Introduction to Family Business by emagine group

Entrepreneurship & Family Business An Introduction to Family Business

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

An Overview of the Course

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Both these business types are significantly different while intimately integrated.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

My Background

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

My Background Educational Background

Professional Background

Central Michigan University – 1991 Ø  Bachelor of Business Administration - Marketing Ø  Bachelor of Computer Science

Ø

University of Michigan – 1995 Ø  Masters – Computer Systems Engineering

Ø  Ø  Ø

Ø

Kellogg (Northwestern Univ.) – 1997 Ø

MBA - Marketing

HTTP://EMAGINE-GROUP.COM

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

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

emagine group Ø  Ø

Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

At emagine, we aren’t just venture capitalists, we are venture catalysts.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Our Venture History Our Venture Portfolio Ø  Ø  Ø  Ø

Ø  Ø  Ø  Ø  Ø  Ø  Ø  Ø

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

HTTP://EMAGINE-GROUP.COM

Recent Investments Ø  Ø  Ø  Ø  Ø

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

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Our History In Venture Capital Ø

Ø  Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

How to Contact Me Ø  Ø  Ø  Ø

email – khalid@emagine-group.com cell – 0333 229 1234 Web – http://www.emagine-group.com/ Facebook –  http://www.facebook.com/khalid.muhammad –  http://www.facebook.com/emaginegroup/

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

What is a Family Business? The Different Definitions

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Forms of a Family Business Ø  Ø  Ø  Ø  Ø  Ø  Ø

Sole Proprietorships Partnerships Limited Liability Companies (LLC) S Corporations C Corporations Holding Companies Publicly Traded Companies

HTTP://EMAGINE-GROUP.COM

Worldwide, estimates of all enterprises considered to be family businesses range between 80% and 98%

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Two Things That Make It Different Ø

Family firms are differentiated by both: –  Active involvement of family in firm management –  Intent of family members to retain ownership of the firm

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Another Consideration Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Our Definition of a Family Business A 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. HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Our Definition of a Family Business 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. Ø

Ø

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Our Working Definition of Family Business Ø

Ø

Ø  Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Characteristics that Define a Family Business Ø  Ø

Ø

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)

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Characteristics that Define a Family Business Ø

Ø  Ø

Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Family Business Worldwide Impact of Family Businesses

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Entrepreneurial companies often become family-owned businesses

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

19 in France 15 in Germany 9 each in Italy and Spain 5 each in Canada and Japan

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Drawbacks of the Family Business

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

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.

HTTP://EMAGINE-GROUP.COM

Graham

Murdoch

Sulzberger

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Some Family Businesses

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Next Week’s Lecture

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Next Week Ø

Ø

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

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

HTTP://EMAGINE-GROUP.COM

BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED