The Law Of Diminishing Skills

Much has been written about how 90% of family businesses fail to succeed through the third generation. The curse has been described by the phrase, “Shirtsleeves to Shirtsleeves,” and its equivalents in many other languages and societies. Extensive research, including by my colleague, Prof. John Ward, attribute this curse to a variety of causes: Destroyed drive, rigid paradigms, undeveloped families, family lifestyles exceeding business distributions, lacking respect for management professionalism, and family conflicts taken to the business arena.

While all those causes are valid possibilities, the one that is best known and the default choice is “destroyed drive.” It evokes the image of spoiled children, born with silver spoons in their mouths (“silver spoon syndrome”), bringing to mind the likes of Reggie and Veronica from “Archie Comics.” The most extreme and best known but least cited example lies in 18th century French history, described as: “Louis XIV built Versailles, Louis XV lived in Versailles, and Louis XVI died for Versailles.”

I would like to add an additional cause, which I call the “Law of Diminishing Skills.”

In the typical scenario, the founder, usually G-1 of a yet-to-be-family business, does the heavy lifting, sort of like taking a sports car from 0 to 60 in a few seconds or the initial liftoff of a spaceship tugging to escape Earth’s gravity. Despite their powerful thrust, for most entrepreneurs, the escalation is slow, affording time to train and prepare G-2 successors. The end of the entrepreneurial stage and the start of the next stage are not so terribly different, so G-2 is generally capable of taking over leadership of the business and can grow with it.

Often, the next phase of family business is much like the after-burner rockets that take advantage of lesser gravitational pull to surge further and faster toward “infinity and beyond.” Indeed, a successful second stage growth of a business carries it to a whole new level where different sets of skills and talents are required to manage the further growth of a much larger and more complex business. By the end of that second stage, the required managerial skills may well exceed a G-3’s  skill level.

G-3 working within the growing family business don’t likely have sufficient opportunity to learn how to steer through the challenges of the next stage of growth. Some seek to develop such skills elsewhere, in another, unaffiliated company. However, when a G-3 has achieved a successful track record elsewhere, leaving that position to assume a new position in a “foreign,” albeit family business, might seem a step backwards. Furthermore, in addition to the business challenge, there would be the additional burden of the family business element. Thus, the “Law of Diminishing Skills”: G-3 simply don’t have the time to learn the extraordinary skills needed for the next stage of growth.

In those circumstances, families may best be advised to find a suitable professional manager, one who has experience leading a business to a similar next stage. In other words, find one who has “been there, done that.” Then the family can “retreat” to more suitable governance roles.

Like so many laws, the Law of Diminishing Skills has exceptions: (i) where growth under G-2 leadership is more modest; (ii) where liquidity events allow reinvention of the family enterprise or its components; and (iii) where responsibilities are realigned through merger or other reorganization. Such exceptions are described in my book, Visionaries Are Made Not Born, in the stories of (i) the Bigelow Tea family; (ii) the Ross Perot family; and (iii) the Terlato (Wines) and Wirtz (Chicago Blackhawks) families.

As they say, the exceptions prove the rule or in this case prove the law, the Law of Diminishing Skills. That seemingly negative law is an economic phenomenon that can be converted to a positive with good preparation, preferably deployed “early and often.” To be clear, that preparation can be to get family owners to be ready and able to step back to a governance role, supporting the hiring and oversight of a non-family CEO.

Bringing in non-family successors from outside bears huge risks of adapting to culture. So, for many, preparation may involve internally breeding non-family leadership. The most successful teams have strong benches. With foresight, capable managers can be hired and groomed, way before a transition point, to be ready when needed.

Either way, good communications are the rails upon which on-time trains roll best.

You may wonder how family members who aren’t up to leading the high-growth company can presume to govern an experienced non-family leader. It’s simply that the functions and required skills are quite different. Even though the Board of Directors are the CEO’s boss, a board is a group effort, often including non-family CEOs or ex-CEOs, which can help family directors develop and improve their governance skills. Some use outside consultants and courses, such as the highly rated “Governing Family Enterprises” executive education program at the Kellogg School.

The Law of Diminishing Skills is both a rule and a warning sign. Even those who believe that their (business and family) situation is different are well advised to be careful and to seek independent judgment as to whether to heed the warning signals. It’s much like a caution sign in traffic. It may seem that just as warnings of oncoming traffic, as they say, appears in your car’s side-view mirror, Family Business challenges may seem different than in reality.

The 3-Rs of Family Business Visions

On many occasions I've suggested that if business is likened to a chess game (OK, with a bit of poker intertwined), then family business should be described as three-dimensional chess. The family aspect superimposes its peculiar paradoxes over those inherent in the business itself. For example, business succession, which is more art than science, depends not only on good corporate governance and willing, capable leadership but also family discipline and governance, in order for the succession to be successfully accomplished.

Businesses have a world full of candidates to be successors, yet a considerable number of family businesses feel they are limited to family members as successors. That limitation of source has both advantages and disadvantages.

The key is to understand what stage the business is at and selecting the proper candidate to lead the next phase of the business’s growth. In a family business, all that is the same, but the leader must also be the right fit for the next stage of the family.

One of the complications in a family business’s development is the strong emotional ties to visions, those of the founder and subsequent generations’ leaders. Some families’ visual reminders (grandpa’s portrait on the wall) subliminally superimpose their influence.

As a consultant to family businesses and one who has studied, taught and written about the subject, I am often asked for the silver bullet, the one magic way to handle family business visions. My answer, always the same– – different families and circumstances should handle that complication differently – – doesn't seem to satisfy the inquirers. Therefore, I have devised a simpler answer, the ABC's if you will, or more to the point, the 3-Rs of learning about family business visions.

The 3-Rs of family business visions are: Reverence, Reversal, and Revamping. Allow me to explain these 3-Rs through summaries of three real family business stories: the Perot, Wirtz, and Terlato stories. The more complete stories of each family and a deeper explanation can be found in my recent book, Visionarie$ Are Made Not Born, for which I interviewed each of the people mentioned and others.

