Summer Reading for Entrepreneurs -- At A Glance

10 Tips for Bringing Your Children Into the Family Business

WAYNE RIVERS: Thinking about bringing your children into your family or small business? Beware! This can be either a blessing or a curse depending on how you do it. Experience shows there are right ways to introduce your offspring into your business and, most decidedly, wrong ways. The following are 10 tips for pursuing the former and avoiding the latter.

There are plenty of rationalizations for why people hire their children as soon as formal schooling has ended. “We need help right away.” “They would learn more here than they would anywhere else.” “I’m getting older, and I need my potential successors around me.” All are good reasons; however, the main reasons for having your children work elsewhere have to do with them, not you! They need time to mature, individuate and gain confidence learning and doing things as distinct human beings rather than just children of successful parents. They need to learn how to work, to be punctual, to earn their own money and to be held accountable. Everyone wins when potential successors have excellent training and gain skills and confidence outside the nuclear family.

Today’s young people are more to more likely to want to “work to live.” Contrast that with their parent’s “live to work” orientation. The generation gap is very much alive in family businesses; the senior generation is mystified that their children don’t want to work 80-hour work weeks. They see the live-to-work mind-set as a lack of commitment to the business, and that’s not entirely fair nor is it cognizant of their children’s – and other younger employees — desires for a different workplace experience.

Two older brothers were very frustrated with their younger sibling. He just didn’t seem capable. Assessments revealed that he was temperamentally unsuited for his role in the family firm; he was in a position that demanded amazing attention to detail and strict deadlines, but he had much more of a big-picture, laissez-faire attitude. How had he come to be in this position? His older brothers, having entered the family business earlier, took the roles for which they were best suited. When he came along, the only management position available was this one; he was very much a square peg in a round hole. Some initial assessment for job fit would’ve gone a long way toward improving both business function and family harmony.

Family members, more than any other employees, need to be held accountable for their actions. They need to have crystal-clear roles and responsibilities and regular reviews to make sure they’re living up to the requirements of their job descriptions. The biggest morale killer in small businesses is underperforming or dysfunctional family members who are allowed to meander through various roles in the business with virtually no accountability and to inflict themselves on others in the organization. The opportunity costs for coddling underperforming family members are tremendous.

It’s hard to be in a family, and it’s really hard to be a member of a family business. You can take to the bank the fact that virtually every family employee thinks she works harder and contributes more than anyone else and stews over this “fact.” Family businesses have a greater need for formal communication in order to resolve perceived contribution issues as well as discuss and resolve a host of other pressing family and business ones. If they could discuss these often volatile topics constructively and productively by themselves, they would. Since they usually can’t, they should seek the help of a talented facilitator to get the most out of themselves and their meetings.

In the 1995 movie “Sabrina,” Harrison Ford laments to Julia Ormond, “I’ve been following in footsteps all my life.” Don’t assume that your children or grandchildren want to follow in your footsteps. And they shouldn’t assume that you want them to! A family member entering your small business ought to do so intentionally of his free will. Make entry into the business formal and deliberate vs. casual and impulsive. A family hire should be treated at least as carefully and rigorously as any other hire.

Related – don’t let anyone flunk into a job. You should demand that a potential family hire be able to walk into your place of business with his head held high. He should be able to point to accomplishments in previous jobs, promotions and valuable leadership experiences. Hiring a family member who is down on his luck or who can’t seem to hold a job anywhere else is a recipe for poor morale.

The default payment plan for many family businesses is to pay all next generation family members the same. After all, you love them the same, right? This is foolish. Every employee, family member or not, brings different talents, skills, attitudes, ambitions and capabilities. Family members, like everyone else, should get paid wages commensurate with what the market bears for the given position.

Some family businesses view in-laws with a jaded eye. Shouldn’t someone with the intelligence and good sense to marry your son or daughter also be judged to have the good sense to know how to work productively in a family business context? Why does it make sense to ignore the capabilities and talents of in-laws as potential employees and even business successors?

It is sometimes necessary to prune the family tree. Several times a year we get calls from family business leaders who are wrestling with underperforming, sometimes incompetent, family members. The acid test question: “If this person were not your son, would you keep him on your payroll?” The answer almost always comes back a profound “NO!” Pruning the family tree almost always results in business productivity improvement. There are, however, usually family repercussions. See the point above about hiring a skilled facilitator to manage difficult family conversations.

Managing the intersection between family and business is quite difficult. These 10 tips will help you realize that delicate balance more effectively.

