12 MISTAKES STARTUPS MAKE IN THE FIRST YEAR

When you write and read about start-ups all day long, you see founders make a lot of mistakes.

 

As an observer of and dabbler in start-ups, I've kept track of all the things I'd try to avoid as an entrepreneur.

 

Here are the most common mistakes early stage start-ups and new founders make:

1. Getting press too early or just because.

 If you're a start-up looking for press, the first question you need to ask yourself is "Why?"

 Why do you need press? Are you really ready for press? What will an article help you achieve?

 If you want press to make yourself look cooler to friends or employees, you probably shouldn't be seeking it. If you're doing it to gain users, the bump will likely be temporary. Just look at Turntable.fm, Airtime or Brewster.

In some cases, press can be good. It can attract investors if you're seeking financing. An article in Ad Age could attract advertising dollars.

 But if you haven't nailed your business model or product (and chances are in the first year you haven't done either of those things), do you really want your name out there only to fail a year later? That'd be more embarrassing than never having press in the first place.

 

2. Raising too much money too early.

Bootstrapping a start-up is scary. No one likes seeing their savings dwindle away. But when you rely on outside investors to take all the risk, it can make founders frivolous with their spending. It also can dilute them so a future exit becomes much less rewarding.

If you pursue a start-up on your own first, you can work on proving the business model and gaining traction without the pressure of board meetings or investors looming over your head. Once you are self-sustaining, you can secure better terms from investors. And, if no one outside is controlling your company, you can exit whenever you want and never worry that someone else with a vested interest in your start-up will fire you.

If you don't have at least $50,000 saved up and you're not at a stage in life where you're able to take a risk, you shouldn't be doing a start-up.

3. Trying to do a start-up alone.

Start-ups are stressful and no one is good at everything. To avoid burn out, you need a co-founder and/or advisors to split the work load and confide in. You'll also be more productive with other people helping you, plus there will be more money to bootstrap with.

Startups take up a lot of time, so it's normal to feel chained to your desk. But you need to interact with people and take productive meetings to move your business forward. No one can do a start-up alone.

4. Having too many co-founders.

It can seem like a great idea to start a business with your four best friends. But that means you're starting out with just 25 percent of the company before ever raising a round. Plus, it's hard to have four people calling the shots and it's frustrating if everyone isn't pulling equal weight. Most start-ups with multiple founders dwindle down to one lead founder anyhow. Think Facebook, Quora, Path and Foursquare.

Do a start-up yourself (like David Karp) or with one other person you know you can work with. Otherwise, it could be a messy and expensive breakup.

5. Going out too much.

 

There are a lot of networking events and parties in the start-up world. It's possible to network too much, and not work enough.

Strike a balance. If you're a well-known face in the start-up community you should probably be spending more time at your desk. Otherwise it sends a bad message to your employees and investors.

 

6. Trying to force a business that isn't working.

You quit your job because you have a brilliant idea you're sure will work.

Only ... it doesn't. Now what?

First, you should never quit your job until you've had a chance to test your concept and there's a legitimate chance it will work. But even then, it's hard to predict your start-up's future.

You may not have accurately predicted the way people would use your product, or customers may hate a new feature you love.

Move fast, break things, and kill things. Don't hold onto a start-up idea just because you're enamored with it. Pull out a kernel of the idea that's working and blow it up into a full-fledged business, or pivot altogether. Some of the biggest companies today arose from the ashes of failed start-ups.

 

7. Communicating poorly and ignoring critics.

 When you have a start-up roadmap in your head, it can be difficult to properly communicate it to others.

 Keep lines of communication open constantly and force yourself to listen to critics. Learning how to manage people takes work. But if you don't learn how to communicate, you'll destroy your relationships with customers and employees.

 

8. Being greedy.

 Being a smart entrepreneur means knowing when to leave the table.

 A lot of buzzy start-ups have gotten $100 million acquisition offers and decided to walk away. Usually that's an admirable but stupid decision.