Reverence – – the perfect word to describe the way Ross Perot Jr. thinks of his father Ross Perot Sr., successful entrepreneur and former candidate for president of the U.S. Ross Jr. is a loving son who (i) watched firsthand as his father built his first company, EDS, which he sold for over $1 billion; and (ii) joined his father to grow Perot Systems, until it was sold for billions. As a kid, he sat in the backseat of his father's car as his dad described his vision of the Texas desert’s future, visions that became valuable reality for the Perot family. From that, Ross Jr. learned how to be a visionary himself. By example and by explicit lessons, Ross taught his only son the meaning of loyalty, integrity, discipline and hard work, which Ross Jr. has applied quite successfully. It is easy to see why he reveres his father.

Reversal – – Bill Wirtz did things his own way, including refusing to televise Chicago Blackhawks hockey games. After all, if they televised the games, Bill theorized, why would people pay to buy tickets to see the game in person? Immediately after Bill's death, his son Rocky took over. He had been excluded from the family’s hockey business, even though he worked for years in the family’s valuable liquor business. Now he was CEO of both. He was handed a bill for $20 million so the team could make payroll. Faced with the bill and the quicksand likely underlying it, Rocky could have sold the team, infected as it was by his father's flawed vision, for $100 million. Instead, he bit the bullet, paid the bill and reversed his father’s vision – – all games are now televised. Three Stanley Cup trophies later (all since Rocky took over in 2007), the team is likely worth over $1 billion.

Revamping – – when Tony Terlato started in the wine business, Americans drank really cheap wine; splurging resulted in bad wine in better bottles. Self-taught to recognize good wine, Tony envisioned Americans drinking good wine. He worked hard and cleverly, often taking big risks to convert his vision into reality. Eventually he was selling more wine priced over $15 a bottle than anyone else. Son Bill learned at his father’s side. When he succeeded Tony as CEO, he supported his father's vision 100%. But Bill saw future risks. If they relied totally on Tony's vision, Bill feared the impact suppliers might have, if they let down quality or took over distribution themselves. So, he led the family into a risky vertical integration. He maintained his father's vision but revamped it to expand their operations beyond Tony's distribution business.  Years later, it paid off – – big time.

There you have it-- the 3-Rs of family business visions: Reverence, Reversal and Revamping-- a simple explanation of a complex area. Needless to say, there’s a lot more to each story. It’s important to understand the reasons and backgrounds, not just the outcomes. By the way, as you read Visionarie$ Are Made Not Born, you can also view the videos of the extraordinary interviews (in addition to those above, Fred Smith of FedEx, Kay Koplovitz of USA Network, Rick Waddell of Northern Trust, Jim Stephens of Weber Grills, and others).

Listening Carefully To The Sound of Silence

Near the end of my new book, Visionarie$ Are Made Not Born, I mention Mr. Ibasfalean, a gentleman I came to know, in the early 1970s. He had built, owned and ran the Cortez Marina, the largest marina south of Tampa on the west coast of Florida. I was lawyer for and part of a group that bought the marina, but it was far from a cut-and-dry acquisition.

Despite his age and difficulty walking, he changed his mind on more than one occasion. Fits and starts of seller’s remorse happen, but this was at a different level. All ended well: the deal closed. On a personal note, Mr. Ibasfalean came to ask me to refer to him as “Pop,” and most importantly, I learned some valuable lessons about both deals and life.

Early in our negotiations, Pop took me on a tour of the marina, where he had personally designed and built the dry and wet slips. Because of his difficulty walking, we toured using the marina’s golf cart. As a European immigrant from a land-locked community, he came to America totally unfamiliar with marina construction. Yet, he did a yeoman’s job.

As we dwelled a bit at the water’s edge, viewing the wet slips, I asked him how he knew how to build them. He said, he just looked out and saw how they should look and the rest was easy.

Many entrepreneurs I’ve worked and dealt with have explained their primary vision, but most were somewhat less oblique. Yet Pop’s explanation proved to be one of the most instructive. It helped me understand the need for what I refer to in the book as an “understanding quotient” (UQ). Unlike IQ (intelligence quotient) which is largely genetic, and EQ (emotional quotient), which stems from some combination of genetics and environment, your UQ is under your control.

Months later, well after the terms had been negotiated and memorialized in a draft agreement, in fact just days before the closing was scheduled to take place, Pop called and said he had decided not to move forward. I was dispatched  to Florida with instructions on how much I could enhance our offer to get the deal done.

I arrived at Pop’s home early in the morning. It was a non-assuming house on the property we were acquiring with a large bomb shelter attached, built by Pop during the Cuban missiles era. We had included a provision allowing Pop and his wife to continue living in the house for the rest of their lives.

I asked whether we could talk outside in the marina grounds. His legs bothered him, so he drove the golf cart, and I suggested we sit at the water’s edge. Settled in, I asked Pop to relate, once again, how he had his vision, how he understood what to do, and how he built, maintained and nurtured his baby, the marina. This time, his answer was longer, more detailed and much more emotional.

I responded, repeating my respect for his talent, adding that we could not proceed with the deal. Clearly a business this complex couldn’t be run by absentee owners (we were all Chicagoans). Then I stopped, allowing time for it to soak in.

Pop rejected my theory, saying he’d still be living there. I countered that he would no longer be an owner and besides, given his weakened legs, he wouldn’t be able to walk enough to get the job done. I let that soak in. Then I said, “You know, that might be possible if you had the golf cart to use.” Changing the contract to give him the golf cart did the trick, and the deal got done.

It wasn’t a brilliant idea. It was simply a matter of applying UQ. My UQ came from observing and listening to the visionary, which had made his real feelings rather obvious. Ever since then I try to enhance my UQ by listening carefully to what Simon & Garfunkel described as the “sound of silence.”

4 Leadership Principles of Ross Perot (A Man Who Opted to Lead the Free World)

When I interviewed Ross Perot for my book, Visionarie$ Are Made Not Born, I asked him about leadership. After all, here was a man who exhibited great leadership in business, in the military (U.S. Naval Academy and later the Navy) and in the geopolitical world (saving captives in Viet Nam and Iran) and who tried hard to be leader of the free world when he ran as an independent for President of the United States. Perot immediately said that he didn’t learn leadership at the Academy but learned it from his father.

Perot’s father wasn’t a business tycoon, military officer or political officeholder. He was a small-time cotton trader in Texarkana. What made Perot say that he learned leadership from his father, not from one of our great military academies or from all the other influences and experiences of the long, full life of this extraordinarily successful businessman, patriot and leader?

