With a Google search, there are two sets of results — paid and organic.
Yi He, Ph.D., assistant professor in the Department of Marketing & Entrepreneurship, College of Business and Economics, at California State University, East Bay, says her advertising management students were surprised to see how many people click on the paid ads.
Her students participate in the Google Online Marketing Challenge, where they are given $250 to run a three-week online advertising campaign for a business or non-profit, which is developed using Google AdWords and Google+.
This type of search engine marketing (SEM) truly benefits small companies.
“For smaller companies, in the past, there was no way to compete in the conventional media with big companies. Now, they can differentiate themselves using SEM, just by spending their advertising dollars in a relatively cautious manner,” she says.
Smart Business spoke with He about why small companies are turning to SEM.
Why is SEM so important today?
Most Internet users don’t want to remember a website URL. Eighty-five to 90 percent of people are guided to websites by search engines, such as Google. Also, people usually just look at the first five or 10 search results, and many of those are advertisements. So, once you start running ads, you generate more ways to reach Internet users.
How are SEM and conventional advertising different?
With conventional advertising, print and broadcast, it’s hard to measure whether your ad campaign was effective. However, everything is measurable with SEM — you can calculate how much ROI is generated from every advertising dollar spent.
Conventional advertising also requires a specific set of skills. But a business owner can run a SEM campaign by opening a Google AdWords account and be up within minutes. It may not be a great campaign, but it’s not like creating a TV commercial.
How does SEM differ from Facebook ads?
With SEM, the only way to target ads is geographically. So, a San Jose restaurant owner can specify that he or she only wants the ad to show up for a ‘Thai food’ search in a 15-mile radius from the downtown San Jose area. Google doesn’t charge for the number of times the ad shows up, or the impression, but by cost-per-click. With Facebook display ads, ads can be targeted by age, gender, marital status, interests, education level, etc., and are charged by both the click and impression.
On average, of the 10,000 times a Facebook ad shows up, only five people click on it, because in a social environment you don’t want to be interrupted to buy something. With a search engine, people are looking for a solution to a problem. A search result, whether organic or paid, is like you’re in a retail store and someone offers a helpful recommendation. With Google’s marketing challenge, my students can get a click through rate (CTR) that is 100 times higher than the Facebook average.
Why is SEM more useful for small business?
Smaller businesses typically aren’t as visible on the organic results or with the extremely popular keywords. But they can run a SEM campaign to generate Internet traffic and increase visibility. There’s no entry barrier, too, so they can get started right away.
SEM also can help figure out demand. For example, one student ran two ad campaigns for a local Chinese restaurant and discovered that ‘Chinese dining’ was not popular in either impressions or CTR. However, ‘Chinese takeout’ led to more people clicking the restaurant’s website and calling, which increased takeout orders dramatically.
What ethical concerns come up with SEM?
We don’t know exactly what data companies have on consumers, and what they do with it. All impressions, clicks through and transactions can be tracked. For example, you might go to a website to look at a few items but not purchase anything, and over the next few days you see similar items on your Internet pages. In addition, some argue that precisely targeted results deprive people of the total available information.
Public policymakers have been pushing to protect consumer information with something like the ‘do not call’ list. A ‘do not track’ list would enable people to sign up to keep their Internet Protocol addresses from being recorded.
Yi He, Ph.D., assistant professor, Department of Marketing & Entrepreneurship, College of Business and Economics, at the California State University, East Bay. Reach her at (510) 885-3534 or email@example.com.
Insights Executive Education is brought to you by California State University, East Bay
Recovering from a flood or fire is hard for a business. But dealing with problems caused by a lack of business continuity plans or inadequate insurance can make it worse.
“The better you can plan for how to deal with an incident, the better off you’ll be,” says Lawrence J. Newell, CISA, CBRM, QSA, CBRM, manager of Risk Advisory Services at Brown Smith Wallace. “I say ‘incident’ because it could be something not always thought about in typical disaster terms, such as a breach of credit card information.”
Smart Business spoke with Newell and William M. Goddard, CPCU, a principal in the firm’s Insurance Advisory Services, about developing business recovery plans and the insurance options available to reduce risk.