 Foursquare could have sold for $150 million when it had only raised $5 million. Video startup Qwiki had an offer to sell for over $100 million and now it may be selling to Yahoo for $50 million. Path was offered big bucks by Google but its founder Dave Morin turned it down and has had a bumpy road since.

For first time founders especially, seize a life-changing opportunity when it's offered to you. Save going all in for your next start-up.

 It can be better to sell for a smaller amount of money than for hundreds of millions of dollars. A $20 to $30 million exit takes less time to reach and less outside capital to fuel than a $200 million exit.

 

9. Telling white lies.

 Since start-ups are private companies, they can lie to journalists and investors who don't perform due diligence. If you're desperate to raise capital or keep your start-up alive, you may be tempted to tell a white lie about how quickly you're growing or how much money you're making.

 If your start-up is failing, the truth will come out eventually. Lies just delay death and keep you from founding something worthwhile.

 

10. Being impatient.

 Investors say 10 million users are the new one million users, which has start-ups scrambling to scale quickly. But if you're only focused on growth your product will suffer.

 Different types of start-ups grow at different rates. Set growth goals based on the trajectory of similar start-ups and manage your expectations accordingly.

 If you're running a media company, you're going to have to wait until you're big enough to hire a direct sales team before you make money. That could take years. If you're running a transaction-based business, know what margins you need to sustain a lasting business.

 

11. Underestimating how difficult a start-up really is.

Most of the start-up stories we read are about successes. But founders don't often win the lottery.

 500Startups' Dave McClure recently explained how difficult startups really are:

 It was a hell of a lot of work for not a hell of a lot of return. And then there are days when you sit in a corner and cry. You can't really do anything else. You don't have a social life. You don't really want to interact with family and friends because there's just not much context for them. Your world revolves around your start-up and it's all about trying to survive and not look like an idiot in front of employees.

 There's still recognition that it's a set of first-world problems that don't get to the level of war, starvation, or something like that. But when your whole world is about trying to show everyone else you're successful and hold it together, and maintaining that psychic dissonance of externally everything is going great while the internal side you're freaking out and trying to make payroll ... it gets fucking stressful.

  

12. Not dreaming big enough.

There are people who are practical and there are people who are dreamers. The best start-up teams employ both types to keep them grounded while working toward a massive achievement.

If you think too small, you're limiting yourself and what you're capable of. When you're creating something from scratch, you can create anything of any size you want.

 

From Entrepreneur Week

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Nigeria overtakes South Africa as continent’s largest economy

Nigeria today officially overtook South Africa as the largest economy on the continent, after the West African country changed the base year for calculating its gross domestic product (GDP).

Nigeria's National Bureau of Statistics (NBS) on Sunday presented the country's rebased GDP figure, revealing the economy is significantly bigger than originally reported. Nigeria's GDP in 2013 was US$509.9bn, much higher than that of South Africa.

The base year is the benchmark for all calculations used in working out the GDP of a country, as it determines the year in which prices are held constant and enables one to distinguish between economic growth and inflation.

The majority of higher income countries revise their base year every five years to reflect changes in the nature of output and consumption. Up until today, Nigeria's GDP was calculated using 1990 as the base year, which does not account for the rapid development of some of the country's booming industries, such as telecommunications and entertainment (notably the Nollywood film industry).

Nigerians however shouldn't expect to see any material benefits from the GDP rebasing. According Renaissance Captial chief economist Charles Robertson, the rebasing is simply the “the NBS… doing a better job in measuring the output that is already happening”.

“Improving the measurement of GDP does not raise monthly wages. It does not lift consumption of imports. It does not make Nigeria better off in any obvious material way… The important fact to bear in mind is that GDP is only being recorded better. Rebasing does not mean Nigerians are better off – it just means they are better off than official statistics previously indicated,” said Robertson in an earlier note.

