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Greater insight into characteristics and challenges

Content from the Family Business feature to The Globe and Mail Published Thursday, Apr. 09, 2015 12:14PM EDT

Family businesses are an integral part of the economy, providing jobs, contributing to prosperity in their communities and boosting Canada’s productivity. But ask an academic, researcher or statistician to quantify the socio-economic impact of family businesses and the answer will likely be a general estimate or a plain “I don’t know.”

“We believe that family enterprises are at the root of regional prosperity, especially when you move out of the big city centres,” says Robert Blunden, associate professor of strategic management and family enterprise at Dalhousie University’s Rowe School of Business in Halifax. “Yet in Canada, very little is known about the real extent, the real impact, of family businesses.”

This knowledge gap may soon be bridged, at least in Atlantic Canada. Working in partnership with St. Mary’s University in Halifax, Dalhousie’s Centre for Family Business and Regional Prosperity recently launched a study to determine the extent and nature of family businesses in the region. The research team, which includes Mr. Blunden, sent a preliminary survey last year to 2,667 Atlantic Canada businesses. This yielded 246 responses, of which 117 were usable.

Among these 117 survey respondents, close to 50 per cent identified themselves as a family business. This initial finding is intriguing, says Mr. Blunden, because most statistics put family businesses at between 70 per cent and 95 per cent of all businesses.

“We had a gut feeling that these statistics didn’t reflect the numbers in Atlantic Canada or in the rest of the country, for that matter,” says Mr. Blunden.

The research findings, which were presented last June at the International Family Enterprise Research Academy conference in Finland, suggests that family ownership among businesses in Atlantic Canada was more prevalent in certain sectors, including accommodation and food, construction and retail.

Survey respondents also identified their key issues of concern: competition, lack of planning and strategic focus, and ensuring profitability.

Mr. Blunden says he and his research team are now working on gathering data from a much larger sample. An online survey, currently posted on the website for the Centre for Family Business and Regional Prosperity, invites family businesses based in Atlantic Canada to share information about the characteristics of their enterprise and the challenges they face today.

“Once we have a clearer picture of family businesses in Atlantic Canada, then from a policy perspective we can start to show and tell the government the impact of family business and the importance of supporting them,” says Mr. Blunden.

One of the study’s key objectives, says Mr. Blunden, is to try to improve the intergenerational success of family businesses in the region.

“Only about 10 per cent of family firms last three generations,” he says. “With greater insight into the family business, we hope we can increase their chances of succeeding through multiple generations.”

This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail’s advertising department. The Globe’s editorial department was not involved in its creation.

A Passion for Working Together

Content from “Business the Family Way”, a feature of Halifax Metro, published Monday, May 25, 2015.

It’s not a family business, it’s a family IN business.

Dalhousie University business Prof. Robert Blunden, who grew up in such a family, likes to make this distinction whenever he is lecturing on the subject. He says there is a difference between the business itself and the family running it.

Blunden’s father and grandfather set up Blunden Supplies in 1949 near the grain elevators in Halifax’s south end. It soon became Blunden Construction and moved to Spryfield in 1968. Blunden ran the building supply division in the ‘70s, but it closed in 1981. He eventually ventured out of the family business, finding a new career in teaching. He designed the first university course in the province on family business and founded the Nova Scotia chapter of the Canadian Association of Family Enterprise.

Blunden Construction is still thriving with Blunden’s younger brother and nephew at the helm.

“We might get four generations, we’ll see,” he says.

While family businesses make up about 70 to 80 per cent of the economy, Blunden says, multi-generational companies are rare.

“Most family businesses don’t make those inter-generational transitions. Only about a third make it from first generation to second, and only about a third of those make it to the third generation, so now you are down to about 10 per cent.”

A third of those, down to about 3 per cent, make it to the fourth generation. Blunden says it’s usually because owners, especially if they are a founder, don’t want to let go or don’t feel anyone else is good enough to take over.

“It may also be the next generation doesn’t want to run that business,” Blunden says.

Family businesses can work really well because, generally, there is a passion for the work. Plus, family members can work well together and often share a long-term vision for the company.

“But there’s a flip side to that, too,” Blunden says. “You know those people so well you know how to push their buttons.”

-Jennifer Taplin

Dalhousie Faculty of Management Special Magazine 2013

Bob Blunden spent much of his childhood working with his father in the family’s Halifax-based building materials business. But when it came to choosing a career, he set his sights further afield. “I said I’d never work for my father again – he was too tough,” Blunden remembers.

But things changed after Blunden completed his university education. His dad asked him to come home and run the building materials business. “That part of the business was struggling and this was a chance to assess it and decide if it could be turned around,” he remembers. “It was an opportunity I couldn’t refuse.” Within a few years, Blunden had reached his goal of revamping the business and putting it back in the black. And while this was no easy task, Blunden’s business education had helped prepare him for the challenges of working in the company his father and grandfather co-founded two decades earlier.

“There wasn’t much understanding of the issues affecting family businesses back then,” says Blunden, who went on to obtain his PhD in business strategy and design one of Canada’s first university-level courses specifically focusing on family business.

Today, he co-leads the Business Family Fundamentals Course at Dalhousie’s Centre for Family Business and Regional Prosperity. The course offers training in succession planning, management, communication and conflict resolution specifically tailored to family businesses, through a combination of video-based online modules and a full-day workshop. The course is open to owners, employees and advisors connected to family businesses of all sizes.