It’s simple. Perot understands what leadership is really about. Here are a few lessons on leadership I gleaned from my interview of Ross Perot:

1.  Be good to all your people

He talked about how his father treated his employees respectfully.

2.  Let them know you have their backs

He risked his money, his reputation and even his life to help and save employees (and servicemen) when they were in trouble.

3.  Don’t ask them to take risks that you won’t take yourself

When leadership requires heroism, you should remember that “heroism” includes an “I” not a “U.” Perot could have simply sent his hired gun, Col. Arthur (“Bull”) Simon, to do his life-saving work. Simon was certainly up to it, but he needed someone to tell the captive EDS guys what to do when the action began. Perot was the most likely to gain Ayatolla permission. That was especially dangerous for Perot; he would have been an ideal hostage, but he wasn’t inclined to lead by staying at his desk. That’s not what his father would have done.

4.  Follow the Highest Standard

As the largest shareholder and a Director of GM, as a result of them buying EDS, he felt it incumbent on him to visit the workers on the production floor. He was told by the CEO that he should refrain. GM’s inferior governance standards would have been the easiest way to serve and the safest way of keeping his cushy board seat. Perot, however, knew that the highest standard was the right one to follow.

Unintended Consequence: Perot’s actions led GM’s CEO to pay Perot a premium for his stock in order to get rid of him.

         My purpose in interviewing Ross Perot was to learn about a great visionary and how he taught his son, Ross Jr., to be one too. However, in addition to being a great business visionary, Perot was an accomplished leader. The discussion referred to above was what I call “an interview dividend.” It has been my good fortune to be the beneficiary of such dividends repeatedly, one of the positive byproducts of interviewing extraordinary people.

Ignore Your Early Lessons When You Outgrow Them

I’ve learned a lot from books I’ve read, and learned an important lesson from one of the first books I read, The Dog and The Bone. To remind you, it’s the story of the little dog prancing along with his teeth around his new-found bone, when he sees his reflection in a river. Thinking it was another dog and bone, he drops the real bone to snatch the shiny reflection of his bone and winds up with neither. The book focuses on the dog’s greed and the resulting consequences.

That story has come to mind, indeed haunted me, from time to time over the years. How could I reconcile that story to my advice to entrepreneurs and business visionaries, namely to take a chance and grab for the brass ring? Seeing and reaching out to grab opportunities is what business visionaries do, but it’s not easy to measure risk and reward as the merry-go-round speeds past the elusive brass ring.

Advising, observing and studying business visionaries has taught me that the answer to the question: whether to drop the bone and reach for the shinier one, depends on numerous factors. The most important factors are learned by doing your homework & knowing your stuff. In my recent book, I tell the stories of business leaders & visionaries who have done that well:

Ø Ross Perot, founder of EDS and Perot Systems (sold for combined several billion dollars) saw the potential of SaaS before anyone. He did so by listening to IBM customers while selling like no one else.

Ø Fred Smith, founder of FedEx, saw computer and medical device companies that didn’t trust the Post Office with their valuable devices and components. He reads extensively to envision market and technological opportunities.

Ø Kay Koplovitz, founder of USA Network, saw the opportunities of satellite TV before others. She went back to school (literally did her homework) to learn a new science (geosynchronous satellite positioning).

Ø Tony Terlato envisioned Americans drinking quality wine, not the low price wine-by-the-barrel served in the mid-20th century. He read, traveled Europe meeting experts, and taught himself to taste quality differences.

It’s not just knowing about business generally, not even about knowing your business well. It’s also a matter of knowing what to focus on.

         Recently, the Today Show did a retrospective to a 1983 Morley Safer interview of George Finn, a savant who seemed to remember every date and day of various events. Then Finn said to Safer, “What’s your name again?” It seemed an ultimate example of a mind totally focused on what a man wanted to remember. Of course, Finn’s focus was likely beyond his control. For most of us, the control is readily at hand, so we certainly should use it.

Made or Born? As to Visionaries It’s Important

In his article, “Are Visionaries Born or Created?,” James Fallows quoted an MIT professor, “[Steve] Jobs has this extraordinary ability to see into the future….” I’m not sure Jobs was so endowed. I am certain, however, that one needn’t see into the future to be a visionary.

In Visionarie$ Are Made Not Born, the sequel to my 1995 best-seller, Entrepreneurs Are Made Not Born, I introduce my “Five Elements of Vision” and show how some fabulous visionaries I interviewed used those five elements to achieve visionary business.

Ross Perot & his son; Fred Smith (FedEx); David Abney

(UPS); Rocky Wirtz (Chicago Blackhawks); Rick Waddell

(Northern Trust); Kay Koplovitz (USA Network); and several others.

         All were special, but none could see the future. They developed skills to see others’ perceptions, realities and trends. They are smart but have no super powers. Most importantly, they learned to be visionaries from others and themselves. Sure they were born each with his or her special genes, but as we’ve all been told: It’s not so much what you’ve been born with, but how you use them.

         Oh, as to the nature/nurture issue raised in “The Atlantic” piece, the answer is clearly, “yes!”

What's Half A Vision?

Have you ever thought to yourself: “I’m not a visionary. I’d be happy to have one good idea.” Well, visions are merely one kind of idea, the kind that sees how something could be in the future.  The future could be tomorrow or years from now.  The idea is as broad as you permit your peripheral vision to spread and as far as you imbibe your imagination.  Your visionary idea can change the whole world, affecting the lives of every person living now and in the future (that’s what Ken Keverian told me lured him to IBM), or merely a small segment in a given niche (e.g., the vision of Eli and Mark Schulman for Eli’s Cheesecake). I interviewed bothKeverian and Schulman for my new book, Visionarie$ Are Made Not Born.

So when and why do visions occur?  They are not flittering like butterflies waiting to be snagged by minds’ nets.  Nor are they concepts that fall unheard in empty conceptual forests.  They are, instead, perceived solutions to problems or needs.  Visions are the keys for opening doors to opportunities and for barring doors to challenges.

