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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Building a New Venture Team
and
Planning for the Next Generation
CHAPTER 16
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 2Ch. 16: Building a Team & Succession Planning
Leadership
The process of influencing and
inspiring others to work to achieve a
common goal and then giving them
the power and the freedom to
achieve it.
Entrepreneurs must take on many
roles in their companies, but none is
more important than that of leader.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 3Ch. 16: Building a Team & Succession Planning
Business Leaders Are…
Innovative
Passionate
Willing to take risks
Adaptable
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 4Ch. 16: Building a Team & Succession Planning
Effective Leaders
Create a set of values and beliefs for
employees and passionately pursue them.
Establish a culture of ethics.
Define and then constantly reinforce
the vision they have for the company.
Respect and support their employees.
Set the example for their employees.
Create a climate of trust in the organization.
Build credibility with their employees.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 5Ch. 16: Building a Team & Succession Planning
Effective Leaders
Focus employees’ efforts on challenging
and driving toward those goals.
Provide the resources employees need to
achieve their goals.
Listen to their employees.
Value the diversity of their workers.
Celebrate their workers’ successes.
Are willing to take risks.
Encourage creativity among their workers.
Maintain a sense of humor.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 6Ch. 16: Building a Team & Succession Planning
Effective Leaders
Create an environment in which people
have the motivation, the training, and the
freedom to achieve the goals they have set.
Create a work climate that encourages
maximum performance.
Become a catalyst for change
when change is needed.
Develop leadership talent.
Keep their eyes on the horizon.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 7Ch. 16: Building a Team & Succession Planning
Three Vital Tasks of a Leader
1. Add the right employees and
constantly improve their skills.
2. Create a culture for
retaining employees.
3. Plan for “passing the torch” to
the next generation of leadership.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 8Ch. 16: Building a Team & Succession Planning
Building an
Entrepreneurial Team
Study: 80% of employees turnover is caused
by bad hiring decisions.
Leadership IQ study:
46% of newly hired employees will fail in their
jobs within 18 months.
19% of newly hired employees will achieve
unequivocal success.
Study: 34% of hiring managers admit to
making bad hiring decisions because they
were under pressure to fill a job.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice HallCh. 6: Franchising and the Entrepreneur
FIGURE 16.1 Annual Growth Rate in the U.S. Labor Force Source: U.S. Census Bureau, 2008.
16 - 9
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 10Ch. 16: Building a Team & Succession Planning
How to Hire Winners
Commit to hire the best talent.
Elevate recruiting to a strategic position.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 11Ch. 16: Building a Team & Succession Planning
Strategic Recruiting
Look inside the company first.
Encourage employee referrals.
Make employment advertisements
stand out.
Use multiple channels to recruit talent.
Recruit on campus.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 12Ch. 16: Building a Team & Succession Planning
Strategic Recruiting
Get involved in a college internship
program.
Recruit “retired” workers.
Consider using offbeat recruiting
techniques.
Offer what workers want.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 13Ch. 16: Building a Team & Succession Planning
How to Hire Winners
Commit to hire the best talent.
Elevate recruiting to a strategic position.
Create practical job descriptions and job
specifications.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 14Ch. 16: Building a Team & Succession Planning
Conducting a Job Analysis
Create a job description - a written
statement of the duties, responsibilities,
reporting relationships, working conditions,
and materials and equipment used in a job.
Handy tool: Dictionary of Occupational Titles
Create a job specification - written
statement of the qualifications and
characteristics needed for a job, stated in
terms such as education, skills, and
experience.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 15Ch. 16: Building a Team & Succession Planning
Sample Job Description from the
Dictionary of Occupational Titles
Worm Picker - gathers worms to be used as fish bait; walks about grassy areas, such as gardens,
parks, and golf courses and picks up
earthworms (commonly called dew worms and
nightcrawlers). Sprinkles chlorinated water on
lawn to cause worms to come to the surface and
locates worms by use of lantern or flashlight.
Counts worms, sorts them, and packs them into
containers for shipment.
(# 413.687-014 in D.O.T)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 16Ch. 16: Building a Team & Succession Planning
How to Hire Winners
Commit to hire the best talent.
Elevate recruiting to a strategic position.
Create practical job descriptions and job
specifications.
Plan an effective interview.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 17Ch. 16: Building a Team & Succession Planning
Planning an Effective Interview
Involve others in the interview process.
Develop a series of core questions and
ask them of every job candidate.
Ask open-ended questions rather than
questions calling for “yes or no” answers.
Create hypothetical situations candidates
would encounter on the job and ask how
they would handle them.
Situational interviews
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 18Ch. 16: Building a Team & Succession Planning
Planning an Effective Interview
Probe for specific examples in the
candidate’s work history that demonstrate
the necessary traits and characteristics.
Ask candidates to describe a recent
success and a recent failure and how they
dealt with them.
Arrange a “non-interview” setting that
allows others to observe the candidate in
an informal setting.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 19Ch. 16: Building a Team & Succession Planning
How to Hire Winners
Commit to hire the best talent.
Elevate recruiting to a strategic position.
Create practical job descriptions and job
specifications.
Plan an effective interview.
Conduct the interview.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 20Ch. 16: Building a Team & Succession Planning
Conducting an
Effective Interview Break the ice.
Goal: to diffuse nervous tension.
Ask questions.
Puzzle interviews.
Remember the 25/75 Rule.
Be respectful and keep it legal!
Sell the candidate on the company.
Best candidates will have other job offers.
