Bright lights, big city may not be all it's cracked up to be. The typical urban business is 27% more likely to fail in the near future than a similar rural one, says new research from the Small Business Administration's Office of Advocacy. Owners of business-services companies might especially consider a pastoral change: Their companies are 48% more likely to close quickly than their rural counterparts.
Jonathan Brandow, of Camp Hill (Pa.) consultancy The Brandow Co., notes that the competition is often tougher in metro areas. "It's more of a churn," says Brandow. The National Commission on Entrepreneurship's Doris Freedman says higher startup costs in cities could be to blame, along with higher turnover in employment and the difficulty finding real estate. Maybe rural areas really do have fields of dreams, after all. You no longer need green eyeshades to size up a bookkeeper. The American Institute of Professional Bookkeepers now offers a free test to screen bookkeepers, who rarely carry industrywide certification. The 10 multiple-choice queries on each test are randomly pulled from a database of 250 questions. Request a test at www.aipb.org. Most business plan contests are hotbeds of capitalism, not charity. Then there's the University of California at Berkeley's Haas Social Venture Competition, which awards B-school students $10,000 for ideas that show both social and economic responsibility. This year's winner, six-person Sea Power & Associates, aims to build a network of floats, pumps, and generators that convert ocean wave energy into electricity. Berkeley student Misha Cornes says Sea Power could give islands clean electricity for 12 cents per kilowatt hour--about 40% less than diesel. Sea Power has already built and tested a half-size prototype. Now it needs $2.5 million for a full-scale model before it tackles a demo plant in Hawaii in 2004. Cornes has shelved his job search to work on Sea Power and says the uncertainty "is getting a little hairy." But with its Haas win, Sea Power may have caught a wave. How can entrepreneurs prepare their kids for ownership?
They can talk about how much they like their work, even when the children are babies. That it's not just headaches. That the family business gives back to the community.
Then they can teach their children how to resolve disputes on their own, so they don't grow up expecting someone else to intervene.
When should kids become owners?
That's up to the parents, but the rules for ownership should be clear. You could let them inherit with no strings, or you might require the kids to learn to read a financial statement before they control stock.
What should the children do?
Multiple heirs who are interested in the company should caucus on their own. Then they should make a proposal to the parent generation, laying out who will be leading the company and what it will look like. Saying "O.K., Dad, you pick among us" is very divisive. Drew Mendoza is president of the Chicago-based Family Business Consulting Group Inc., which helps family businesses negotiate the transition between generations. Mendoza, a founding and past director of the Loyola University Chicago Family Business Center, spoke with Small Biz Editor Kimberly Weisul about succession issues.
Q: Why do so few family firms successfully make the transition between generations?
A: The research is actually much clearer on what those who survive have in common. So we tend to take a positive spin. Those who transition well have an appropriate governance structure. They are operating with a board of directors that includes outsiders. These outsiders are business people who understand business challenges.
Successful family businesses also do strategic planning. That means the financial expectations of the owners are well understood. Then we can turn to management and ask them what they need to do to fulfill those expectations and, at the same time, protect the family's values. That sends a clear message to the next generation: "If you want to be CEO, you need to know how to do these specific things." Then the next generation knows what they need to do, and it becomes self-evident who's going to be the next CEO. The whole process slays a lot of the bogeymen.
Q: How do you resolve conflicts between kids who are working in the company and those who are not, but are still shareholders?
A: First, you need to acknowledge that all the kids paid dues. Mom and dad were busy with the business. They were distracted by the business. There's a legitimacy to claims of ownership even from the kids who are not working in the business. But we should ask those kids what they expect from ownership. It may be quite minimal. Maybe, ultimately, we need to set up a buyout scenario so those who are in the business can buy out the stock of those who aren't.
On the other hand, if they want stock because it has value and a dividend, it's like being a shareholder in any company. It's in the interest of those kids who aren't working in the company to have very good relationships with those who are. Those who aren't in the company need to encourage the others to do their best, because they're serving them.
Q: What if the family members are fighting constantly?
A: First, realize that communication mishaps are not just normal but downright predictable. Of course you're going to fight! But there is destructive fighting and constructive disagreement. Disagreeing constructively is a learned skill set. Most entrepreneurs don't have the time to teach these skills to their kids.
That said, sometimes we are dealing with family members who are willing to read and listen. Then there are people who want to go into a house with no light bulbs and a bunch of automatic weapons and see who comes out the next morning. In that case, we ask them to think about not about themselves but their children, and even their unborn grandchildren, and what they want for them. Who could imagine history would repeat itself so quickly? Following in the beleaguered footsteps of VerticalNet (VERT) and Onvia.com (ONVI), America Online (AOL) says it will add 10 small-business exchanges to its Netbusiness center, starting in the fashion, landscaping, and agricultural industries. AOL says it will succeed because it has the ability to integrate content, commerce, and community. That has won AOL 29 million subscribers, but e-commerce diehards know small biz is a tougher sell. After all, when's the last time you bought a pizza--or hired a consultant--online? 15% was the average hike in health insurance costs last year
45% of small-biz employees contribute to health plan premiums
42% of premium costs are borne by employees in small businesses
12% of companies may drop insurance because of price increases
Data: National Association of Health Underwriters IS THAT ALL? Percentage of fast-growth companies in high-tech or technology-related industries: 13%
Data: National Foundation for Women Business Owners