Wayne Rivers is the co-founder and president of the Family Business Institute and author of books about family and closely held business, including “The Top Nine Reasons Family Businesses Fail and The Eight Building Blocks for Creating a Sustainable Closely Held Company.”

5 Signs Your Child Has What it Takes to be a Tech Entrepreneur

ALEXANDRA SAMUEL: Recently in The Wall Street Journal’s small-business report, I talk about how we can nurture tech entrepreneurs — those young stars who will create the next Snapchat or Facebook . But how do you know whether your child might have what it takes? Here are five signs he or she might just be the next Silicon Valley success story:

1) They want to sell their work. Natural-born hustlers have one question when their parents praise their latest art project or Lego creation: “Do you think somebody would buy it?” Children who are excited about running garage sales or lemonade stands; children who want to sell their craft projects on Etsy ; children who keep their action figures in the box in order to maximize resale value: these are ones who think about how to turn their passions into a business. That makes them a lot more likely to take their brilliant idea — like the app or site they set up while still in school — and turn it into a profitable venture.

2) They think in code. While not every tech entrepreneur needs to be a coder, most teen entrepreneurs are children who build their own apps. Children who are passionate about coding, particularly from an early age, are the kind who can master enough code to write their own full-scale applications while still in high school. That aptitude may become clear before a child learns to read, if they love apps and games that teach the fundamentals of coding by offering puzzles that are basically logic gates. Or it may show up as a passion for building with redstone in Minecraft — essentially Minecraft’s version of programming. The sooner you can get these kinds to move from coding games to actual programming, the better.

3) They are obsessed with money. Some children are intrinsically fascinated with money. These are the children who round up the spare change from around the house, and hide it under their mattress, who try to set a dollar price on every parental request, or who keep careful track of their allowance, possibly saving it up for a major purchase. These are children who are likely to be motivated by the idea of earning their first million — and who may shy away from college in favor of something with more immediate, tangible returns.

4) They learn from failure. Before you can be a successful entrepreneur, you have to be a failed entrepreneur. Even people who ultimately succeed with their very first startup invariably experience failures along the way. So if you have the kind of child who gives up when confronted with a challenge, or finds it painful to look at their own failures, they’re going to have a hard time surviving and learning from the mistakes they make in business. Children who have resilience and grit, and who are willing to learn from their failures, are much more likely to stick with their entrepreneurship dreams and see their startup through to success.

5) They dive deep. Children who enjoy trying a wide range of different activities or who excel in a range of different subjects may have very successful careers as generalists, or find the one thing that they are incredibly passionate about when they reach college. But those who are willing to pour their hearts and souls into a single endeavour are the ones who are most likely to launch a successful business early in life, because they’re willing to forego their other interests and activities in order to pursue this one business.

Alexandra Samuel is a technology researcher and the author of “Work Smarter with Social Media.”

The Surprising Truth Behind the Myth of the Lone Entrepreneur

JAMES ALLEN: The image of the bold, do-it-yourself entrepreneur is romantic and deeply entrenched. It’s also completely misleading.

Far from being disconnected outliers, entrepreneurs thrive best when they operate in tight-knit networks, nurture fellow risk takers, and trade know-how and capital.

The Endeavor organization together with my colleagues at Bain & Co. mapped this social network of entrepreneurs across multiple generations and multiple continents—even in some of the harshest terrain for innovation, such as Buenos Aires, Istanbul and Mexico City. For example, they surveyed more than 200 Argentine entrepreneurs, asking such questions as:

They then followed up with in-depth interviews to identify specific ways that entrepreneurs benefited from or offered assistance to others.

They found that Buenos Aires is in the midst of an entrepreneurship epidemic despite continued political and economic unrest. Nearly 80% of today’s tech companies there trace their roots to three companies founded between 1997 and 1999: Patagon, OfficeNet and MercadoLibre. The leaders behind these pioneering companies mentored new entrepreneurs, invested capital in their companies, supplied experienced talent and started new ventures themselves. These first-generation entrepreneurs are the super carriers of the entrepreneurship virus.

Endeavor and Bain visualized this phenomenon in a series of social network maps, using bubbles to represent companies and multicolored arrows to represent different connection types. The size of each bubble corresponds to the number of connections each company has and, in turn, the number of connections each company’s connections have. The bigger the bubble, the more influence that company and its founders have had on others in the network. The companies were placed on a series of concentric circles, similar to rings on a tree, based on their founding year. In all three of these cities, the number of companies increased rapidly over time—as you go from the innermost ring to the outermost one—and a handful of companies, those highlighted in orange, have played a disproportionate role in creating the entrepreneurship ecosystems found in these cities today.