Being Africa's largest economy could however hold some psychological advantages.“It would be interesting to see how international relations will be affected when South Africa is no longer the largest African economy – South Africa is, for example, the only African country represented in the G20,”wrote Roelof Horne, portfolio manager at Investec Asset Management in an opinion piece published by How we made it in Africa on Friday.

"South Africa was historically the‘go-to' country for investment into Africa. However, the reality is that other regions are increasingly asserting their economic voice and this has resulted in several multinational corporations opting to have their Africa base in countries such as Kenya or Nigeria, instead of South Africa,”Horne added.

The rebasing will also improve Nigeria's balance sheet. “This should lead to lower borrowing costs for the government, which is ultimately beneficial for the country's citizens,”said Horne.

According to Robertson, Nigeria's growth rate is likely to be revised down following the rebasing. "Instead of around 7% annual growth over the previous decade, the higher GDP base means growth may turn out to have been closer to 5-6%."

From How We Made it in Africa

By Jaco Maritz

Social Media is Great, But Don't Forget Old School Marketing

If you're only marketing your brand online, you're missing out on a sizable chunk of potential customers.

A recent Pew study found that 73 percent of surveyed people 18 years of age and older use social media. But entrepreneurs and business owners should not forget the other 27 percent of people who are not regular social media users. To effectively reach those customers, one must integrate social media with old school marketing such as print ads, radio, billboards and direct mail.

There are still plenty of folks who read the paper every day or who listen to the radio on the way to work. This presents opportunities for communicating your brand message to people at a place and time where they are receptive to hearing about it. Here are a few things to remember about integrating your brand message across both old school and social media channels.

1. Some of your most valuable customers are not fans of social media. Make sure you allocate ad dollars to old school marketing tools and even quality sales people. Those non-techy baby boomers want great service when they walk through the door. They will be your best brand ambassadors when they feel well cared for. Even though they are not your Facebook friends, remember to reward them for being your loyal customers.

2. It takes an average of 10 times for us to remember a brand message. If we hear it more than 10 times, we’ll start to get annoyed, but it will take us at least 10 times to remember what we heard about your brand or company and to do something about it. This is a good reason to select a few different ways to reach your target audience.

Keep up with your Facebook posts so your customers can log on at lunch to catch up with you, but augment those efforts with a newspaper ad or a postcard to thank your loyal customers. Many retailers run commercials on TV and send postcards in the mail, but also send email reminders about sales. Every single postcard and TV ad pushes customers one step closer to the sales rack.

3. We like to hear the same message, but in different ways. The average consumer spends just over five hours daily on digital media, four-and-a-half hours on TV, one-and-a-half hours on radio, 32 minutes on print media and 20 minutes on “other” types of media, according to a recent study. This shows that there are many different ways we consumers get our information over the course of a day, which gives brands a variety of different ways to reach consumers.

Even though we are increasing the amount of time we are devoting to digital media, we are still spending an equivalent amount of time on old school media. Don’t forget to talk to your consumers there, too. Fast food restaurants are great at using different ways to catch us when we are hungry with mediums such as billboards.

Consistency is key. No matter where you take your message, new media or old, make sure that your customers know it is you. They won’t mind hearing from you in more than one space. While marketers are ‘reinventing the wheel,’ savvy entrepreneurs will understand that the old wheel does still serve a purpose.

From Entrepreneur

By Karen Mishra

There's an Art to Telling Your Brand's Story: 4 Ways to Get It Right

First, let's talk about that word story. It's one I find impossibly squishy in a business context. For me, it can conjure up performance art more than industry.

But storytelling as it applies to business isn't about spinning a yarn or fairy tale. Rather, it's about how your products or services exist in the world. It's who you are and what you do for others--how you add value to people's lives, ease their troubles, meet their needs. A compelling brand story gives your audience a way to connect with you, one person to another, and to view your business as what it is: a living, breathing entity run by real people offering real value.