Your job: to convince the best candidates
that your company is a great place to work.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 21Ch. 16: Building a Team & Succession Planning
How to Hire Winners
Commit to hire the best talent.
Elevate recruiting to a strategic position.
Create practical job descriptions and job
specifications.
Plan an effective interview.
Conduct the interview.
Contact references and conduct a
background check.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 22Ch. 16: Building a Team & Succession Planning
Checking References
Checking an applicant’s references is an
important part of protecting a company
against making a “bad hire.”
Is it really necessary? Yes !
According to a CareerBuilder survey, 49%
of all candidates either exaggerate or
falsify information about their previous
employment on their résumés.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 23Ch. 16: Building a Team & Succession Planning
Company Culture
Distinctive, unwritten, informal code of conduct that governs the behavior, attitudes, relationships, and style of an organization.
“The way we do things around here.”
In small companies, culture plays as important a part in gaining a competitive edge as strategy does.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 24Ch. 16: Building a Team & Succession Planning
Characteristics of a
Positive Culture
Respect for work and life balance
Sense of purpose
Sense of fun
Engagement
Diversity
Integrity
Participative management
Learning environment
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice HallCh. 16: Building a Team & Succession Planning
FIGURE 16.2 Composition of U.S. Workforce
Source: Jennifer Cheeseman Day, “Population Profile of the United States,” U.S. Census Bureau,
July 8, 2008, http://www.census.gov/population/www/popprofile/natproj.html.
16 - 25
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 26Ch. 16: Building a Team & Succession Planning
Job Design Strategies
Job simplification - breaks work down into
its simplest form and standardizes each
task.
Job enlargement (horizontal job loading) -
adds more tasks to a job to broaden its
scope.
Job rotation - cross-trains workers so they
can move from one job in a company to
others, giving them a greater number and
variety of tasks to perform. Often used with
a skill-based pay system.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 27Ch. 16: Building a Team & Succession Planning
Job Design Strategies
Job enrichment (vertical job loading) -builds motivators into a job by increasing the planning, decision making, organizing and controlling functions (which traditionally were managerial tasks).
Five core characteristics:
1. Skill variety
2. Task identity
3. Task significance
4. Autonomy
5. Feedback
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 28Ch. 16: Building a Team & Succession Planning
Job Design Strategies
Flextime - an arrangement under which
employees build their work schedules
around a set of “core hours” - such as
11 a.m. to 2 p.m. - but have flexibility
about when they start and stop work.
Job sharing - a work arrangement in
which two or more people share a
single full-time job.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 29Ch. 16: Building a Team & Succession Planning
Job Design Strategies
Flexplace - a work arrangement in which
employees work at a place other than the
traditional office, such as a satellite
branch closer to their homes or, in some
cases, at home.
Telecommuting - an arrangement in which
employees have employees working from
their homes use modern communications
equipment to hook up to their workplaces.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 30Ch. 16: Building a Team & Succession Planning
Rewards and Compensation
The key to using rewards to motivate
workers is tailoring them to the
needs and characteristics of
individual workers.
Money is an effective motivator …
up to a point. Pay-for-performance systems
Profit-sharing plans
Open book management
Cafeteria benefit plan
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 31Ch. 16: Building a Team & Succession Planning
Rewards and Compensation
Intangible rewards – such as praise,
recognition, celebrations, and others –
can be powerful, yet inexpensive,
motivators.
Entrepreneurs tend to rely
on non-monetary rewards.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice HallCh. 16: Building a Team & Succession Planning
FIGURE 16.3 U.S. Workforce by Generation
16 - 32
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 33Ch. 16: Building a Team & Succession Planning
Family Businesses
Make up 90% of all U.S. businesses.
Account for 64% of U.S. GDP.
Employ 62% of private sector work force.
Comprise 37% of the Fortune 500
companies.
Created 80% of the U.S. economy’s net
new jobs over the last two decades.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 34Ch. 16: Building a Team & Succession Planning
Family Businesses
Unfortunately, only 30% of first-generation
businesses survive into the second
generation.
Of those that do survive to the second
generation, only 12% make it to the third
generation.
Only 3% make it to the fourth
generation and beyond.
(continued)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 35Ch. 16: Building a Team & Succession Planning
Why is Management
Succession So Difficult?
81% of all business founders intend
to pass their companies on to their
children.
Just 29% of family business owners
have prepared written management
succession plans.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 36Ch. 16: Building a Team & Succession Planning
How to Develop a
Management Succession Plan
Step 1. Select the successor.
Step 2. Create a survival kit for the
successor.
Step 3. Groom the successor.
Step 4. Promote an environment of trust
and respect.
Step 5. Cope with the financial realities of
estate and gift taxes.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 37Ch. 16: Building a Team & Succession Planning
Coping with Estate Taxes
Buy/Sell agreement
Lifetime gifting
Setting up a trust
Bypass trust
Irrevocable life insurance trust
Irrevocable asset trust
Grantor Retained Annuity Trust (GRAT)
Estate freeze
Family Limited Partnership (FLP)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 38Ch. 16: Building a Team & Succession Planning
Exit Strategies
Entrepreneurs planning to retire often
use two exit strategies:
Sell to outsiders
Sell to insiders
Leveraged buyout (LBO)
Employee Stock Ownership Plan (ESOP)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 39Ch. 16: Building a Team & Succession Planning
Conclusion
Leadership is the process of influencing
and inspiring others.
Leadership shapes company culture.
A succession plan is a crucial element
in transferring leadership.
An exit plan allows entrepreneurs to
step down and benefit most
from the sale of the company.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16 - 40Ch. 16: Building a Team & Succession Planning
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