Australia: Succession Planning Series: First Generation Business Owner as the Leader

Last Updated: 17 March 2013

Typically, a first generation business owner is an entrepreneur.

An entrepreneur is a person who undertakes an endeavour. In the business context, that business owner has been required to be innovative, resourceful, willing to take risks, including regulation risks, just to make it happen. There was little time for planning, developing or implementing plans, reporting to a board.

The first generation owners of businesses started in business for a variety of different reasons and from a variety of differing circumstances. It is not possible to generalise about the first generation family business owner. There are however, some characteristics that we can regard as typical for these businesses.

Typically, this business owner was a male, willing to take business risks, and to work hard to establish the business and build wealth for the family. He was the breadwinner. The family has been dependent on him thereby increasing the risks assumed by him.

Research in US indicates that the majority of entrepreneurs in that country had been reasonably well educated and came from the middle class. That is not to say that they all found it easy to establish and grow their businesses.

The commencement of this business occurred in a variety of ways. Some people had an idea that they wanted to take to market and so developed the product and then the business. Others were involved in a business and were offered the opportunity to buy out a retiring owner. Some business owners had worked in much larger businesses and observed an opportunity to provide a service to larger businesses or to supply a product, components or services to that larger business.

The motivations of people to commence their own businesses are also different. Most people have a strong desire to succeed and build wealth, and then to enjoy the benefits of that accumulated wealth. Others may have considered commencing their own business only after experiencing redundancy in their chosen career. Others looked for a sense of freedom, to be able to do your own thing.

During the growth stages of these businesses, it was not uncommon to employ family members to assist in the operations of the business. In many cases, this is where the children learned about the family business.

Focus on Business

Whatever the motivation or method of commencement, the entrepreneur generally was required to focus all of his time and energy on the business. The business owner was required to resolve issues arising in the business while on the run. The business owner was of necessity an innovator. Some of the methods adopted were untried and untested, but when the skills of this entrepreneur were applied to the issues, there had to be a solution.

This focus on the business increased the pressure and risk for the owner when employees were engaged. The owner was then obliged to organise the employee and his work output, to direct and supervise him. Sometimes that employee was hired without proper recruitment assessment and someone other than the best person for the job was recruited. When sales did not come or production went wrong, or machinery broke down, when product failed, there was tension within the business. In those circumstances, the business owner is dependent on the employees to keep the production occurring, to repair faulty product or machinery, to assist in developing new sales. In such difficult times, the business owner needs to be a good leader to marshal the resources available to him to ensure that the business can overcome these difficulties.

The ability of this business owner to marshal the human resources available to him has, in many instances, been legendary. Employees in many of these businesses have reported that they have been made to feel a 'part of the family'. Those employees are totally committed to the family because of the loyalty and respect shown to them by the business leader.

In a similar way, relationships have been developed with suppliers and with customers and largely focused around the business owner. In some instances, the suppliers and customers are dependent on him for their own businesses, and in these circumstances, the owner is a leader of those associated businesses. The leadership skills have been extended to all stakeholders.

Reporting Requirements

Many of these businesses developed without any reporting obligations and the accounting and other records kept in the early days were basic. Some reporting was required for taxation and other regulatory purposes and experience demonstrates that the record keeping and reporting was often incomplete and inaccurate.

These inaccuracies were discovered during tax investigations, or a due diligence process in the course of a sale of the business. It was sometimes discovered in the course of a dispute with a customer or supplier where proper records could have assisted in resolving issues.

The need to seek credit was another reason for preparing reports to satisfy the credit people in the bank.

Apart from these essential requirements, there were no boards or other shareholders to whom the first generation business owner was required to report. It was his business, he accepted and took the risks of the business and got on with what he had to do without interference from other shareholders or board members.

The Family

While dad may have been typically focussed on the business, mum has often had the responsibility of the family as well as some of the business responsibilities assigned to her. In undertaking these responsibilities, she also has had to use her leadership skills and demonstrate leadership characteristics. She will coax, influence, cajole, encourage children with their schooling and studies, as well as encourage them to participate in the business when additional help was required. Mum was often required to maintain harmony in the family when dad was otherwise occupied with the business issues. Her role has been described as the Chief Emotional Officer.

Allocation of Leadership Responsibilities

In addition to family members being involved with some of the leadership responsibilities, as the business grows, the owner's leadership role changes. He employs managers and allocates responsibilities to them. In those roles, they also need to demonstrate leadership qualities to motivate and challenge the employees for whom they have responsibility. The owner's role then is to focus on the managers and be the leader for them.

One of the characteristics of a good leader is the ability to be a follower. A leader cannot expect others to follow when he demonstrates that he is unwilling to follow those to whom he is required to report and to whom he has responsibilities.

An exercise

Here is an exercise. Develop a list of people in leadership roles in the business. Develop another list of the people who are the followers for each of those leaders. If there is an overlap, that is some employees are required to be followers of more than one leader or who have responsibilities to more than one manager, then there is an increased risk of confusion and demotivation. While the business owner needs to have responsibility for all employees and provide a leadership role for each of them, those having the more direct role of leadership need to be aligned in motives, goals and strategies with those of the business owner.

Next, develop a list of stakeholders other than employees, for whom the business owner has a responsibility and a leadership role. An important part of the leadership role is to balance the interests of all stakeholders. When compiling this list, determine how you, as the leader will communicate with each of these stakeholders and the manner in which you as a leader may be able to influence each of those stakeholders to assist you to achieve your business goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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