IS A CEO THE SECRET TO THE SUCCESS OF YOUR FAMILY BUSINESS?
10th March 2020
“The decision to bring on a CEO into a family business may be critical to ensuring that the business can continue to grow sustainably into the future.”
AUTHOR: Andrew Leith
Throughout my time working with, and advising, organisations I have seen many small and medium sized enterprises (SMEs) grow, from reasonably modest bases, to become significant players in their respective markets. However, in many instances these successful SMEs get to a certain point and that growth trajectory plateaus or even falls. The differentiator between those that continue to grow and those that don’t is quite often the presence or lack of a Chief Executive Officer (CEO) or an equivalent skillset within the organisation.
Family businesses make up a large proportion of the SMEs that I see in this space. A family business typically starts out as just an individual or a husband and wife team or siblings and grows, sometimes rapidly, with other family members being recruited to help run the day to day operations. The business may be focused around a specific skill, product or idea. The roles of individual family members grow and change to meet the needs of the business and they all become consumed with running the business that they aren’t able to grow the business. It is at this point where the business hits its growth ceiling. However, the reason for this ceiling isn’t necessarily a lack of capacity, but rather it is commonly a result of a gap in understanding about how to grow the business sustainably.
When considering the businesses that continue to grow beyond this ceiling, the differentiator is more often than not the presence of a CEO or an equivalent set of skills within the organisation. The skills that I am referring to are an understanding and capability to:
- Create a clear and compelling vision for the future
- Develop and implement effective strategies to achieve this vision
- Implement good governance and ensure regulatory compliance is uphold
- Build internal capability and a promote a cohesive team environment
- Understand risk and ensure it is managed appropriately
- Embed sound financial management practices within the organisation
- And, possibly most important of all, drive a culture that is aligned to helping the business to achieve these outcomes
While this is not a comprehensive list, these skills are crucial to achieving long term sustainability and success in business. Individuals who possess these skills have usually obtained them over many years working with varied organisations in senior leadership roles and/or have obtained qualifications specific to leading and driving growth in a business. These skills position an individual to look past the product, service or idea and to see the potential for a business beyond its existing market or operating structure. Most importantly though, a good CEO will engage quickly and extensively within an organisation and will bring everyone on the journey to achieve the growth objectives.
So when is the right time to bring on a CEO? Well there is no hard and fast rule. Time, however, may be of the essence when deciding on the need for a CEO. Once a business loses its way and its brand becomes tarnished, it is difficult to resurrect things quickly. Being aware of when the family are unable to sustain the growth of the business, and require guidance, is critical. Some indicators that may inform this decision are:
- The business growth has plateaued or has even fallen
- Profitability margins have been reducing steadily over time or rapidly within a short period
- The owners spend all of their time delivering services and not enough time planning and strategising
- There is a business strategy to invest significant amounts of capital or to grow the business rapidly
- Elements of the business, its market, customer base, geographical spread, operating structure or personnel base increase in complexity or size and give rise to significant business challenges.
In most cases, the final step in the family’s decision making for determining when or if a CEO should be brought on is the cost versus the benefit of doing so.
An argument I hear regularly against hiring a CEO is that it is an expense that the business cannot sustain. There is no doubt that a CEO can be expensive, however, they should not be viewed purely as an expense but rather as an investment. The decision to bring on a CEO should be assessed similarly to any investment decision that a business makes, such as buying a new piece of equipment or investing in R&D. An effective CEO will yield benefits for an organisation far beyond the initial and ongoing cost of having one.
However, where budgets will not allow for a full time CEO resource, all is not lost. With the ever-changing business environment, flexible working arrangements and technological advancements, there are options for organisations to access CEOs on a lower cost basis. Whether it is a seasoned executive moving into retirement and seeking a part time role or a remote specialist providing tailored strategic mentoring services, there are options for businesses on a budget. For organisations that are reluctant to bring in external help and would rather go it alone, why not consider upskilling one of the family members through study? While this path is likely to be a slower process, many courses are flexible and therefore it will generally enable that family member to continue working in the business while completing the study.
In any case, for a CEO to be most effective it is important that the family is willing to relinquish some control and allow the CEO to drive the initiatives needed to grow the business. This is always a challenge for a family business where the family members are sentimentally connected to, or are protective of, the business. But this is the reason that choosing the right CEO for is of utmost importance. They must be clear on where the business has come from and, collectively the family and the CEO, must agree on the path forward.
Overall bringing a CEO on in some form or capacity is a critical step for many family businesses to continue their growth trajectory and for ensuring this growth is sustainable. The timing of making this decision is important, but most of all, finding a CEO that connects with the business, just like the family does is equally, if not more, important.