The Howl Issue #3

Author : Rick Johnson
I hope everyone had a great Thanksgiving and looking forward to an even better Christmas. I personally am now getting into the Christmas spirit after spending all day Saturday and most of Sunday putting up the lights outside and helping decorate the tree. As this year comes to an end and we celebrate the holiday season, most of us have a lot to be thankful for. I know I count my blessings everyday and look for opportunities to reach out to others that may need help, support or encouragement. Have a wonderful holiday season and a prosperous New Year. Reach out to someone.If you missed Issues #1 & 2, e-mail: rick@ceostrategist.com for copies of these issues.This month's issue contains:• The Housing Bubble --- Is It Finally Ready to Burst?"• First in a series on "The Challenges Facing Family Owned Businesses"--- How can you turn over your business to your children without creating chaos?• Kids and Guns• 15 Revealing Questions To Ask A New Sales Candidate• Client Corner --- "My Kids Can't Cut It"The Housing Bubble --- Is It Finally Ready to Burst? ---- Economists have been predicting the burst of the bubble for the past five years. Every year they have been wrong. 2005 was supposed to be the year when things really started to slow down. Low and behold, 2005 was another banner year. Those in the building supply business are sitting around smiling as they count the profits. I am not an economist, thank God, but maybe, just maybe the economists are going to finally be right as some signs are beginning to show that may indicate a slow down in the housing boom. And of course, the auto industries problems, specifically General Motors with their recent layoffs and plant closure announcements just adds strength to this conjecture. What's the old saying? "So goes General Motors, so goes the economy."Sales of existing homes fell almost 3% in October and the decline could have been higher except for the demand created by the surge of Hurricanes, especially Katrina. The level of unsold homes in October was at its highest peak in nineteen years. Some of this may be attributed to the fact that prices have risen at a pace not seen in twenty five years. A chief real estate economist stated; "The housing boom has likely passed its peak. (We have heard this before) The boom is winding down. I expect continued softening in housing." (David Lereah, chief economist for Realtors.)Economists also predict that the buildup of unsold homes across the nation would dampen the surge in prices that saw 69 cities report double digit price increases this summer compared with third quarter 2004. Another prediction is an additional ½ point increase in interest rates by June of 2006 which could create a slow down in price increases to about 5% next year.In reference to new construction, it also has shown signs that the bubble may be ready to burst. Housing construction and new building permits were down sharply in October. The Commerce Department reports that construction of new homes and apartments fell by almost 6%, which was the biggest decline in seven months. Applications for new building permits fell almost 7%, which is the biggest decline in six years. Nariman Behravesh, another expert chief economist stated, "We are likely to see a steady downward trend in housing activity over the next few months. Mortgage rates are at the highest level seen in more than two years." National Association of Home Builders said a new survey showed builder optimism fell in November, the largest amount since the September 11th terrorist's attacks.So, is the bubble ready to burst? Many economists seem to thinks so. However, the statistics cited have been cited in the past. The predictions of a bubble burst have been reported in the past. On the other hand, some economists disagree at least partially. David Seiders, chief economist for home builders stated that he believed that sales of both new and existing homes, while still setting records for a fifth consecutive year in 2005, will only see a small 5% decline in 2006. This would represent a very soft landing (5% is not much considering the growth we have experienced over the past five years). Do they really know? Who knows? Maybe that's why Roosevelt said he would only deal with "One Armed Economists." So they couldn't say, "On the other hand"…Be cautious in 2006. Don't panic but don't bet the farm. Initiate a contingency planning process. If you don't need the plan in 2006, so what, sooner or later the economists might get it right and that contingency plan that you have tucked away will become invaluable.__________________________________________First In A Series On Family Owned Businesses------ In 2006 we will try to cover many of the issues and challenges in "The Howl" that face privately held family owned businesses.