What goes into a business continuity/recovery plan?
One component is a business impact analysis, placing a value on what the business needs to operate. Layered underneath are the business processes, which include the business continuity plan and its identifying process flows. For example, length of shutdown is part of the business continuity plan, which contains timelines.
Then there is the disaster recovery plan, which covers anything the business depends on that is IT related. Information has more value than just the data because of the intelligence built around it. So you need to identify where that data is processed, stored or transmitted.
There is also a communication plan, making sure an incident is communicated upward, downward and outward — upward to the executive management team, downward to the enterprise and outward to customers and business affiliates. Part of the communication plan is identifying the impact, whether it’s a simple outage or a more widespread incident such as a tornado, flood or hurricane.
What options are available to manage risk?
In the example of a credit card breach, there are risk reduction processes such as applying security standards developed by the credit card industry. There’s also cyber risk insurance, which insures costs to locate the problem, including hiring experts to do that, notification of cardholders, and business interruption loss.
What do businesses need to know about disaster coverage in insurance policies?
Generally, what we think of as disasters — earthquakes, hurricanes — are covered under property insurance. But business insurance policies also contain sublimits. For instance, you can have $100 million insurance coverage, but the sublimit might be $25 million for a flood. Policies carry different sublimits, and a company planning to use insurance to cover these disasters needs to be aware of them.
What is co-insurance, and how does that impact claim payments?
After a loss, the insurance company will judge the value of a building, say it’s $1 million. A co-insurance clause is typically 90 percent, meaning that the building should be insured to 90 percent of its value — so you’ve bought $900,000 insurance coverage on a $1 million building. If it burned to the ground, you would be paid $900,000. But if you only bought $800,000 insurance coverage and were supposed to buy $900,000, all recovery is based on having 88.8 percent of the coverage you should have. If a small warehouse fire causes $100,000 in damages, you wouldn’t be paid $100,000, but $88,800. This concept of co-insurance is frequently in policies and can be punitive for loss recovery.
How can insurance costs be reduced?
Insurance companies will inspect your property and following their recommendations can make you a better risk, reducing premiums. It’s also important to figure out exactly what coverage you need — it’s best to get an independent adviser. There have been many court cases involving inadequate insurance; they’re expensive to bring and hard to win. It’s better to get it right when you buy the policy, so you should have someone other than the person who’s selling you the insurance answer your questions and conduct an analysis of your needs.
William M. Goddard, CPCU, is a principal, Insurance Advisory Services, at Brown Smith Wallace. Reach him at (314) 983-1253 or firstname.lastname@example.org.
Lawrence J. Newell, CISA, CISM, QSA, CBRM, manager, Risk Advisory Services, at Brown Smith Wallace. Reach him at (314) 983-1218 or email@example.com.
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Data, stored digitally, has become critical to a business’s ability to function. However, major catastrophes — from fires to earthquakes to floods — can cripple hardware and put terabytes of a company’s data at risk, making it vital to have a business continuity plan in place to protect digital information.
“A business continuity plan is insurance for your data,” says Pervez Delawalla, president and CEO of Net2EZ. “It ensures that your business can sustain a disaster that affects your ability to access data at your main site.”
Smart Business spoke with Delawalla about data security and the role it plays in a business continuity plan.
What is a business continuity plan and how can it impact a business?
From a technology perspective, a business continuity plan is your strategy for resuming business following a natural or man-made disaster in as short a period of time as possible. Your plan should be based on the type of data you create on a daily basis, how it is being maintained and the amount of time your business can operate without being able to access it.
Business plans differ from company to company. But generally, if you can’t sustain being without access to particular data for more than a few minutes, that data is critical, and that plan will look different than plans that pertain to data you can live without for hours or days.
Business continuity can save a business even when there is no disaster. Accidental removal or deletion of certain data sets can be very damaging to a business. However, if you have a business continuity plan and regularly back up your data, you will have less reason to worry.
What are the elements of a business continuity plan?
First, determine how you will back up your data. Critical information should be backed up every hour. Less critical data can be backed up more infrequently.
Make sure data is being backed up and secured off-site so that, if you can’t get to your office, the data is available to you. Your backup site should be outside of your primary location.
