Introduction to Family Businesses

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Entrepreneurship & Family BusinessAn Introduction to Family Business


An Overview of the Course


Entrepreneurship & Family Businesses are two of the most important parts of the economic map of nations.


Without entrepreneurs, innovations don’t come to market leading to employment opportunities, capital creation and solutions to consumer’s needs and wants.


Without family businesses, a great deal of resources and wealth would be lost to future generations because they would not have been channeled properly.


Both these business types are significantly different while intimately integrated.


Through this course, I will take you through a guided tour from the origins and impact of family business on the global economy.


We will cover a number of different aspects of running family businesses effectively so that future generations can be involved in the foundations built by the original founders


Additionally, I will introduce you to the concept of entrepreneurship and how it interlinks with family business to help it grow, develop and innovate.


My Background

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

My BackgroundEducational Background

Central Michigan University – 1991 Bachelor of Business

Administration - Marketing Bachelor of Computer

Science

University of Michigan – 1995 Masters – Computer

Systems Engineering

Kellogg (Northwestern Univ.) – 1997 MBA - Marketing

Professional Background

SAP America – 7 years Cisco UK – 2 Years emagine group – 8 years Sit on Boards of Directors

and Advisories for organizations around the world

Have consulted for companies across multiple industries and regions

Speaker at regional and international conferences on Marketing, ERP, incubation and venture capital


emagine group Founded in 2003 Global venture development firm with

investments in 15 countries across multiple industries

Since 2005, we have worked with entrepreneurs in every stage of business development from brainstorm to private equity investment both in our incubation center and as independent ventures


At emagine, we aren’t just venture

capitalists, we are venture catalysts.


Our Venture HistoryOur Venture Portfolio

Fashion Houses (2) Hollywood Movies (3) Game Development Houses

(2) Massive Multiplayer Online

Gaming Platforms (2) Search Engine Restaurants (3) Manufacturing Company (2) Furniture Company Biotechnology Company (2) Medical Equipment Company

(2) Telecommunications Company Mobile Payment Provider

Recent Investments

Middle Eastern Airline 2 Hotels in Europe A Pakistani Fashion House Hydro Electric Company Mobile Company


Our History In Venture Capital In the past 6 years– Heard over 1500 elevator pitches– Received over 500 executive summaries– Assessed 200 business plans– Invested over USD 700 million in industries

ranging from technology to fashion and publications

Current investment portfolio stands at USD 970 million

We have a special understanding of entrepreneurship and how to build successful businesses


How to Contact Me email – [email protected] cell – 0333 229 1234 Web – http://www.emagine-group.com/ Facebook– http://www.facebook.com/khalid.muhammad– http://www.facebook.com/emaginegroup/

mailto:[email protected]

http://www.emagine-group.com/

http://www.facebook.com/khalid.muhammad

http://www.facebook.com/emaginegroup/


What is a Family Business?The Different Definitions


There are 21 different definitions of a family business, each taking in different aspects and characteristics


Forms of a Family Business Sole Proprietorships Partnerships Limited Liability

Companies (LLC) S Corporations C Corporations Holding Companies Publicly Traded Companies

Worldwide, estimates of all

enterprises considered to be family businesses

range between 80% and 98%


Family firms are different from other closely held firms because of the relationship between the shareholders and the management.


Two Things That Make It Different Family firms are differentiated by both:– Active involvement of family in firm

management– Intent of family members to retain

ownership of the firm


Definition 1:

A family business is an enterprise in which two or more family members own 15% or more of the shares, family members are employed in the business, and the family intends to retain control of the firm in the future.


Another Consideration Another aspect that must be accounted for is the

influence the family has on:– Ownership– Governance– Management participation through strategic

direction– Direct family involvement in day-to-day

operations and/or– Retention of voting control


Our Definition of a Family BusinessA Family Business is any enterprise in which an entrepreneur or next generation CEO and one or more family members significantly influence the firm.

The influence can be managerial or Board of Directors participation, ownership control, the strategic preference of shareholders, and the culture and values family shareholders impart to the enterprise.


Our Definition of a Family BusinessThe influence can be managerial or Board of Directors participation, ownership control, the strategic preference of shareholders, and the culture and values family shareholders impart to the enterprise.

Preference – nature of involvement of family members in the enterprise

Ownership Control – rights and responsibilities family members derive from significant ownership of voting shares and the governance of the relationship.



Strategic Preference – risk preferences and strategic direction family members set for the enterprise through their participation in top management, consulting, board of directors, shareholder meetings, or family councils



Culture – collection of values, defined by behaviors, that become embedded in an enterprise as a result of the leadership provided by family members, past and present. Family unite and the nature of the relationship between family and the business also define this culture.