Every family owned business faces difficult challenges. Readers are encouraged to e-mail rick@ceostrategist.com with comments, questions and topics for discussion related to the challenges faced by family owned businesses.How can you turn the business over to your children without creating chaos--- This is probably the toughest question any business owner that has family working in the business will ever face. However, the answer is simple. The answer is….. It depends. It depends on how well you (the owner) have prepared yourself and your child for this transition. Have you planned this out? Has your successor been trained, developed and prepared for the transition? This is pretty easy if you only have one child in the business and he/she just happens to be the next Jack Welch of wholesale distribution. This child has worked outside the business for someone else for a minimum of five years. They have completed their MBA and they worked their way up in your organization starting in operations or customer service. They don't walk around with their silver spoon visible and they don't wear their family title on their sleeve. "Piece of Cake!"Let's face Reality--- That scenario, although it certainly does exist, is the exception and not the rule. In most cases privately held businesses generally have several family members working in the business. When the president has more than one child in the business, things start to get more complicated. Before we dive into that challenge, "How do we select the next President?" let's review a few statistics.• Family business is the driving force behind the US economy providing over 50% of our employment• 59% of family owned businesses have only 1 or 2 owners• 25% of family owned businesses surveyed in 2004 stated they would seek non family member CEO's for succession• Key areas that family owned businesses seek advice and counsel on include:--- Strategic Planning--- Organizational Design--- Operational Effectiveness--- Leadership Development--- Succession Issues--- Compensation--- Sales Effectiveness--- Risk ManagementNow, how do you decide on who should be the next President? If you are not one of the lucky few described in the opening scenario and you have multiple family members working in the business, your stress level is already at a high point. First, many if not all family members working in the business have feelings of entitlement to some degree. This is generally true of at least one if not all of the president's kids. Choosing the next president becomes even more difficult if the children have used their name as a title instead of the actual title of the job function they performed and the position they hold in the company (This is often unintentional and some kids don't even realize it). This difficulty increases exponentially if none of the kids have demonstrated a high level of competence, respect for all employees, leadership skills that pattern the servant style and at least some promise of potential to fill the president's shoes.Although the majority of parents would prefer that their children take over the business and carry on the family legacy, this is not always the best option available. I know it is difficult for any parent to admit that their child may not possess the skill sets necessary to take over as President of the company. However, that situation actually does exist in many family businesses.What are the options if Junior isn't ready? --- The first two questions to ask yourself are: "Will Junior ever be ready?" "Does Junior have the ability to learn how to become President?"As difficult as it is to accept, your answers to these questions alone are not good enough. If you have a Board of Directors, you should solicit their input and recommendations. Hire a Human Resource Consultant to do an assessment of not only Junior but other executives in your organization that may be qualified for the Presidency. Conduct 360 degree reviews to get input from peers and subordinates. Precisely define the Presidents role and responsibilities and match these requirements to Junior's skill sets. If you don't have a board, create one before the transition. Include the following action items as part of the transition plan:• Create a development transition training program for the new President (This should be designed as an internship)• Clearly define the former Presidents role after the transition. Will he remain and come into the office? Will he become Chairman of the Board? What responsibilities will the former President retain?• Manage the expectations of other family members. Do not allow family tension to create tension in the business. This could lead to employees taking sides.• Use your attorney to cover all legal issues• Create a real Board of DirectorsThe Family business can be complex--- The family business structure can be complex and confusing. This is especially true when numerous family members work in the business. The business is composed of interdependent relationships between functions and people that depend on the ability to work toward common objectives. A family owned business with multiple family members has twice as many opportunities for mistakes, resentments and complacency. Teamwork is essential and effective communication is critical. It is of paramount importance that employees are recognized as the true reason for success. Family issues must not penetrate the business environment. Holding family business meetings, off site, on a regular basis is highly recommended.These meetings should be used to air feelings, check boundaries and clarify roles and responsibilities as they are being played out. The President must keep his finger on the pulse of the company culture and environment. Family members must be challenged as issues arise that are detrimental to the long term success of the company. Some companies create a "Code of Conduct" just for this reason. Regular confidential employee surveys are also a useful tool in this regard. (E-mail rick@ceostrategist.com for a complimentary copy of "A Guide to Leadership Succession in the Family Business")It's your company, it's your legacy and when all the cards are played it is still ultimately your decision. Listen to your employees, listen to your executive team, get some outside advice and then ----- trust your instincts as a professional business person. Remember, you can always sell the business or bring in an outsider as President.__________________________________________Kids and Guns ------ I'm probably going to get a lot of negative feedback about this but so be it. Just prior to sitting down for Thanksgiving dinner I was reading the local newspaper and came across an article titled, "How young is too young to hunt?" The newspaper had a picture of a young boy, 6 years old holding a .223 caliber rifle with a scope. He was all dressed up in camouflage gear. The article talked about this young boy killing his first deer when he was five years old with one shot from his .223 caliber rifle. The boy himself was excited as he talked to the reporter."I shot it right behind the front shoulder. Dropped it right in its tracks," the boy said. This boy of six stands 4 feet tall and weighs 50 pounds. He's a good student that earned an award for responsibility in kindergarten that year. KINDERGARTEN!But he'd rather be hunting. "I like it," he said. "Shooting a gun and shooting at the animals and killing them."The article went on to talk about an eight year old girl that made headlines last month by shooting the first black bear of the season. This was in Maryland and there is no minimum age limit for hunting. You have to be sixteen or eighteen in most states to drive a car but you can shoot a .223 caliber rifle with a scope at 5 years old. Now, I