Second, you need a plan to restore your data when things come back online. Test your off-site server to understand how much lag time there is until data can be restored and employees can start using it.
Third, outsource your primary server farm or infrastructure to an outsourced data center. Outsourcing your server to a data center means it is housed in a facility with multiple levels of redundancy designed to sustain power outages and has multiple, high-speed connections coming from diverse entrances so data can be accessed even if the fibers are cut in the street. You can use facilities such as these as your secondary server, no matter where your business is located. Then, if something happens, you will have access to your data.
When should a business continuity plan be implemented?
The minute you have critical data, you need a plan to back it up. However, with the economic downturn, many companies cut the aspects of their business continuity plan that dealt with data protection because it doesn’t get used until a disaster hits, and it is an easy area to squeeze the budget. Businesses are saying they have a limited budget and they have to continue to operate, so they will just deal with it when it happens. But by then, it is too late.
How does geographical diversity play into business continuity?
Consider what a disaster can mean to your operations and what your business can sustain in terms of cost. The farther your backup servers are from your primary site, the more it costs to transfer information from one place to another. Smaller companies could likely use a public connection to transfer data without incurring too much cost.
The farther away you keep your data, the more redundancy you can create with a solid plan. However, the more redundancy you create, the more costs increase. It is less expensive if you keep your data closer to your primary location, but it also increases your risk, for example, in the event of an earthquake or hurricane. But, ultimately, the question you should ask is, ‘How long can I afford to go without access to my data?’
When focusing on the day-to-day operations of your business, it’s easy to overlook planning for its future. And if your adviser doesn’t bring it up, you may never put a plan in place. However, having a well-thought out succession plan can ensure that your business continues after your retirement or death.
“It’s always a delicate conversation to have,” says Michael Dreveniak, vice president and wealth market leader with First Commonwealth Advisors. “Nobody wants to talk about when they are no longer here, but this is something that you have to do.”
It’s crucial to have answers for two questions, he says — what happens to the business if you are no longer around, and what happens in the event of your incapacity?
Smart Business spoke with Dreveniak about the importance of planning and how insurance can play a critical role in the process.
Why is succession planning critical to the continuity of a business?
There are risks associated with failing to plan. For example, when an owner passes away, there could be a lack of cash flow to maintain the business, which could result in a lower company value. And if the business isn’t well funded, it will lose key individuals and be unable to attract top talent to continue running the business.
The biggest misstep business owners make is failing to address this issue at all. Talk to your advisers — accountant, attorney and wealth manager — to ensure the best interests of your beneficiaries and heirs are considered. Your advisers are paid to walk through risks and anticipate them, providing ‘what if’ scenarios to ultimately arrive at a solution.
The classic example is the mom-and-pop shop that has been in business for 30 or 40 years and then closes its doors because the owner retires and there is no plan to continue the business. Proper planning could have allowed the business to continue running and the owners to accumulate additional wealth. Small businesses — classified as those with less than $7 million in annual revenue and fewer than 500 employees — represent 99.7 percent of all employer firms, and too many of those fail to create a plan.
When should business owners start planning and what steps should they take?
Five years is the perfect time horizon. Begin with the end in mind and allow financial professionals to ensure your balance sheet is cleaned up to maximize value. If the company is more attractive, you can receive top dollar and enable the parties involved to receive financing from a bank, other financial institution or investors. Then, evaluate the plan every year or two to monitor your progress.
Being proactive and having a well-designed plan can help with unforeseen future issues. When planning, prioritize what is most important to you, such as exit planning, income protection, retirement income, business protection, wealth transfer or survivor income. This keeps you from trying to tackle everything at once.
As your business changes — for example, you bring on another employee or your personal life changes — discuss it with your advisers so those changes are reflected in your succession plan.
How does a one-way buy-sell agreement work and why should a business consider it?
Many succession plans engage a well-defined buy-sell strategy, which dictates ownership going from the owner to another individual. It’s a key component of the planning process. With a one-way buy-sell agreement, if the owner of a company has somebody in mind — whether internal or external — who plans to purchase the company, there’s an agreement that he or she will buy from the owner upon some qualifying event, such as disability, death or retirement.