Entrepreneur networks don’t start with gleaming facilities or government guarantees, nor do they spring spontaneously from successful companies. Instead, a few pioneering founders actively spread the entrepreneurship fever by mentoring and investing in subsequent generations of entrepreneurs. Rather than a cutthroat, competitive mentality, these founders see inter-company pollination as being good for their businesses.

While a few people might be struck out of the blue by the desire to start a new company, far more find encouragement by meeting another entrepreneur, getting advice from someone who’s been there, or meeting an angel investor at a party or social gathering.

Budding entrepreneurs should go out of their way to tap into an existing ecosystem. They should look first for high-impact entrepreneurs who could serve as mentors. First-generation founders speak frequently at colleges and universities, serve as judges at start-up competitions, appear at community events, and act as angel investors to get other founders’ dreams off the ground. These people often are willing, even eager, to help new entrepreneurs build their businesses on a solid foundation, giving them blunt advice that will improve their concept or approach.

Entrepreneurs can also learn from regional leaders in established companies. While not founders, these executives have valuable in-market experience to share with rising entrepreneurs, and they can support small firms by serving as mentors or early customers or advising entrepreneurs on customer acquisition strategies.

Besides these regional leaders, an often-overlooked element in the ecosystem is great talent at no or low cost. Smart, energetic people can be found either through local business schools or through externship programs offered by global corporations.

If you’re still acting as if you’re in a dog-eat-dog world, you’re cutting yourself off from a new breed of dogs that’s playing a smarter game. Many of the entrepreneurs we surveyed listed altruistic goals among their top priorities such as, “I want to be a role model and inspire others” and “I want to change my society.”

The contagion lives within all entrepreneurs. They just need permission to let it out.

James Allen is co-leader of the global strategy practice at Bain & Co.

Why Young Entrepreneurs Should Finish College

JOHN GREATHOUSE: Should entrepreneurs finish college? With rare exceptions, the short answer is “Yes.”

In my role as a professor of practice within University of California, Santa Barbara’s entrepreneurial Technology Management Program, I hear from at least one student every quarter who asks me if they should quit school to start a venture. My response is almost always the same: I think dropping out is a very bad idea.

I have taught approximately 5,000 students during my nine-year tenure at UC Santa Barbara, some of whom went on to spawn public companies, sell their businesses for deca-millions and raise hundreds of millions of venture capital funding. However, out of this highly talented group, fewer than a dozen had created businesses while in college that I believe warranted full-time attention.

In sports, outliers generate headlines. Basketball stars LeBron James and Kobe Bryant achieved immediate success in the NBA as 18-year-olds. The same is true in business, where the startup careers of Zuckerberg, Jobs, Ellison, Gates, Branson and Dell make it seem that the path to entrepreneurial success would have been unnecessarily delayed by a college degree.

But all of those individuals missed out on material and esoteric benefits of the college experience. I recently spoke to an international group of entrepreneurship professors at San Diego State University’s Lavin Entrepreneurship Center. I asked them to devise reasons why an entrepreneur should remain in college.

Nearly all of them agreed that students should stay in school, even if their venture is doing well. Their most persuasive argument was that college offers young people many things beyond textbook facts and case studies, including:

A sound college education includes gaining insights into applying logic, researching data and assessing the veracity of information. Wise students focus on taking advantage of college to learn how to learn, rather than focusing on simply regurgitating facts.

Remaining in college does not mean that students must put their entrepreneurial dreams on hold. Small ventures that can be run part-time allow students to gain hands-on experience. In addition, many a college venture has blossomed into a full-fledged startup after graduation.

Discovery of What You DON’T Want to Do. College affords students a chance to satisfy their curiosity by exploring areas of intellectual interest and learning not only what they want to do with their lives, but also what they don’t want to do. Once a student enters the work world, she loses this luxury of time and flexibility.

Group projects, albeit painful, are an extremely effective proving ground for a startup career. In their early stages, startups are generally meritocracies in which strong-willed, highly-opinionated people must be encouraged to act in a certain way, rather than ordered to do so. College group projects force students to develop a diplomatic leadership style, in order to encourage their peers (whom they cannot order around) to accept their suggestions.

Colleges are populated by motivated individuals, many of whom will excel in their chosen fields. Young entrepreneurs can call upon their alumni networks for advice, recruitment of key employees and even funding.

Many campuses offer entrepreneurial students a variety of free resources, such as incubators, accelerators, mentor programs, venture competitions (with meaningful prize money) and even seed funding.

A significant amount of emotional growth occurs between the ages 18 and 22. For many people who do not enter college after graduation, a stint in the military or Peace Corps allows them to develop emotionally and gain valuable, real-world experiences. The same is true of a college education, which provides young people with a safe environment to learn from their mistakes.

I ask my ambitious students to remember that the dropouts who’ve done well are the exception, not the rule. They’ll be better entrepreneurs eventually, with better-developed products, for using college as a time of exploration and testing their ideas with a safety net in place.

John Greathouse (@johngreathouse) is a partner at Rincon Venture Partners, a venture-capital firm, and previously a serial entrepreneur. Mr. Greathouse also teaches at University of California at Santa Barbara.

Five Reasons Entrepreneurs Shouldn't Stay After Selling Their Firms

SHARON HADARY: “I have just concluded a very successful sale of my business, and I’ll be staying on retainer for a couple of years.” Every time I hear this from an entrepreneur, my heart aches. Participants in research on exit strategies consistently report that agreeing to stay turned out to be a demoralizing mistake.

One of the reasons you became an entrepreneur most likely was that you didn’t want to work for someone else. You wanted to create a company that embodied your vision and values. So what makes you believe you can work for someone else now?

Yet, as part of the sales agreement, entrepreneurs often agree to stay on—sometimes as long as three to five years—doing the things she or he loves best—such as running what was their company as a division of the new company, representing the company in the industry, and serving on the board of directors.

Here are five reasons research shows entrepreneurs say you should not stay on after the sale.

Business owners who report the greatest satisfaction with their exit limit their post-sale involvement to no more than three months on retainer. They agree to be available on request rather than maintaining an office at the business. Most say they never hear from the new owner.

Sharon Hadary ( @hadaryco ) is the founding and former executive director of the Center for Women’s Business Research and an adjunct professor in the doctorate of management program at the University of Maryland University College.

Why Business Schools Should Let Their Students Start Businesses

KARL ULRICH: Stanford’s Graduate School of Business recently admonished its students to wait until graduation to work on their startups. Garth Saloner, the dean of the school, was quoted in a Wall Street Journal article as saying, “we’re not the graduate school of entrepreneurship.”

With due respect to Stanford and to Mr. Saloner, I think this is the wrong perspective to take on an opportunity to reshape business education.

I understand the frustration of faculty members who see their students paying little attention to classroom learning while they focus on creating the next Uber. But such student behavior is a hint at a problem in business education. Students sense a gap between what they are learning in the classroom and the application of that learning to their career objectives.

Students want to focus their energies on, for instance, developing a pricing strategy for their startup, at the expense of doing a homework assignment on pricing for their marketing class. Both experiences can teach students about pricing, but the startup pricing challenge is both more nuanced than the homework assignment, and instills a greater desire to learn.

The challenge for business education is how to merge the student entrepreneurial journey with the hard work of learning and applying tools, theories and methods. In an ideal educational experience an all-knowing master instructor would accompany a student in the quest to create a viable business and provide deep tutorials exactly when needed. Regrettably this model is unfeasible because such individual instruction would be prohibitively expensive, even if a sufficient roster of all-knowing teacher guides could be assembled.

An alternative approach we are trying at Wharton is to group several dozen student entrepreneurs into a class that earns actual course credit focused on the development of those students’ startups. The trick in making this work is in realizing that new ventures share many themes, even though they vary widely in the specifics of the product or service they provide. All new ventures face the challenges of identifying target markets, understanding customer needs, developing product concepts, securing capital, and building teams. These common themes can provide the pedagogical structure necessary for a credit-earning academic experience.

Over the course of a semester, the instructor devotes class sessions to teaching and applying a framework and approach at approximately the time most of the students in the class face the corresponding problems in their projects.

To address the fact that no single instructor can reasonably be expected to master all disciplinary foundations, we are developing a set of video-based instructional modules—a medium the YouTube generation embraces—used in conjunction with in-person discussion sessions led by the instructor.

For instance, a module on estimating price elasticity supports a more general class discussion on pricing. These modules both ensure a consistent high-quality academic experience and allow disciplinary experts to support a large number of students cost effectively.

The separation of theory and practice has been convenient for business schools, allowing an efficient partitioning of knowledge into academic departments and into courses with a single disciplinary foundation. But that separation isn’t only frustrating for students; it also distances professors from the problem settings where they can add the most value.

Engaging the faculty in the application of theory to student projects doesn’t just benefit students; it exposes us to new puzzles and tests the relevance of our scholarship.

Karl Ulrich is vice dean of entrepreneurship and innovation and CIBC professor of entrepreneurship and e-commerce at the University of Pennsylvania’s Wharton School.