have to say that although I am not a hunter, I am not opposed to hunting. I am also not opposed to guns. I own one myself. After all, it's legal to carry a concealed weapon in Florida (It's a matter of state pride that we return fire in a drive by!) But, I do shudder when I think about a five or six year old in the woods with a .223 caliber weapon, even if they are with their Father who may be an expert hunter. A .223 caliber rifle can kill someone or something a mile away. Beyond that, how do we determine that the maturity level and the responsibility level of a six year old are such that what is learned about weapons in the woods stays in the woods when that child begins to mature?Yes, the federal government spent a lot of money on a study that said, "Guns do not turn children into criminals." This study concluded the best way to reduce firearm related violence is to buy them a gun and teach them how to use it responsibly. Give me a Break!Let's not forget, guns are unregulated consumer products. In Texas guns are said to kill six children and teenagers every week of every school year. I personally believe that guns and kids are a volatile combination. Between 1996 and 2000, 1,541 children died in Texas from gun violence and for every child that died, four others went to the emergency room for gun related injury. Six out of ten child suicides are completed using guns. And this is just in Texas.To close my RANT and OUTRAGE about a five year old with a .223 caliber rifle, I want to site a project called the "Lion & Lamb Links". This was a study that asked the question, "What do you think your pre-schooler would do if he or she found a real gun---- after repeatedly warned NOT to touch a gun." The results of this project are shocking.First a police officer was brought into a class of 60 children. His message was clear and precise. "Don't touch guns --- they are deadly and dangerous. If you see a gun, leave the area. Tell an adult." The children were asked to repeat his words and they could answer his questions. They were later left alone with disarmed guns and the majority of the children picked them up and shot everything in sight. This was reported by Hardy in a NY Times editorial.The second study with a different group of children lasted five days. The children were instructed on how to make good choices, how to resist peer pressure and how to distinguish toys from dangerous objects, guns. The results were the same. When left alone the children began playing with the guns just as group one did. Most of the six year olds could tell the difference between the toy guns and the real guns but they played with them anyway.Ask yourself, would your kid play with a gun, even if you trained him in the woods to hunt? Does your six year old have the maturity to handle the knowledge about something as deadly as a gun?I apologize in advance to my gun distributor friends. But I've got to say, I would be awful nervous hunting in the woods knowing there were 5, 6, 7 & 8 year olds in those woods with loaded rifles. In fact, you won't catch me near the woods during hunting season._______________________________________________________________15 Revealing Questions To Ask A New Sales Candidate1. Tell me about why you want to succeed at sales.2. Where does your sales passion come from?3. What is the last sales book you read?4. Tell me about the last book you've read on creativity.5. Tell me about the biggest sale you ever made.6. What was the biggest reason you got it?7. Tell me about the biggest sale you lost.8. What do you say when a prospect says, "I want to think it over"?9. What do you say when a prospect says, "I'm satisfied with my present supplier"?10. What do you say when a prospect says, "Your price is too high"?11. How often do you listen to or read personal development information?12. When did you attend your last seminar?13. How do you improve your presentation skills?14. What is your most creative approach to follow-up?15. Give me your 30-second personal commercial. Your elevator speech.These are just a few examples to get you started in the interview.__________________________________________Client CornerRickI just turned 70 years old. I am ready to turn over the reigns of my company to one of my three sons. I own a ____parts distributor with revenues that should exceed $48 million by year end 2005. All three have worked in the business for the past 15 years. I don't want to sell and I really want one of my sons to carry on the family legacy. My problem --- I don't know which son to hand the Presidency to. I hired a consultant to do an assessment to help me make a decision. The consultants, after doing a battery of tests and interviews determined that my current Vice President of sales is the only internal candidate that is qualified to take over as President. This gentleman has been with me for 25 years, he's a great guy, and I have no doubt that he can do the job but he is not one of my sons. To complicate matters even more, the son that I was leaning towards handing the Presidency to got the worst rating of anybody on the 360 degree review. In fact, the consultant privately advised me that I should consider getting this son out of the business before my transition into retirement. They also advised that one of my two remaining sons may be able to step it up and take over the reins in three to five years. He is 45 years old now. I can't wait that long to retire. What do you recommend?George ------ Mid WestDear George:You are facing quite a dilemma. Obviously, the easy answer is to sell the business. However, I take it from the passion in your memo that you will not consider that option. At 45 years old your son should be ready to take over as president now. If he is not ready now, chances are not great that he will be ready in 3 to 5 years. You haven't done a very good job as his coach and mentor. That being said, if you are adamant about one of your sons taking over the business you might want to consider this scenario. Appoint your VP of sales as your successor with the understanding that one of his primary responsibilities is to develop your son to take over the company in three years. Make sure that you are generous to this VP in constructing a contract that makes him well if something happens to you and your sons decide to throw him off the bus. If your son doesn't develop enough to really run the company in three years, you might consider leaving your former VP of sales in the role of President and appoint your son CEO. He could be the outside face for the company, carryon the family name but have your President run the business on a day to day basis. This assumes that your son is willing to play that role and supports the President in his day to day role. It is not the ideal solution but it is an option that can be considered. However, be very cautious in determining what your sons are willing to accept and how they will react. A family legacy means nothing if the business goes down the tubes due to internal strife caused by intolerable family issues. This is a short answer that requires a lot more discussion.Good Luck and let me know how things progress.Rickhttp://www.ceostrategist.com E-mail rick@ceostrategist.com for prior issues of The Howl. Dr. Rick Johnson (rick@ceostrategist.com) is the founder of CEO Strategist LLC. an experienced based firm specializing in leadership and the creation of competitive advantage. Rick received an MBA from Keller Graduate School in Chicago, Illinois and a Bachelor's degree in Operations Management from Capital University, Columbus Ohio. Rick completed his dissertation on Strategic Leadership and received his Ph.D. on April 15, 2005
Keyword : Executive management, family business, board of directors, succession,