This works well where there is a sole owner, oftentimes for businesses with $1 million to $5 million in annual receipts and fewer than 100 employees. The one-way buy-sell will dictate how the funds change hands to purchase the business. If the owner is not around, in many cases, it provides a way for the beneficiaries and heirs to be compensated.
How can life insurance assist with a buy-sell agreement?
If the person who is going to purchase the business buys life insurance on the life of the business owner and the owner dies prematurely or the plan is to transition at death, the insurance provides the funds needed to purchase the company quickly. It’s a plan to provide certain funding when needed.
How else can the right insurance aid with planning?
Business owners work extremely hard to grow their assets, so protecting them should also be a priority. After accumulating a large asset base, that money can go quickly for long-term care if something goes wrong with your health.
In Pennsylvania, the cost to be in a nursing home averages $8,000 per month, or $96,000 per year, for care in a semi-private room. If high costs erode your asset base, your beneficiaries or heirs are forced to have a fire sale of assets to raise money for your care. Long-term care insurance is a way to mitigate some of that risk, to transfer it to an insurance company as opposed to the owner.
Here is a final reason to ensure that you incorporate insurance into a defined plan. Though some business owners say, ‘I may never use long-term care insurance. I get no benefit and just pay out every month,’ properly placed insurance enables business operations to continue when the unthinkable occurs. Until then, it works to protect your assets and brings peace of mind so that you can concentrate on your business instead of worrying about the ‘what ifs.’
Michael Dreveniak is a vice president and wealth market leader with First Commonwealth Advisors. Reach him at (412) 518-1854 or firstname.lastname@example.org.
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As a family business owner, you may dream of one day handing your company over to the next generation. But have you considered the role that your management team will play in the transition?
“There can be no successful transition if the success of the business is not maintained,” says Ricci M. Victorio, CSP, managing partner at Mosaic Family Business Center. “A key element is making sure that you have secured the talent that has made your business thrive. It’s not just the family that is vital to an organization’s success. You have to retain your key managers, the talented people who really make your business work.”
Smart Business spoke with Victorio about how to involve your management team in the transition of leadership.
What role should the management team play in a successful transition?
Your management team needs to be able to run your business if you are no longer there, for whatever reason, while the next generation is maturing and learning about the business. You have to consider the gap that exists between the current owners and the next generation.
The first step in the process of passing the business along is to lock in a vision of what you see for the business’s future, then communicate that to the executive managers so that everyone who makes that business successful can be enrolled in the vision. The managers then see that, yes, ownership is thinking about their future and that there is a place for them. This is a significant step toward retaining the key managers that are such an important asset to your business’s success. You don’t want them departing at your retirement, leaving the next generation starting from scratch.
What challenges does senior management face when a leader departs?
Many owners are hierarchical in the way they manage, in which case senior managers learn to respond to the owner telling them what to do. But then what happens when the owner is no longer there? Managers won’t feel comfortable turning to the 30-year-old son, who’s never been in charge of the business, to now make those decisions.
You have to create a learning curve and find ways to develop the management team so that the company won’t be crippled when the owner is to longer there to make those key decisions, and the next generation is not completely ready to take the reigns. With the proper planning, key managers will know their expanded roles and who should be making the decisions once the owner departs, letting everyone feel reassured that the company can keep going.
How can a coach help facilitate the process?
A coach can spend time with the management team while the owner is still there, and alongside the next generation that is being groomed, to teach them to work together as a leadership team. This process also gives everyone the opportunity to clarify the core values of the organization and get comfortable in the kinds of decisions they’ll need to make based on those values.
In many companies, managers have a close working relationship with the owner, but may not have that relationship with one another. A coach can help unbind them so tightly from the owner and get them to start working together as a collaborative team.
The coach also works with the owner and managers to develop a charter. Here, the owner can define the vision of the succession plan, the agenda for regular team meetings and the objectives of what everyone is going to hold each other accountable for during the process. Part of this process involves identifying areas that managers will be taking over, but where they may be struggling. Some examples include communication, problem-solving, mentoring, how to deal with controlling personalities, conflict resolution and how to better conduct employee review sessions to create a dialogue between the manager and direct reports.