There is a saying in the start-up financing community, that a particular investment opportunity is not investment-worthy, because it is “a solution looking for a problem.”  That implies that the problem must already exist.  Well, it must exist to be investment-worthy for those who measure internal rate of return (IRR), a measure that considers both the amount and the time of return.  Those with longer IRR tolerance can abide by time’s risks.  So one who can afford (i.e. has the backing for) prolonged projects can succeed by creating a solution for a yet-to-exist or even a yet-to-be determined problem or need.  That’s entirely possible but quite remote.

There are, of course, different kinds of business visions, irrespective of time considerations.  There are tangible ideas, often referred to as products, and intangible ideas e.g., systems or processes.  In all those cases they can be mental creatures, not yet specifically applied or modeled (and in that case, interestingly, not patentable).  They also can be notions about business models, which on and off over the past 150 years have been patentable but presently seem not to be (a result of “judicial legislation”).

Patent experts will tell you: “you cannot patent a mere idea; it must have been applied.”  Thus it follows that you can’t patent a mere vision, no matter how unique or valuable.  So the best and most valuable idea or vision with nothing more cannot be patented.

To be patentable, an applied idea or vision requires one additional attribute: it must be novel and unique.  A business vision can exist and prove quite valuable, even when it lacks novelty, even though it merely copies an existing concept.  (See my blog, “Eyes on Your Own Paper” about visionaries who have copied and used others’ ideas that have proven valuable.  Also, read Visionarie$ Are Made Not Born for the complete stories of these visionaries.)

Have you ever had a business vision? I’m not sure whether you have, but I’m quite certain that you’ve had half a business vision: seeing a problem, a need to do something better, easier or less expensively. The other half is a solution. Good news: now you know you have only half way to go. Can you think of what might be a good second half (the solution) to the problem or need you observed?

 

You Are So Single-Dimensional

“Do one thing and do it well” was a constant refrain, consistent advice when I was young. I was fortunate to receive contrasting advice. While a high school junior, my school principal, whom I knew fairly well, asked me where I planned to go to college and what I planned to study. I told him I always wanted to be a lawyer. He reminded me that I needed to make college choices first. I knew that but really hadn’t focused on it. He recommended that I consider majoring in accounting, and so I did. The combination of law and accounting proved valuable, and I felt indebted to him for leading me to that multi-dimensionalism.

            By the way, years later, he told me his reason for so counseling me: his dream had been to be an FBI Agent, and they were hiring people with those dual degrees. Fortunately, that strange motive didn’t adversely affect my result.

            Most people, when they hear “multi-dimensional,” think it refers to 3-D movies or even 3-D comic books. When I use the word “multi-dimensional,” I mean something quite different, namely the combination or congruence of two or more areas of study, such as medicine and computer science, law and accounting, or art and science.

            For decades I have lectured students and advised clients on the ability to expand opportunities through multi-dimensional applications. More recently, my tone switched. Single-dimensional is passé; so last century.  Multi-dimensionalism is no longer proposed as an option; it has become an imperative.

Lest you think multi-dimensionalism is something new, it’s actually been a factor for millennia, with growing importance, frequency and relevance as education and communication improved. DaVinci’s multi-dimensionalism is renowned and was totally unique. A more recent example, mentioned in my new book, Visionarie$ Are Made Not Born, is the fascinating story of Kay Koplovitz.

In the 1960s, Kay Koplovitz had learned about TV operations by working at the TV station at her school (University of Wisconsin).  Then, while traveling in Europe, she heard a lecture about geosynchronous orbiting satellites and the speaker’s vision of some possible applications of that science.  She was fascinated and changed her plans, switching to Michigan State University, where she could pursue a master’s degree in geosynchronous orbiting satellites.

With her MS degree in hand, she was one of but a few people, likely the only woman, who understood both geosynchronous orbiting  satellites and television.  She pursued a career where that multi-dimensionalism would be valuable, where she could become a successful visionary.  She took a job at USA Network.  Her multi-dimensionalism did indeed prove valuable, as she applied it to developing global TV transmissions, including such early shows as “Thrilla From Manila,” the boxing match that re-launched the career of Muhammad Ali.

Sometimes it is sufficient to partner with someone who has complementary skills, two single dimensional people combining with a multidimensional force. To do that, you must first answer two questions: What are your skills? What complementary skills do you need to achieve your vision?

The Visionary’s Ears

As children, we are urged to speak up, to raise our hands first and demonstrate that we know the answers, and to “show what you’ve got.” Such behavior can lead to good grades, parental pride and development of skills. When one becomes a business leader and seeks to become a business visionary, there may be better advice. Consider two words:

LISTEN

SILENT

Those two words have the exact same letters.  I believe that’s not just a coincidence; it is a profound message, as exemplified by the following interviewees in my new book, Visionarie$ Are Made Not Born.

Ø  When David Abney first assumed the position of CEO of UPS, now a $60 billion+ company, he went on a year-long global journey, visiting customers and staff.  New to the position (although a life-long UPSer who started full time driving a UPS van), it would have seemed natural to spell out his goals and expectations. But UPS was known as an engineering firm that happened to deliver packages. He wouldn’t presume spending all that time telling engineers what he wanted to do and he really wanted to understand, first hand, what customers wanted. So instead he invested that valuable time listening, to hear what they thought, what they envisioned and hoped for at UPS and what they needed to make that come true.

Ø  Underwriters Laboratories was in trouble a decade ago when the iconic not-for-profit was bleeding cash. When Keith Williams was brought in as CEO, he quickly perceived that UL needed a cultural revolution. Ultimately, Williams instituted a weekly news blast to all employees which proved successful. First he undertook a “listening tour” to hear what staff and customers were thinking.

Ø  Fred Smith realized early-on that the computer would empower every aspect of his new delivery company, FedEx.  He had no background in computers but he started making contact with and listening to those who did.  Decades ago, he hired computer and internet experts, even bringing such experts to address and to serve on his Board. There they explained, educated and described visions of the future:  the influence of the web and of computers able to handle huge data.  He listened to all of them and applied the learnings to FedEx’s operations.

            Smith also is an inveterate reader.  Some lose sight of that.  Even though everyone knows he graduated from Yale, because of the famous story of his receiving a “C” as the grade on the FedEx business plan he prepared for a class assignment. Even a student who got a “C” at Yale is probably a good reader.  Smith, however, is also a disciplined reader.  He doesn’t read fiction, not even business books.  He reads about what’s going on in the world and what other smart people think will be.  He “listens” to what experts write.  Then he adapts his readings’ lessons to FedEx.