In that way, your content is not "storytelling" at all--it's simply telling what's true, and telling it well. So how do you pull stories out of your organization and tell them in a way that relates to your customer? Let's start with a few characteristics of a compelling story:

It's true. Make truth the cornerstone of everything you create. Your marketing content should feature real people, real situations, genuine emotions and facts. As much as possible, it should show, not tell. It should explain--in terms people can relate to--how your company adds value to the lives of your customers.

It's human. Even if your company sells to other companies, focus on how your products or services touch the lives of actual people. By the way, when writing about people, follow this rule: Be specific enough to be believable and universal enough to be relevant. (That's a gem from my journalism-school days.)

It's original. Your story should offer a fresh perspective: What's interesting about your company? Why is it important?

It serves the customer. I've read many brand stories that were badly produced or just flat-out boring, and came off feeling corporate-centric and indulgent. According to writing teacher Don Murray: "The reader doesn't turn the page because of a hunger to applaud." In today's marketing context, that applies to anything you produce: video, audio, slideshows.

Armed with these fundamentals, ask yourself some questions:

What is unique about your business?

What is interesting about how it was founded? About the founder?

What problem is your company trying to solve?

What inspired the business?

What "aha" moments have you had?

How has your business evolved?

What's a nonobvious way to tell your story? Can you look to analogy instead of example?

What about your business that you consider normal and mundane would other folks think is cool?

Here are two companies that recently told their true, human, customer-centric stories in an original way.

In January, technology firm HubSpot produced its "2013 Year in Review." Created with a tool called Uberflip, the online report reads more like an issue of People than a business-to-business production. Magazine "sections" include financial information, stories on charitable efforts and event wrap-ups. Data is presented in an eye-catching way--more infographic than spreadsheet. Candid photos of new hires and staff "stars" get celebrity treatment in a lighthearted section called "They're just like us!" ("They play with their dogs!" "They take selfies!")

Why it works: HubSpot could have produced a static e-book or PowerPoint deck. But by using analogy--borrowing a page (so to speak) from consumer magazines--the company breaks new ground.

Idea you can steal: What's standard in another industry may be new to yours. Look to other parts of your life for inspiration and take an approach that is unique to your market.

Each year, privately held eyewear retailer Warby Parker reimagines the traditionally boring annual report into something new, and in doing so tells a bigger story. The 2013 report was the third such effort. Produced in-house, it took the form of an online calendar that recognized something significant that happened during each 24-hour period.

Warby Parker called out not only successes (its new commercial) but slipups (shipping errors) and quirky facts (that day three employees coincidentally wore a "weird shade" of yellow to work). Taken as a whole, the report tells a larger story of the company's culture, people, customers and values.

Why it works: Annual reports generally underscore only the best bits of a business--the parts that show the company in the best light--and hide the bad stuff in the small print. Warby Parker chose a different approach: Highlighting in an original, accessible way its more human, sometimes vulnerable, yet wholly relatable side.

By the way, if this sounds overly ambitious: Consider that following the release of its first annual report, Warby Parker experienced record sales days, according to Ad Age. How many annual reports actually drive sales?

Idea you can steal: What are you doing already that you could reimagine, with more originality, to more broadly reflect your unique story?

From Entrepreneur

By Ann Handley

How to Build a Brand That Attracts Die-Hard Followers

They are the envy of every brand strategist: brands who have a community of die-hard cult followers -- you know, the people who go out of their way to evangelize and share the brand with everyone they know.

How did these brands build this audience of loyal followers, and what can you do to build this same type of loyalty around your brands? It all begins with knowing what exactly branding is.

Branding is the process of forming memories, emotions and a relationship around your brand in the consumer’s brain. The goal is to build such a strong connection and such strong belief that the consumer take on your brand identity as their own. They use your brand to help define who they are as a person.

A great example of this is Harley Davidson. Harley has done such a phenomenal job building memories, emotions and a relationship with their audience that those audience members take on the “Harley rider” persona and get decked out in leather, bandannas and even permanently tattoo Harley’s logo on their bodies.

Creating these deep connections is far from easy and is something that takes time. However, there are some strategies you can start implementing to develop to start turning your customers into cult-like brand advocates.

Brand your customers. One of the most powerful things you can do is to create a branded term to refer to all your employees and customers. Link it back to the core idea of your brand and promote the idea as they are a part of eome exclusive “tribe.” Create a special celebration process to praise them for joining your tribe and get them excited for being a part of something bigger than themselves.

At our marketing agency, Savvy Panda, we call all our employees and customers “pandas” and when we bring on a new client we send them a welcome pack with panda apparel, stickers and even a stuffed toy panda.

Random acts of kindness. It’s fairly common for a business to have some sort of rewards program to help encourage repeat business. However, a more powerful way to make an impact on your customers is to establish a “random acts of kindness” program. Getting something unexpected helps spark emotions deep within an individual.

Create some criteria to identify your most active and enthusiastic customers and send them care packages to appreciate them for being such great customers. You can take it one step further and identify various influencers in your customer base and fly them out to your business to meet the people behind the brand.  

Many organizations have a dedicated community manager whose sole responsibility is to help implement these tactics discussed. Their goal should be to create and strengthen the relationship between your brand and your audience.

Disconnect from digital. It’s easy to keep communications solely in digital formats like email or social media. However, digital communications lack one of the critical brand building elements: Oxytocin. Oxytocin is a chemical released in the brain when we personally interact with each other. This is what helps spark emotions and memories -- the exact thing we're trying to create.

Personal, non-digital interactions of genuine goodwill are a great way to spark oxytocin release. This could be as simple as picking up the phone and calling your customers to tell them you appreciate them or more complex strategies like hosting an event where you can meet and get to know all your customers in person.

Digital communications are nice for working at scale, however, it’s important to keep in mind that they are not the best advocate-building methods. Where possible, put in the extra effort to connect offline or in person (even if it takes more time or costs a bit more).

Personalize. As Dale Carnegie famously said, “The sweetest sound in any language is one’s name.” As powerful as someone’s name is, it’s equally important to have context around that name. Tailoring your brand experience around an individual consumer is what will start building those deep branding connections.

Find ways to start personalizing everything you do in your business from the products to customer service experience and messaging on your website. Make a point to learn each customer’s name, interests and hobbies, among other things and then tailor your messaging and interactions around those items.

To some this might not seem scalable, however, with the power of data, social logins and simply building knowledge gathering steps into your processes, it’s easier than you think.

There’s no question, branding is a long-term commitment that requires unwavering discipline and confidence in the idea your brand stands for. The brands which are true to their ideas and are successful in building that emotional connection are the brands who enjoy the cult-like followers we as marketers all try to achieve.

From Entrepreneur

By Luke Summerfield

Managing the Family Business: Leadership Roles

Poorly designed leadership roles set up a family business for failure. John A. Davis offers a system that produces the decisiveness and unity needed for long-term performance.

PART TWO: STRUCTURING LEADERSHIP ROLES

My previous article outlined what we know about leadership in family business systems worldwide, including how leadership affects performance. As an example of very capable leadership of a high performing family enterprise, I introduced Nelson Sirotsky, Chairman of RBS, who two years ago successfully passed the baton after leading his family's media business as CEO for decades.

Whether you adopt the one-leader model for your own family enterprise, as RBS has done, or whether you build a team of leaders, you still need to design, structure, and allocate all the necessary leadership roles. Why? Because wherever I see poorly designed, badly structured, and slap-dash leadership roles in action, I hardly ever see the decisiveness and unity that a family business system needs for long-term performance. How do you design, structure, and allocate all the leadership roles you need? That's what this article will focus on.

First recognize that for any group or organization to be successful, it needs to be led, managed, and governed well.

LEADING, MANAGING, AND GOVERNING

Governance provides a broad sense of purpose or mission for the group and gives the group a sense of stability. Without stability, we cannot plan long-term. Family business systems have an enduring advantage over all other kinds of enterprise in large part because of their long-term goals, plans, and commitments. Without stability, you lose your built-in advantage. Without adequate governance, you don't have adequate stability. The family business system absolutely must be governed, and governed well, for success.

Good governance for any group assures us that plans can be made, problems solved, leaders developed and chosen, and disputes settled in a way that preserves the purpose and unity of the group. Discipline and trust grow. Good governance is the product of having useful rules, policies, agreements, and plans, as well as forums (like boards, family councils, and annual meetings of the owners) to develop the plans, agreements, rules, and policies, to address important issues and to work out differences.

One very wise person with legitimacy, a lot of authority, and good intentions can provide good governance for a business, family, and ownership group. But unitary leaders, like the rest of us, only have so many hours in a day, and they can only focus on so many individual concerns before losing effectiveness. So in one-leader systems, governing well almost always requires that key stakeholders join together into one or more groups:

A shareholders' council and an annual meeting of the owners to serve the governance needs of the owners.

A board of directors to serve the governance needs of the business and owners.

A family council to help provide governance for the family.

These groups all need their own good leaders to function well.

So you can see that a family business system leadership team could number four or more people: a leader of each governance forum plus an ultimate leader. The business leader could be different than the chairman of the board. The leader of the owners tends to be either the business leader or a group of leading owners. Often, the family council leader is different than the real family leader. Often the family leader is also the business leader, but not always. Even where there is a strong unitary leader of the family business system, there are usually deputy leaders that lead the different parts of the system in close coordination with the ultimate leader. This was the case for the RBS system.

LEADING

Besides developing, supporting, and participating in the governance system, leaders need to lead people, and this is different from managing their work. Leading is fundamentally about identifying where the group needs to go (developing a compelling vision for the future), strategizing how to get there, and getting people to change in order to get there. This is done by inspiring, persuading, and motivating people to work together to reach important goals, and by building coalitions to support needed change.

Leading is a very personal activity where the leader connects with people and convinces them, making use of compelling ideas and character appeal. Followers follow the leader because of their loyalty, because they identify with the leader, because they identify with the leader's cause, and sometimes because of all of those things. Followers need compelling reasons to file in behind any leader for the long-term, or for difficult missions. Since family business is focused on the long term, the family business leader or leaders must be personally compelling, not just good at making plans and managing activities. As the saying goes, you lead people into battle; you don't manage them into battle.

Effective leaders can have a charismatic style, like Nelson, or a more quiet approach. Regardless of style, the most effective leaders I have seen in family business systems are clearly "servant leaders" or more to the point, "servant partners." These leaders typically have strong ideas and principles about how their companies should be run, what their co-owners should invest in, and how their families should behave. They also have egos, personal needs, and sensitivities. At the same time, they want to do their best for their followers. They believe in partnering with others and treating partners fairly. And they behave like servants of the greater good. Finally, they are able to make tough decisions to protect the standards and aspirations of the group.

MANAGING

Managing, as opposed to leading, is about getting a group to operate efficiently and effectively. Managing is done by planning and budgeting, organizing, analyzing problems, building and using management systems, prudently allocating resources, and providing performance feedback. Managing is a complement to leading.

So much of business and family success has to do with good execution--getting jobs done well, on time, and on budget. Thank goodness for good managers of businesses and families. Like all CEOs that I teach at Harvard, Nelson Sirotsky spent a lot of his time as CEO of RBS managing (that is, developing the efficiency and effectiveness of) particular aspects of the business. He did a lot of planning, organizing, and problem solving.

Most of the family business leaders that I see are strong managers. There is room for improvement in some management techniques, but these leaders are programmed to manage things. In fact, too much--to the point where they focus so much effort on management that their companies tend to be over-managed, under-led, and under-governed. It's natural for CEOs, particularly family members who grew up in the family company and know it well, to become focused on its operating effectiveness. But too much focus here generally means they give too little attention to the leadership and governance needs of the organization. We devote a lot of effort in the Owner-President Management program at Harvard correcting this pattern.

I often wish there was an Owner-President Management program for the leaders of families! Families that own business have similar management problems. Many business families could do a better job of managing their financial life by setting clearer goals and by controlling spending better. They usually need to devote more attention to the development of the next generation. And business families, like all families, are typically poor at giving performance feedback to their members. These are all management issues.

But in my opinion, more problems in families are due to their lack of governance and leadership. In the governance area, family members are not clear about the family's mission or core values; or they lack adequate rules and policies to guide behavior; or maybe they haven't developed a forum and process to discuss important issues and mediate differences among family members fairly. In leadership, they lack a clear vision for the future; or they haven't accepted the need to change in order to adapt to the environment; or they are uninspired. It takes deep inspiration to tackle important challenges.

Governance, leadership, and management: businesses, families, and ownership groups need all three of these activities. If you observe an effective leader of a family business system, like Sirotsky, over the course of a month, you'll see him or her engaging in all three of these activities. The amount of time spent on each activity or group will vary with the leader and circumstances. Some leaders favor leading and let others manage; some leaders spend most of their time governing the system. A parent also does these three things in the family he or she leads. A good Chairman of the board or family council leader also does an appropriate amount of all three. In this way and others, leadership of a business, family, and ownership is similar.

From Harvard Business School

By John A. Davis

Managing the Family Business: It Takes a Village

Is it better to lead a family business with one ultimate leader or a team? John A. Davis, an expert on family business management, kicks off a series of articles with a look at governance models.

PART ONE: GLOBAL NORMS AND THE ONE-LEADER MODEL

A consistent finding about family business systems—the business, its owners, and the family in control—is that strong, long-term business performance also requires strong performance by the family and by the ownership group. You can't keep a family business performing well over many years just focusing on the business. Family unity, united ownership and ownership support of the business are just too important to ignore or take for granted.

We also know that strong performance of the business, the ownership group, and the family depends on the effective leadership of each group. This shouldn't be surprising: good performance of any group always depends, to a surprising extent, on capable leaders. If boards of directors of public, anonymously-owned companies didn't believe that leadership mattered so much, they wouldn't pay such huge salaries to their CEOs. (By the way, I don't think they are worth that much, but the point is: having the right leader does matter.)

Because there is not only a business, but also an ownership group and a family that need capable leadership, a family business system is much more complicated than other kinds of business organizations. Leading these systems is also much more complicated.

Family business systems have a number of formal leadership roles. The CEO and board chairperson lead the business and usually the shareholder group. Family council leaders, parents, and grandparents are the formal family leaders. These leaders don't make all the important decisions in these systems. Nor do they provide all the guidance. They don't allocate all the resources. But because they have considerable authority, influence, and control over resources, we rely on them to do their part in setting direction and guiding their group.

Because the performance of people in these roles is so important to the success of the family business system, we need to understand what capable leaders in family business systems actually do. I've spent much of my professional life figuring this out.

I've gotten to know a number of excellent family business leaders in my long career, along with some weak ones, and a couple of awful ones. To illustrate my profile of a great family business system leader, I'll use one of my favorite examples: Nelson Sirotsky, chairman of Grupo RBS, his family's world-class media company based in Porto Alegre in the south of Brazil.

I met Nelson and his cousin Marcelo Sirotsky at a seminar I led on family business management in Santiago in 1999. I've worked with their family business system ever since. Nelson, then CEO of RBS and also leader of his family branch, attended the seminar to develop plans for his family business system and to reconsider his own leadership role. As the program unfolded, Nelson came to new understanding. He realized that he needed to give more attention to his family and the owners, in order to keep pace with his tireless focus on the business.

What Nelson and his family accomplished over the last decade is very impressive. They recently celebrated Nelson's successful and smooth transfer of his CEO role at age 58 to his very capable nephew, Eduardo Melzer, 40. Nelson remains chairman of the board with clear responsibilities. RBS is stable and poised for more great performance. My colleague Vicky Bloch, a superb coach and advisor, helped them throughout this process. But much of this good work stemmed from Nelson understanding his role as a leader of the business, family and ownership group, and from his performing so well as a leader, including through the CEO transition.

Which brings me to a question I am often asked: "Is it better to have one ultimate leader of the family business system or a team of leaders?"

UNITARY LEADERSHIP VS. LEADERSHIP TEAMS

There are two basic models. A family business system can either consolidate leadership with one person, or it can choose two or more people to lead different parts of the system. Each model can work well, as long as it's clear and supported by the stakeholders. Both models have some potential weaknesses: unitary leadership can lead to excesses; leadership teams can be slow and hobbled with rivalry.

But there is no doubt that one model dominates. Having one person serving as the ultimate leader of the business, ownership, and family is the natural choice for most families (and most nonfamily groups) around the world.

The preference for one leader seems only slightly culturally driven; it's very common in Italy, for example, but only slightly less common in Finland-comparing two European cultures that couldn't be more different.

One-leader systems are also somewhat more common in younger and less complex family business systems; these systems are either in the founder stage or trying to emulate it. The parent-founder-business leader-controlling owner generally has most of the power in his or her family business system. As family business systems approach or reach the cousin stage, with diversified businesses and big ownership groups, as RBS now has, you find more systems having two or three leaders who lead different parts of the system and collaborate to keep the system united. Sibling systems have the hardest time working out who should have what leadership role and power.

“THE ONE-LEADER MODEL STILL DOMINATES EVERYWHERE AND AT ALL STAGES”

With those few exceptions, the one-leader model still dominates everywhere and at all stages. Inertia keeps families in business wedded to it, and in some situations there are measurable benefits that tip the scale in favor of unitary leadership.

So let's take a closer look at this model.

UNITARY LEADERSHIP

The person chosen for this role is generally the business leader. In some cases, the family business system leader is the chairman of the family holding company and the clear leader of the family owners. In general, family business system leaders are the individuals with the most resources under their control; typically, they are middle aged or family elders. Effective ones are appreciated for their wisdom but are not necessarily liked by all their relatives. Leaders tell me that they have a gratifying but tough and often thankless job.

Many successful family business leaders tell me that they spend half of their time working to address family and ownership issues and to maintain unity. If the business leader tries to control too much of the power in the system, he or she will often weaken and destroy it. Even founders seem to understand this. At the founder stage, I often see the wife-mother wielding significant power over the family¾and significant influence on her husband the founder, whom she advises.

That is why an accurate drawing of the one-leader model usually shows that the ultimate leader has strong deputies or allies helping to lead the business, family, and ownership group.

Recognizing the needs of his family business system 15 years ago, Nelson Sirotsky opted to maintain ultimate control but delegated much of the management of RBS to his star nonfamily EVP, Pedro Parente. Nelson shared leadership of the ownership group with his uncle and then chairman, Jayme Sirotsky (also an exemplary leader). Nelson also supported the family council and its leaders, who did much to organize and unify their large family.

It takes a strong ego to not only share leadership but also give credit to others as Nelson does. It's fair to say that no major change in the business, family or ownership group could have been made without Nelson's agreement, but also that others' support was needed for major programs or decisions to be approved. There were continuous conversations among the owners and family about important issues and these drove out consensus. Consensus never required unanimity but rather the feeling that the deliberation process was fair, combined with general agreement that the decision was the best possible course of action at any given time, given some reservations.

Through the last decade, what resulted at RBS was a decisive system with strong support for Nelson, the ultimate leader, by the family and owners. In successful family business systems with unitary leadership, you find that most important decisions are the product of a consensus process like this. The leadership model has now changed since Nelson moved to the chairman role and Eduardo Melzer became CEO: the collaboration between uncle and nephew in leading their family and business is impressive.

Whether your own system is modeled on unitary or team leadership, you need to design, structure and allocate leadership roles.

From Harvard Business School

By John A. Davis