By addressing these issues before management takes on new roles and responsibilities, a coach can make a difference in the quality of the business environment, morale and, ultimately, bottom line profitability.
What are the dangers of failing to plan for a transition?
A drop in productivity is inevitable if you haven’t planned for that transition. If the person at the helm isn’t prepared for his or her new role, employees will become confused about who is really in charge. When people aren’t sure about whom to talk to about the important decisions, soon, someone with a higher pay grade will take over to tell them what to do. But employees won’t necessarily trust that person.
In this kind of confusion and unclear leadership structure, it’s inevitable that conflict will ensue and key people will leave the company. To avoid that, you have to identify and prepare new leadership, and get everyone used to the transition before it happens.
By empowering your leadership team as a group, you’re not putting all of your hopes on one person, because that could create resentment throughout the rest of the group, as well as stress for that one person. Instead, you’re enlisting a collaborative team that can check on each other and hold each other accountable. That way, if one person gets sick or leaves the company, the business will not fall apart. And generally, you won’t have to worry as much about people leaving when you enroll them at this level of leadership.
Who doesn’t want to be acknowledged and empowered and really feel that they are making a difference at work? That is really what this process is about.
Ricci M. Victorio, CSP, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952.
Disasters, both manmade and natural, can strike at any time, at any place. And if you’re not prepared, your business might be forced to close — which, even if only temporarily, could lead to devastating consequences.
Ravi Sundara, partner and firm manager at The Stolar Partnership, says that a comprehensive disaster recovery and business continuity plan is key to ensuring a business’ survival in the wake of a catastrophe.
“With proper planning and preparation, a business can place itself in a better position to ensure that it will continue, even in the face of disaster, which is important to a business’s customers, employees, management, owners, business partners and markets,” says Sundara.
Smart Business spoke with Sundara about how to be proactive, the legal issues that may arise if you are unprepared and the importance of having off-site backup.
How can preparing for the worst-case scenario help a business re-emerge from a catastrophe?
Proactive planning and preparation are extremely important in helping to ensure business continuity when disasters or other major business interruptions occur. Everyone is familiar with fire, tornado and other disaster drills. The reason we go through those drills is so that we know in advance how to respond, rather than trying to figure it out on the fly in the middle of a disaster. A disaster recovery and business continuity plan serves the same purpose for the business.
What steps can business owners take to prepare for disaster?
It is important to have insurance coverage for loss of property, liability and business interruption. Also, you should have contracts and alternatives in place to deal with disasters that might happen elsewhere that can affect your supply chain. Take, for example, the recent tornado in Joplin, or the earthquake and tsunami in Japan. Your business may be dependent on other businesses to supply it.
Make sure you have alternative vendor arrangements, or have at least identified where you would turn if a current supplier is unable to deliver shipments. For disasters that directly affect the business, options should be in place for temporary office or plant locations, as well as alternative communication methods. If the phone systems go down or there is no cell phone coverage, how will you communicate? This is important not only for internal communications but external, as well.
What types of legal issues commonly surface for businesses that have been affected by a disaster?
There are a number of legal issues, including contractual issues, regulatory compliance and negligence claims. Contractual issues involve fulfilling obligations to customers in the aftermath of a disaster. If a business is unable to fulfill its goods or services obligations, does it have contracts that require it to come through regardless of the circumstances? If so, it could be in breach of its contract.
If there is a force majeure clause — commonly thought of as an Act of God clause, but broader — the business may be let out of the contract or given an extended period to perform. Even if there is a force majeure clause, however, the business might still be responsible for performing if it could have reasonably planned for foreseeable, yet uncontrollable, circumstances, such as a power outage.
Negligence is a failure to act as a reasonably prudent person would under similar circumstances. Failure to plan for reasonably foreseeable disasters could allow customers, employees or others to bring legal claims asserting negligence based upon the failure to undertake reasonable planning for disasters.
In addition, directors of a corporation have a fiduciary duty of care owed to the corporation, and the failure to undertake reasonable business continuity planning to address foreseeable disasters could be a breach of that duty for which the director may be held liable.