Some might think, based on the root word of “visionary” that the key to being a successful business visionary lies in one’s eyes.  In fact, it may be housed in one’s ears. The full stories of Abney, Smith, Williams and others, as successful business visionaries, can be read in Visionarie$ Are Made Not Born.

A human mind can generate only so many original ideas. The mind’s greatest strength is its power to perceive and process innumerable facts. Observing (seeing, listening, etc.) external facts enables leveraging of your mind’s power and can lead to great vision.

Are you open to stimuli? What stimulus did you process today?

Eyes On Your Own Paper

Such warnings by teachers, during exams, were appropriate cautionary messages to prevent copying or cheating and the resulting punishment. Indeed, even beyond school, propriety may dictate not looking at your fellow airplane passenger’s laptop screen. And “Peeping Tom” behavior can result in a misdemeanor or worse. Wandering eyes can get you in trouble in many circumstances. However, don’t let such warnings and advice totally prevent you from looking at what others are doing.

            In my research that led to Visionarie$ Are Made Not Born, I found examples of highly successful business visionaries who not only looked at, but actually copied, what others were doing.

Ø  Bob Walter built a grocery distribution service that he bought for less than a million dollars into a multi-billion dollar behemoth. Walter says he never had an original idea but copied others’ ideas, which he adapted to his own business, Cardinal Health.

Ø  Rocky Wirtz was presented with a seemingly devastating bill for $20 million when he assumed leadership of the Chicago Blackhawks hockey team after his father died. Many would have sold the team and walked away with $100 million net. Rocky examined other teams’ finances, paid the debt and kept the team, now likely worth a billion dollars.

Ø  Fred Smith’s plan including use of a central hub, received a “C” from his Yale professor. Fortunately, Fred ignored the grade and started FedEx with a central hub in Tennessee. Interestingly, the central hub concept had been used in other circumstances when Fred read about it and incorporated the idea into his plan.

So if you’re taking an exam, do keep your eyes on your own paper and generally your own laptop or phones. Needless to say Peeping Tom behavior is out! If, however, you are in business, I advise you to look at what others are doing or have done. It’s what I call “Over the Eaves Vision” in Visionarie$ Are Made Not Born, and it can prove very rewarding if properly implemented.

Have you known or read about a successful businessperson who did something clever in his/her business? Can you think of a way to adapt that to your business?

Dare To Daydream

Do you daydream or do you take precautions and exert discipline to prevent daydreaming? Many disciplined people do the latter yet many successful visionaries’ visions came from daydreaming.  

            As an undergrad, I commuted every day to attend classes in downtown Chicago. My very first college professor gratuitously advised us to be disciplined, to do our homework on the L train and not waste the long daily rides back and forth just looking at the same thing pass by the train window.

            Since most of us had after-school jobs and extracurricular activities, his advice may well have made the difference between college success and a lost opportunity. However, implicit in his advice was that we not daydream.

            Daydreaming can be a key to being a visionary. It often opens one’s mind to what might be. The mind has the ability to manipulate the myriad of data, information and knowledge gathered recently and actually throughout your life. All of that becomes the basis of prediction: of opportunities and challenges, needs and resources.

            Daydreaming doesn’t only occur in a vacuum. Consider a few interviewees from my new book, Visionarie$ Are Made Not Born:

                        >Fred Smith’s daydreams occur while he’s reading books, almost always

                           applying what he reads to FedEx.

                        >Tony Terlato dreamed of an America with sophisticated wine tastes.

                        >Bill Terlato’s daydreams were more like “daynightmares” as he thought about

                           the company’s lack of vertical integration and control.

            My professor was right: Undisciplined passive daydreaming is a waste, but creative active, daydreaming is what makes great success and what makes successful business visionaries. I urge that both have their places in our lives. The key: the daydream avoidance discipline is most valuable when it includes allowing space for daydreaming. Learn more about this in Visionarie$ Are Made Not Born.

            Meanwhile, ask yourself: Are you biased against daydreaming? Do you consider daydreaming a wasteful expenditure of time? Can you conceive of daydreaming as an investment, not an expense?

Happy Special Birthday (Use This Wish Sparingly in Family Business)

Just before my mother’s 90th birthday, I went to the drugstore to find a card for her. Alas, there was no “Happy 90th Birthday” card. How could that be, I wondered, at a time when centenarians have become so common in the US that the NBC TV's Today Show no longer features Willard Scott’s celebration of 100th birthdays (Scott himself retired from the show in December 2015)? What I did find in the card section, however, was a broad selection of cards for celebrating one’s “special birthday.” Now I understood: The use of “special birthday” designations made good business sense, as it eliminated the need to maintain inventory of cards for every possible adult age. In fact, “special” birthdays, as I’d come to understand them even before that drugstore visit, are often used to describe birthdays ending with a five or a zero. This custom began as a politically correct way to avoid specifying the exact birthday of people who might be sensitive about their age.

More recently, it has become customary to wish someone a “happy special birthday,” regardless of their age shyness. But doing so can have multiple negative consequences in certain situations. In general, after one reaches a certain age, say 60 or 65, every year becomes more precious, making the five and zero “special birthday” designations less meaningful—and less appropriate.

More specifically, my observation is that this innocent custom can have an adverse effect on leadership successions within family businesses. An impending “special birthday,” for instance, often prompts related thoughts among the birthday-holder and the wisher. The phrase may connote: “I know a secret about you—your exact age,” or “I’m not getting any younger,” or even “You’re a ‘has-been’ and it’s time to step down.” In this context, a family business leader may feel that it is too late for him or her to initiate new programs within the firm and thus might assume a posture as a steward or placeholder seeking preservation of status quo until a successor assumes the leadership position.

Here’s an example. I consulted with a family firm whose founder had built a spectacularly successful business that seemed capable of running forever on auto-pilot. His eldest son had worked in the business for over two decades and was the natural choice as successor CEO. When he ascended to the role, his four siblings were not actively involved in the business, as two were practicing attorneys, one was an investment banker, and the fourth was a high school English teacher. The second-generation CEO grew the business even more than his father had. Then, in his 60s, he suddenly became highly conservative about business strategy and finances. The shift was likely prompted by a combination of his age and respect for his siblings, who owned 80% of the company’s stock and had three children working there as executives. The CEO himself had no children. Late in his tenure, he simply stopped being a leader and positioned himself as a placeholder, waiting for one of the third-generation family executives to take the helm.

When family business leaders take that stance, no one wins. One effect is that the business becomes less able to make innovative changes under the current leader. Then, when a successor is selected and ultimately given power, it may take them years to create an environment that once again fosters innovation. Their struggles could have been eliminated and their prospects enhanced had their predecessor continued positioning the company for meaningful reinvention, including through:

  • Spending more on R&D to identify the best new opportunities and the challenges to avoid;
  • Enhancing governance, such that the board is better able to set and influence long-term strategy, regardless of who is CEO; and
  • Improving communications among shareholders such that family voice is as unified as possible and amplified, to be better heard by all stakeholders.

It would be ideal if wishes of “happy special birthday”could create a clarion call signaling it’s time for the family business leader to prepare for succession. There is so much planning and effort that goes into effecting a successful transition to next generation leadership, so an early wakeup call could be extremely helpful. Such wishes needn’t be a threat.

Of course, ultimately it takes more than a simple birthday wish to create a positive or negative leadership situation in a family business. But little things can reflect and influence familial, business, and cultural dynamics like those discussed here.

So the next time you are tempted to wish a family business leader a “happy special birthday,” think carefully about all the possible implications.

Lloyd E. Shefsky's Irregular Path To Consulting Entrepreneurs Around The World

AN EASY ACT TO FOLLOWBY TREVOR KUPFER,  SUPERLAWYERS MAGAZINE

It was the end of the semester in high school drama class and students had to perform their assigned scenes. Having just completed his take on Tennessee Williams' The Glass Menagerie, Lloyd E. Shefsky fielded a critique from his fellow students and then looked to his teacher for additional notes. "Lloyd," he began, "I think you'd be better at directing than acting." Ouch. The comment stung at first, but Shefsky would come to appreciate it years later when he segued from a full-time lawyer into a consultant, educator, adviser, author and occasional partner to entrepreneurs around the globe. "It was a clear message of what I shouldn't do, but also of what I should do," he says. "And I think directing, coaching, advising—whatever you want to call it—is what I do best." Shefsky got his start at Grossman, Kasakoff, Magid and Silverman in 1965, where, in addition to securities law and tax law, he did a bit of everything. "I literally did one divorce, one adoption, one criminal matter, everything you can imagine except for admiralty law, which we don't have much of around here," he says, adding that he went on to create the Sports Lawyers Association, which now boasts more than 1,800 members. In 1970, Shefsky created Shefsky & Froelich, where he eventually moved into an of counsel role. The firm merged with Taft Stettinius & Hollister in 2014. The majority of his time is spent fostering entrepreneurship and consulting with large family businesses and startups. He also teaches at Northwestern University's Kellogg School of Management. "I really like practicing the law, but I wanted something more," he says of his diverse career. "I liked the business consulting part of what I did, maybe even more than the lawyering part.... But law itself never fades away," he says. "It's always there in everything I do. That training and education comes back to help." After nearly 20 years of teaching at Kellogg, and helping found the school's Center for Executive Women and its Center for Family Enterprises, Shefsky plans to step down this September. He'll consult, write and contribute to the various entrepreneurial projects he's involved with as a partner and/or member of the board of directors—"but always with other people, because I really don't like managing things," he says. "I'm a good coach, but I don't manage well. There are much smarter people out there than me to run the business." Shefsky wrote the book on the topic. Entrepreneurs Are Made Not Born, published in 1995, seeks to provide insights on the qualities of an innovative businessperson. "The most I would find [in other books] was somebody who had a bunch of characteristics in a list and treated it like a recipe book," he says. "'If you gathered the following characteristics and put it in the oven, out would come an entrepreneur.' It was pretty clear to me you could mix those same characteristics and out might come a great concert violinist or great athlete or anything else. There was clearly something more involved, and that started my research." Like his previous book, 2014's Invent Reinvent Thrive centered on case studies from several successful entrepreneurs and those who run family businesses, emphasizing the need to constantly evolve in order to succeed. Rather than critical acclaim or sales receipts, what stands out to Shefsky are messages from those he's inspired to create startups and the excitement of the process. "Years ago, when I was practicing, I worked with a medical group. I used to say I go a little overboard helping them because I want to help them do what I can never do, which is save a life. And the same is true [with other businesses] in that they'll help the world in some way," he says. "The truth is: Everything I'm doing is exciting stuff. There's no reason in the world I'd want to stop."

Tom Stemberg, Founder of Staples, Has Passed Away

Tom Stemberg, the founder of Staples, the first big box office products stores, passed away on Friday, after a long, brave battle with stomach cancer. Tom was not only a successful entrepreneur and venture capitalist, he was truly a good guy, who remembered those who had helped him and not only gave back to them directly but to other unrelated people, because he was thankful for what he had received from others.

Tom willingly gave back to the community, including those who he hoped would contribute to our country, to our business community and to the overall economy. He believed entrepreneurs would be the basis for better lives for all Americans.

Among those fortunate recipients were hundreds of students in my class “Successful Entrepreneurship,” which I created and taught at the Kellogg School. He eagerly appeared in my class each year and willingly accepted subsequent contacts by students who sought more of his invaluable advice.

Two years ago he sat for a lengthy interview, which contributed valuable input and wonderful stories for my book, Invent Reinvent Thrive, published late last year. Those stories are amongst many I tell from such interviews. Tom’s stories have a most poignant message relating to doing good homework, not just diligence, not even just due diligence but what I call “dual due diligence.”

That interview was shortly before he learned and told me that he was ill. I assumed he would thus be unavailable for my next class. I was wrong. He called me and asked when the class would take place. He delivered his usual high quality presentation, and though he was clearly drained from the process, told me that he was fine, just a bit more tired than in the past.

In his capacity as a venture capitalist, he was always ready to meet a new entrepreneur. Even when he knew quickly that the venture wasn’t suitable for him, at which point many venture capitalists look at their watches and suddenly remember a meeting they must attend, Tom would patiently sit through the meeting, giving his valuable insight and advice.

Tom was one of the good guys. His loss will be felt by many. Entrepreneurs have lost an important supporter, though he’ll be a role model for years to come. And I have lost a good friend. He will truly be missed.

Plan Your Succession In Advance

September 20, 2014 For those of you whose businesses are owned by you and your family, have you ever asked yourself the question: "Would continuity of the business as a family business be wise?" Truth is, that's only part of the question that must be asked. When considering succession in a family business, the question must be expanded to define which area(s) of succession you are referring to - e.g., succession in management, succession in governance, or succession in ownership.

If you cannot see passing the CEO baton to a family member because there is no candidate who is both capable and interested or because selecting one of several candidates could result in jealousy or worse, it may still be possible to arrange for successful succession of family governance, by having family member representation on (or control of) the Board of Directors. Even if directorships are unsuitable or unwelcomed by family members, continuity can be geared to family ownership.

All those positions require training and education. Being a director of any company requires new knowledge and skills - business operations, finance, competition, personnel, etc. - in order to accomplish appropriate oversight. Education and training is especially critical in a highly regulated industry such as banking. It may seem that ownership succession is a no-brainer in that you've covered it by using trusts and trustees. That may solve legal issues, but isn't totally dispositive. Even ownership, direct or indirect (as through trusts) should be preceded by an understanding of certain business and governance matters. Generally, for successful succession, this requires planning and preparation starting years before transitions take place.

In my forthcoming book, tentatively titled INVENT, REINVENT AND THRIVE, The Key to Entrepreneurs Success and Family Business Continuity (to be published by McGraw-Hill next year), I will deal with the need for continual reinvention of self and business for entrepreneurial and multi-generational businesses to succeed. In it I share stories about famous and fabulously successful family businesses.

 

Retail is Entertainment

When consumers step into any retail store these days, they’re looking for more than the products on the shelf or even the quality of the service they receive. Increasingly, they expect an engaging, entertaining experience, and will reward the same with their spending dollars. Multiple stories in my book INVENT REINVENT THRIVE (McGraw-Hill, 2014) illustrate how retail entrepreneurs have succeeded by building businesses that deliver an entertaining experience to their target customers. Here, we consider three massive retail successes (Build-a-Bear Workshop, Costco, and Starbucks) and the entrepreneurs behind them (Maxine Clark, Jim Sinegal, and Howard Schultz), as profiled in my book, along with Abt Electronics, a Chicago-based retailer, which, though not detailed in my book, is the subject of a Kellogg School case study I authored. All are great examples of the retail-is-entertainment concept across sectors.

 

Build-a-Bear Workshop: When Maxine Clark came up with the idea of a retail store where customers could create their own teddy bears, she knew she was selling much more than teddy bears, even more than a stuff-your-own-animals experience. She aimed to provide an entertainment venue where all family members—children, parents, grandparents, and others—could be part of a process that tied them to the product, the process, the experience, and the company. That meant creating a bright, whimsical, colorful space with different stations, the ability to customize and personalize the products in multiple ways (such as a recorded message built into the stuffed animal), and windows through which customers could view the entire process. By the time people received their personalized products fresh off the “assembly line,” they had bonded closely with the brand through the engaging, entertaining experience.

Costco: Jim Sinegal’s approach to keeping his company Costco engaging evolved over time. Beyond offering a smaller number of SKUs (stock-keeping units, or different product types) and larger unit sizes than traditional discount retailers, he changed the product lineup and added multiple departments over the decades to keep customers interested. That meant the addition of bakery items, seafood, gasoline, pharmacy, and many other products. The company also introduced customizable products such as liquor bottles onto which customers could engrave gift messages. Costco’s famous cornucopia of free samples in almost every aisle and outsized café items (a hot dog and a soda is still $1.50, the same price as when Costco first opened in 1983!) only add to the festive atmosphere. Again, the business’s ability to engage customers has contributed greatly to its success.

Starbucks: Howard Schultz’s vision for Starbucks included providing a warm, inviting atmosphere for people to enjoy on their way to or from work. The combination of premium coffee products, comfortable furniture, and relaxing music—including jazz and other compilations made specifically for the company—has made it a place where many people come to work and socialize, a “third place” between work and home. So much so that many communities provide sufficient demand for multiple Starbucks stores in close proximity. While Starbucks may not offer entertainment per se, the business provides a master class in how to engage customers and keep them coming back again and again, daily in many cases.

Abt Electronics: Another business that embodies the retail-as-entertainment concept is Abt Electronics, a family-owned retailer in the Chicago area. Bob Abt, who passed away recently, built the company over several decades from a small store his mother started into an extraordinarily successful retail phenomenon. The warehouse-sized store sells appliances, TVs, sound systems, vacuum cleaners, fitness equipment, watches, phones, furniture and much more, all out of a large, single location. There are interactive displays for family members of every age, and even free chocolate chip cookies available daily. Bob Abt was inspired to offer such a large-scale, engaging, entertaining experience by Las Vegas casino mogul Steve Wynn, of whom Abt was a big fan. Not surprisingly, many customers report feeling like they are in an upscale Vegas casino while shopping at the store.

 

INVENT REINVENT THRIVE offers many more details of the first three retail superstars above, along with examples of other entrepreneurs who understand that retail is entertainment. The message is clear: to thrive as a retailer, you need to engage your customers by creating an environment and experience that engages them fully, connecting them on multiple levels with your products and company. That translates into long-term customer value, and market-beating profits.

 

 

Entrepreneurship, Introspection, and Application

Bronfman Jr. Image
Bronfman Jr. Image

Entrepreneurs tend to be so busy doing things that are visible in the external world—conceiving and developing products, lining up suppliers, acquiring customers—that they may overlook some of the more invisible, interior work that is part of success. I’m talking specifically about introspection, or the observation and examination of one’s own mental and emotional state and its implications. “I don’t have time for that kind of thing,” many an entrepreneur or family business leader has told me when I raise this issue. I always counter that it’s important to make time for meaningful introspection—and then to apply what you learn—as it can have a huge impact on your business, family, and well-being.

The story of the Bronfman business family is a clear example of the power of introspection and its application—or lack thereof. As detailed at length in my book Invent Reinvent Thrive (McGraw-Hill, 2014), the three Bronfman generations faced multiple challenges that would have been mitigated by careful introspection and consequent action.

