved throughout the closing• Communicate after the saleCommunicate after the sale

FINALLY

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CONCLUSIONCONCLUSION• The steps provide a clear The steps provide a clear

framework within which framework within which entrepreneurs can structure a fair entrepreneurs can structure a fair negotiation leading to a sale, negotiation leading to a sale, hence, harvesting their venture.hence, harvesting their venture.

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THE ENDTHE END• ““It is likely that a good It is likely that a good

entrepreneur develops a good entrepreneur develops a good successor and the opposite is true” successor and the opposite is true” (Gabriel, 2004) (Gabriel, 2004)