How important is it to back up computer data frequently and keep a backup tape off site?
It depends upon the nature of the business and the type of data that is being stored. In other words, how much data could the business stand to lose and still be able to function? It could be a day for some businesses, and it could be an hour or even just minutes for others.
Off-site backup is very important because if a disaster strikes and disrupts your main systems, and if the backup is located in the same location, the backup could very well be destroyed, as well. This is why many businesses that have good disaster recovery and business continuity plans often use data centers located in other regions of the country for their off-site backup needs.
How do disaster recovery plans and business continuity plans differ?
Disaster recovery — involving data, information and documents — is really one piece of a broader business continuity plan. A business continuity plan includes those essential functions that a business needs to perform in order to continue operating. It covers identifying items such as employees’ roles and responsibilities, systems and data recovery, temporary locations, alternative communications, alternative modes of transportation and funds management. Some companies, such as financial institutions, may be legally required to have both a disaster recovery and a business continuity plan.
How often should a disaster preparedness plan be reviewed?
At least once a year. Contracts change, needs change and technology changes. The last thing you want is to have a disaster occur and when you pull out your data recovery/business continuity plan, you find that most of the items are no longer relevant, making the plan useless when you need it the most. Finally, it should be tested periodically, even if that simply means walking through it with your top management and staff.
Ravi Sundara is partner and firm manager for The Stolar Partnership. Reach him at (314) 641-5143 or email@example.com.
Howard Wander likes to joke about his wife’s claim that he makes at least one wrong move every single day. He doesn’t question her opinion, and in fact, he is comfortable adding that his partners on the management committee at Fort Lauderdale-based Kelley Kronenberg feel the same way about him.
“I think that’s a sign of strength to be able to say that you’re wrong and admit that you’re wrong,” says Wander, one of the managing partners at the 140-employee law firm. “That’s a key essential to leadership. Nobody is right all the time.”
But it takes more than humility to succeed in today’s business world. Wander credits his ability to work with his management team and work through their collective mistakes for the firm’s growth over the years from two offices and seven lawyers to eight offices and more than 50 lawyers.
“Part of it is questioning each other,” Wander says. “We are all different, and we come from different backgrounds, and we approach things differently. But we have a shared vision of our future. Sometimes we think it’s a different road to get where we want to be and we don’t always agree on that, but we have that shared vision of what we want to obtain.”
The key to coming up with a good model, where you sometimes agree and sometimes disagree, but you ultimately get to the same place, is constant communication.
“If I have something that I don’t agree with with one of my partners that I think is important, I’ll contact him, and we’ll talk about it,” Wander says. “Communicate and get it off your chest. You can’t let things build up. That’s a recipe for disaster. We try to be very open with each other and talk things out, should there be a question.”
For instance, if you’re in a management team meeting and someone else on the team says something you don’t like, don’t just bury your disagreement.
“There are times I may call one of my other partners afterward and say, ‘Hey, you made that comment about something. Let’s talk about that a little bit,’” Wander says. “There are times I’ll say, ‘You know what, you were right. I was wrong.’ That’s the opportunity for growth.”
You need to make yourself available for these conversations to take place. For Wander, that means being available on his cell phone or at his home whenever someone needs to talk to him. It may not be convenient, but it comes with the responsibility of being the leader of your business.
“Someone asks me a question, they want it now,” Wander says. “They don’t want to hear about it two days from now.”
When you make yourself available and open your literal and figurative doors to your people and your clients, you encourage your employees to do the same.
“The important part is to have everybody on staff sharing that vision and sharing that passion that I have and that others have to attain that vision,” Wander says. “They are part of that team that is going to help make that vision occur.”
Wander says the reason the firm has been able to grow is that everyone is committed to finding solutions to problems quickly and effectively resolving differences so that business can move forward.
“I need those people to have the confidence in me and the other partners on the management committee that we’re making good decisions and we’re all on the same page and we’re all working toward something together,” Wander says.