Our Working Definition of Family Business

Ownership control (15% or higher) by two or more members of a family or a partnership of families

Strategic influence by family members on the management of the firm, whether by being active in management, by continuing to shape the culture, by serving as advisors or board members, or by being active shareholders

Concern for family relationships The dream (or possibility) of continuity across

generations


Characteristics that Define a Family Business

The presence of the family The overlap of family, management, and

ownership, with its zero sum (win-lose) proposition, which in the absence of growth of the firm, render the family business vulnerable during succession

The unique source of competitive advantage derived from the interaction of family, management, and ownership, especially when family unity is high

The owner’s dream of keeping the business in the family (the objective of business continuity from generation to generation)


Characteristics that Define a Family Business

The fact that the family business managers are dealing with their own money and the inheritance of their children and are not as subject to the quarterly whims of Wall Street allows for more patient capital

They will act intelligently but boldly at critical junctures, knowing that the benefit or loss will directly affect the family

That knowledge keeps family managers making decisions that steadily contribute to the family’s incremental and long-term wealth

The goal is for each generation to grow the company’s value leaving behind a stronger and better than the one they inherited

This makes them more imaginative, innovative and progressive in their decision making


Family BusinessWorldwide Impact of Family Businesses


Entrepreneurial companies often become family-owned businesses


The real transition from an entrepreneurial to a family business typically happens when the children of the company founder join the business as employees.


The business may continue to be an entrepreneurial company and may prefer to be known that way because owners are concerned with the perception of nepotism and lack of professionalism associated with family businesses.


Once “next generation” family members join the ranks of employees and/or shareholders, the nature of the firm changes, as do its challenges and its unique competitive profile


Family-owned and family-controlled firms account for approximately 90% of all incorporated businesses in the United States


That is the equivalent of 17 million family firms in the US economy today


1/3 of all Fortune 500 companies are family-controlled and about 60% of publicly traded firms are under family influence.


Most family businesses are small, but there are about 138 billion-dollar family firms in the United States alone.


19 in France15 in Germany9 each in Italy and Spain5 each in Canada and Japan


In the US, family firms account for 64% of the Gross Domestic Product – about $6 Trillion


85% of Private Sector employment and 86% of all jobs created in the past decade


In Germany, about 80% of all businesses are family firms and employ 80% of the working population


In Spain and France, about 80% of all companies are family owned and account for 75% of employment


In Italy, India and Latin America, estimates are skyrocketing with 90 – 98% of all companies being family firms.


So as you can see, family-owned and family controlled firms have had a huge impact on the global business environment


Now, many people believe that family firms are nepotistic and conflict ridden underperformers, family firms perform better than non-family firms.


35% of the Standards & Poor 500 firms are family controlled and have outperformed non-family controlled firms by 6.65% in return on assets during the past decade.


Family firms were also responsible for creating an additional 10% in market value between 1992 and 1999, compared to the remaining 65% of S&P firms.


Research shows us that family firms are the primary engine of economic growth and vitality not only in the United States but in free economies all over the world.


Outside of financial outperformance, families are a significant factor in the creation of new ventures.


While the venture capital industry is usually credited for its role in the growth of new ventures, it is the wealthy individuals and families in business that provide the large share of seed capital and early-stage funding for large segments of the entrepreneurial population.


Of the 286,000,000 entrepreneurs worldwide who launched new ventures since the mid-1990s, only 19,000 were financed by venture capital firms, totaling US$ 59 billion.


Families provided US$ 271 billion in the same period of time


Drawbacks of the Family Business


While we can see a great deal of advantages with the family business, there are also a number of factors that have a negative impact


Approximately 85% of all new businesses failing within the first 5 years of operation.


Among the 15% that survive, only 30% are successfully transferred to the 2nd generation of founding family owners


This high failure rate amounts to the wastage of opportunities for job and wealth creation in many communities.


Not all family businesses that are not passed down to the next generation go on to close their doors, but many do.


The odds get worse between the 2nd and 3rd generations – 12% & the 3rd and 4th generations – 4% remain in the family.


Today, there is a widespread belief that a company is prehistoric and on the road to extinction unless it is “high tech” or has grown to be a very large, diversified multinational corporation.


The Myth

There is a widespread myth that a company is prehistoric and on

the road to extinction if it is not “high tech” or has grown to be a

very large, diversified

multinational corporation.

Murdoch

Graham

Sulzberger


Some Family Businesses


Next Week’s Lecture


Next Week We’ll look into the family business culture,

stewardship and relationships We will also look at the different types of

family businesses that are created and managed in today’s economic marketplace