Sam Bronfman built Seagram into a highly successful business including spirits and other consumer products; based in Canada, it was once the world’s largest distillery. But the father cast a long and dominant shadow on his son Edgar, who had also joined the business. Had Sam been able to introspect and understand the danger of his approach to Edgar, he may have helped his son develop a more sound and effective internal state himself.

This became especially important when Edgar had to assess the judgment of his son (Sam’s grandson), Edgar Jr., who succeeded his father as CEO. Though Edgar Sr. probably recognized that his son was making questionable business decisions, especially with regard to considering sale of Seagram’s core business, he was overly careful about dominating the next generation. He wished to avoid doing to Edgar Jr. what his father had done to him. Had Edgar Sr. used introspection to understand more fully the source of his reluctance to act, he may have been able to separate the personal from the professional and stepped in to intervene on the deal Edgar Jr. ultimately made with Vivendi—a transaction that ultimately cost the family billions, halving their wealth.

Introspection and its application also figured into the role of Edgar Sr.’s younger brother Charles in this situation. Charles clearly observed what was going wrong with the Vivendi deal and had serious doubts about ending the Bronfman Family’s control of Seagram. However, his “younger brother syndrome” prevented him from saying what needed to be said to Edgar Sr. He understood the business problem but, like his brother, failed to understand fully the role of his internal state in preventing his intervention. Deeper introspection would have helped. Thus Sam, Edgar Sr., and Charles all would have benefited from more thoughtful introspection, which would in turn have helped the business and the family assets that depended on it.

In fact, Charles proved he was fully capable of engaging in the necessary introspection and then applying it effectively when he did so with Michael Steinhart with respect to the charitable foundation they formed, Operation Birthright. The organization aimed to enable any young Jewish person to visit Israel at no cost. Though Charles and Michael agreed on the big picture, they clashed over details (e.g., whether it had to be the person’s first trip to Israel). Charles’s wife gave him simple but profound advice about having a frank discussion with Michael: “You have everything to gain and nothing to lose” was the essence of what she said. Charles followed her advice, and the better understanding he achieved with Michael helped make Operation Birthright immensely successful.

Had Charles followed the same advice in dealing with Edgar Sr., his brother, the family’s wealth might still be fully intact. Here, however, deep emotional issues made it seem there was indeed much to lose. With introspection, that could have been gauged more realistically. Eventually, after serious and difficult introspection, Charles did have a conversation with Edgar. Though it was too late to save the fortune, it was a well-timed interaction, happening shortly before Edgar Sr.’s death.

Introspection and application are obviously easier in a non-family situation such as the one related to Operation Birthright—although even that one was facilitated by Charles's wife’s advice. Overall, anyone in business—entrepreneurship, family business, or otherwise—can benefit deeply from introspection. Open your mind for exploration, assess your motives and their potential sources, then develop a thoughtful plan to put what you’ve learned into action. You won’t regret it.

Real Homework Is Not For Students (part 1 of 3)

Pic Homework Girlii
Pic Homework Girlii

Most students complain about homework. When my MBA students at the Kellogg School of Management grumble about assignments, I tell them that what they’ve called “homework” from elementary school through graduate school isn’t actually homework. It was merely practice to develop tools for them to learn to do real homework. Real homework is the work you do when no one gives you the assignment, tells you how much work is enough, or establishes a deadline. Ultimately real homework is what you have to do yourself to succeed. Real homework really counts.

Successful businesspeople—entrepreneurs, family business founders and managers, and corporate managers—all do high-quality, appropriate amounts of homework. When they stop short on the homework, they almost always come up short on results. If you’re not sure how to do real homework, take a look at my recent book, Invent Reinvent Thrive (McGraw-Hill 2014), which has many excellent examples of the kind of homework that breeds success. In this three-part blog, I present multiple stories of real homework from the book, grouped by the principle they exemplify best.

Learn From Your Customers Starbucks founder Howard Schultz never even worked in a coffeehouse. He was inspired to start Starbucks by the European coffeehouses he observed when working as a coffeemaker salesman. He studied the stores and their practices carefully and saw how much consumers enjoyed premium coffee in a “third place” between home and work. Everything he learned convinced Shultz to persist in finding investors for Starbucks, even when no one, including coffee experts, seemed interested. Later, when highly successful Starbucks faltered amidst the 2008 recession, Schultz again did his homework, this time visiting stores and observing everything they were doing from the customers’ points of view (and ignoring Wall Street’s and analysts’ gloomy opinions). What he saw convinced him the company had lost touch with its original values—its “soul,” according to an internal memo Schultz wrote that was leaked to the press—and he took steps to recapture that spirit, including closing their thousands of stores for a day to replace equipment and to retrain all store employees. All the homework paid off as Starbucks regained strong growth and stock value.

Learn From Your Competitors Charles Schwab reinvented the stock brokerage industry by doing away with unnecessary product/service bundling and sky-high commissions. By studying the competition from the point of view of customers, Schwab was able to introduce highly valuable features through his namesake firm, including simplified transactions and more affordable pricing. The homework Schwab did with his customers, especially those in Silicon Valley, wound up changing the industry and making Chuck Schwab a billionaire. Early in the new millennium, when the company suffered from mounting competition, Chuck returned as CEO and observed the competitors, copycats who decreased commissions and service offerings at the same time that Schwab & Co. was raising commissions to cover increased numbers of managers. Schwab understood that his company had become the type of firm he’d once outmaneuvered: one that offered overpriced services to justify its bloated structure and workforce. He agreed when I likened this situation to Pogo’s lament: “We have met the enemy and he is us.” Schwab used what he learned to cut costs dramatically, improving the pricing he could offer customers and turning the company around.

***

These are just two of the homework-related principles I’ve observed in my many interactions with successful entrepreneurs, including the ones featured in Invent Reinvent Thrive. In the second and third parts of the post I will present additional lessons, including how homework helps you learn from mentors, previous associates, naysayers, and your team, as well as the importance of applying your homework-based learning across domains.

© Lloyd Shefsky

Reinvention: Critical to Business Success, but not Always Obvious

European Business Review Logo Image
European Business Review Logo Image

New article by Lloyd Shefsky published in The European Business Review, Issue Mar/Apr 2015, pp. 25-28 | on-line March 12, 2015.