How to reach: Kelley, Kronenberg, Gilmartin, Fichtel, Wander, Bamdas, Eskalyo & Dunbrack P.A., (561) 684-5956 or www.kelleykronenberg.com
Use your resources
Do you talk to your current employees when you’re looking to make a hire? If you don’t, you might be making a big mistake. Your staff can be a great resource for finding people who will be a great fit in your organization.
“I need my key people to find new key people,” says Howard Wander, one of the managing partners at the 140-employee Kelley Kronenberg. “They are recommending people to me who they know fit our image and fit our mindset of who would be a successful person in our firm. Occasionally, we do go out, but it’s hard because you don’t know who you are getting and if they are going to share the passion and vision of what you’re trying to attain. It starts with talking to your people and letting them bring people to you.”
One of the essential parts of any successful business is continuity. As people advance or leave your organizations, others need to be able to step up and fill their roles. When you’re working with your employees to find new people, that continuity is much easier to maintain.
“You’re only as good as the guy next to you or the support staff you have,” Wander says. “If there is a weak link next to you, the whole team falls.”
Family-owned businesses can be one of the most rewarding types of business, but also can be one of the most difficult to manage, especially when it comes to working relationships. Everything from advancement and salaries to hiring new talent and changing vendors can be overlooked or mishandled so as to not offend a family member.
Smart Business learned more from Donna Mittendorf and Jim Terrell of Comerica Bank about managing a family-owned business and how to prevent the problems and pitfalls that typically arise when working with those with whom you have close personal ties.
What are the advantages of having a family-owned business?
Donna: There are numerous advantages to having a family-owned business, such as the continuity it affords with customers and vendor relationships. Customers and vendors know your family name and will continue to work with you as a result. There is also a built-in loyalty to the business, and its long-term approach and nature gives it a competitive edge. Family-owned businesses tend to spend money wisely since they are building wealth to pass on to future generations, and they are typically more stable as they are less likely to make radical cutbacks during an economic downturn.
However, don’t turn these advantages into complacency. It’s easy for a family business to become complacent and not welcome change if the business is successful. The problem is your competition is keeping up with technology, product advances and other advancements that could render your business ineffective.
How can you minimize conflict when working with family?
Jim: It’s difficult to balance business relationships with family ties. A clear understanding of the roles and expectations of each family employee can prevent many of the problems that tend to pop up in family-owned businesses. Keep everyone accountable and, when a major decision needs to be made, make sure it’s made with the growth and stability of the business in mind.
How should a family-owned business plan for change?
Donna: If the business is going to be handed over to the next generation, the decision needs to be made well in advance. Other issues like how management will change with the new generation and what the responsibilities are for each member also need to be addressed well ahead of any leadership change.
Business owners also need to make sure to have their estate planned out and have items like a will and stock transfers in order in case of a sudden emergency. It’s also a good idea to have leadership transition and family ownership plans in writing so there is no confusion.
Family businesses often take great pride in their traditions, but make sure you don’t take this to an extreme and forget to change and grow. This is one of the most common mistakes family-owned businesses make and one of the main reasons some are unsuccessful.
How should family-owned businesses handle succession?
Jim: There can be resentment among family and longtime non-family employees if succession is not handled properly. It’s not easy to bring in a son or daughter and introduce him or her as the new boss to people who have been working at your business for decades. Make sure family members are brought in at the bottom, or close to the bottom, and let them work their way up. They will feel they earned the position and there will be less resentment from other employees than if they start off in a corner suite.
When should a family-owned business look for outside help?
Donna: It’s a good idea to look for outside advice on plans for succession management, buy-out arrangements or in the event of aging of principals, illness of an owner, or children who want in or out of the business. Business owners should seek reputable organizations and professionals and assess what each can offer. Ask the institution for samples of the work they have done and if possible, try to get previous customers’ testimonials. Comerica advisers can help with everything from estate planning and portfolio management, to trusts and insurance.
DONNA MITTENDORF and JIM TERRELL are senior vice presidents for Comerica’s Texas Small Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55.0 billion at September 30, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.
Nearly every business relies heavily on technology, with critical operations and processes that are dependent on information technology (IT). But if disaster strikes, how can a business ensure that it stays up and running to remain competitive in the marketplace?
The answer is a comprehensive business continuity plan, which every business should have in place, says Derek Dalton, a sales engineer for Time Warner Cable Business Class.
“Not long ago, business continuity required millions of dollars in redundant systems, facilities and bandwidth,” says Dalton. “Now, more cost-effective solutions have been introduced, helping organizations ensure that their business will always be up and running.”
Smart Business spoke with Dalton about how to craft an effective business continuity plan.
What is business continuity?
While business continuity and disaster recovery work in tandem, they are separate and distinct disciplines. Disaster recovery refers to the protocols and procedures that an organization follows to activate backup servers and alternative facilities should an unforeseen event disable critical IT systems. When most people think of disaster recovery, they think of natural disasters or terrorist attacks, but something as simple as a broken water pipe, tripped circuit breaker or computer virus can constitute a disaster for a business and thus require a recovery plan.
Business continuity extends the concept of disaster recovery to reflect the processes and procedures that organizations put in place to ensure that critical business functions continue, despite an event that disrupts normal business operations. This can be as simple as identifying alternate resources when employees are unable to work, or as complex as recovering servers and mainframes with network backups in the event of a system failure.
Why is business continuity so important in today’s business world?
Business continuity means your company stays up and running, no matter what happens. And with today’s businesses relying heavily on the Internet and other technologies, constant connectivity is vital.
Forrester Research reports that 76 percent of companies experience at least one disruption in any five-year period, and that 27 percent have to declare at least one disaster, meaning mission-critical IT systems were disabled long enough that recovery procedures had to be executed. It’s not if a disaster will strike, it’s when it will strike and how you will be able to deal with it. And, according to the Meta Group, one hour of systemwide downtime, depending on the company, can cost a business from $330,000 to $2.8 million.
It is important for business owners and IT staff to identify potential risks, figure out the costs of downtime, choose the most effective technology and work together to implement recovery services. These calculations fall into direct costs and indirect costs.
A direct cost could be the amount of business lost if a network experiences an outage. If the system handles a certain amount of business every hour, the organization can know exactly how much an hour of downtime will cost.
Indirect costs are no less important. For example, what would the cost be to a company’s reputation or relationships should a disruption render customer service or supply chain management systems inoperative? What might the penalties be if the company’s financial or customer data systems were compromised?
Awareness and qualification of these cost factors highlight how companies that have effective business continuity plans can quickly recover from system outages, which can be a competitive advantage and an opportunity to take revenue and market share from companies that cannot.
How do cable Multiple System Operators (MSOs) tie in to business continuity?
Organizations seeking to implement business continuity plans recognize cable MSOs as reliable and cost-effective alternatives to traditional telecommunications providers. Because cable MSOs operate over one network, their infrastructure offers advantages such as security, scalability and the ability to support multiple communication solutions.
Cable MSOs deliver availability and redundancy. Because their networks were designed to provide bandwidth-intensive video services to broad areas, cable operators can offer high-bandwidth services regardless of a premise’s distance from a central office. This access to reliable connectivity allows even rural backup sites to be incorporated into business continuity plans and ensures that employees telecommuting can access the same resources available from headquarters.
Cable MSO infrastructures are independent from traditional telecommunications companies. They can provision services with their own resources, delivering new services more rapidly than many traditional telecommunications providers, an important capability in an emergency, when time is critical. They also provide the important alternative routing component of a business continuity solution, as the networks are separate from traditional telecommunications providers that may share common infrastructures.
How are telecommuters protected by business continuity plans?
A key to a comprehensive business continuity plan is ensuring that employees can work remotely in the event of a disaster. This includes telephone and broadband Internet to facilitate communications between employees and management and provide access to enterprise applications. Because the technology is not distance sensitive, cable broadband options offers scalable Internet access options, up to 10 Mbps of throughput speed, allowing you to connect to a virtual private network for enhanced communication and collaboration, with bandwidth to facilitate videoconferencing and database file transfers. Solutions include scheduled backup of desktop files to off-site, secure storage, with backed-up files available from any desktop computer, allowing employees displaced by an emergency to work from any location.
Derek Dalton is a sales engineer for Time Warner Cable Business Class. Reach him at (614) 255-2762.