The Centre for Family Business and Regional Prosperity opened in 2008, one of six across Canada initiated by Montreal’s de Gaspé Beaubien family, founders of Telemedia Inc. and the Business Families Foundation, the organization that created the Business Family Fundamentals course. “The family identified a real gap in the educational marketplace in terms of how to help family-owned businesses navigate the delicate balance between family relationships, business decisions and shareholder considerations,” says the Centre’s Director, Leslie Crowell.

Generous support by founding partner BMO Financial Group provides the necessary resources to fund the Centre’s education, research and outreach initiatives. Through events such as its annual Family Legacy Series Gala Dinner, as well as course offerings, the Centre’s goal is to give people involved with family business an opportunity to network, share their experiences and develop new skills.

“The fabric of the Atlantic Canadian economy is family-based,” observes Crowell. “By equipping these family businesses with the best peer- and expert-led learning opportunities, our goal is to improve the long-term economic prosperity of our region.”

Brian Easson completed the Family Business Fundamentals course in 2012. A third-generation successor of Berwick, N.S.–based Eassons Transport Ltd., he says the course not only gave him a chance to learn new ways of handling the tricky dynamics of family business, but also highlighted ways in which his family’s company is doing things right. “It was great to hear other people’s experiences and share what has worked for us,” he says.

Accompanying Brian Easson was the firm’s Director of Human Resources, Trevor Bent. “Succession is a hugely important HR concern,” Bent says. “The course gave me an even stronger understanding of the succession challenges and best practices in family business, which will help me provide the best guidance I can.”

Bob Blunden says the course helps participants cope with the sometimes isolating nature of family business. “The biggest impact I see is the relief participants feel when they learn they’re not alone in the challenges they face.”

The Globe and Mail

THE CHALLENGE: Luvali’s coup, and conundrum
MARJO JOHNE
Special to Globe and Mail
Published Wednesday, May. 18, 2011

Every week, we will find the expert advice to help a small or medium-sized company overcome a key issue it is facing in its business.

At first, Jackie Dinsmore wasn’t even sure if the April 5 e-mail from a buyer for Debenhams Retail PLC was the real thing.

The British-based retail giant, which has close to 230 stores worldwide, wanted to order a huge quantity of merchandise from Luvali Convertibles, the Toronto-based company co-owned by Ms. Dinsmore, her husband, Jamie, and her mother, Shirley Durk.

Not only did it want to place orders representing all of Luvali’s roughly 300 products, but it wanted the order filled in less than a week’s time.

It was a great coup for Luvali, created in 2007 as a maker of convertible bags that can be transformed into different styles by changing or reversing a slip cover or removing a strap, which has since expanded its product lines to include reversible sun hats, reversible jewellery, organic baby clothes and diaper bag kits.

But it was also a great challenge.

Luvali’s products are sold online, in 10 of The Bay’s flagship stores and through a network of about 700 independent boutiques across North America. None of them, or their orders, come close in size to Debenhams.

Its order – which Ms. Dinsmore says was about 50 times more than a typical one from her boutique customers – nearly depleted the company’s stock, which can take more than 90 days to replenish.

“Initially they were just interested in the bags, but after I told them about my other products, they wanted everything – every product in every colour,” says Ms. Dinsmore, who says she has no idea – and has had no time to find out – how she even got on Debenhams’ radar.

“In the end, the order added up to a couple of thousand units worth tens of thousands of dollars.”

To ensure she had enough to also meet the demands of her other clients, Ms. Dinsmore says she pushed back on some of Debenham’s requests, negotiating lower quantities on some items.

With Debenham’s order filled and Luvali’s sales continuing to grow, Ms. Dinsmore wants to make sure her company is now in a position to take on more large orders – but without the risk of jeopardizing her smaller boutique accounts as a result of suddenly low inventory levels.

She could keep more products in stock by ordering in larger volumes from her manufacturer in China. Instead of putting in 10 small orders a year, as she does now, she could buy in bulk twice a year – a move that would save her money because of volume discounts.

But the manufacturer will want to be paid upfront for the large order, which would create cash-flow problems for her young company.

The challenge: Ms. Dinsmore wants to be ready to meet large rush orders from big retailers– but without the risk of short-changing her small boutique clients. She has to ensure that she has enough stock to supply the network of small boutiques that have helped the company grow as rapidly as it has over the last two years.

THE EXPERTS WEIGH IN

Robert Blunden, associate professor, strategic management and family enterprise, Dalhousie University School of Business Administration, Halifax

It’s important that Ms. Dinsmore not fail to service her existing customers because they’re the backbone of the company she built. So she needs to ensure she’s adequately stocked to meet their needs while being able to react quickly to big orders.

I don’t think she needs to stock up to a level that anticipates the same size of order she just got from Debenhams – maybe just increase by a small percentage to start. I wouldn’t carry too much inventory, especially for products that might be considered trendy. Right now, we don’t know if the Debenhams order is going to be a repeat order or not – this will depend on how well their products sell in Debenhams’ stores.

On the financing side, what she needs is debt to enable her to finance her inventory until she sells the goods. Depending on her relationship with her bank, she may be able to get a line of credit. The bank may not want to extend a line of credit based on Luvali’s receivables or inventory, but if Ms. Dinsmore or her mother has equity in their house, then they may be able to get a line of credit that way.

She should tell Debenhams what kind of delivery time she needs in the future so she doesn’t get another surprise order from them. And she should try to improve her terms with her manufacturer in China. She’s a growing company with a lot of potential so it’s in the manufacturer’s best interest to work towards a better term for her. Everything is negotiable.

Praveen Varshney, principal of Varshney Capital Corp., Vancouver

Luvali’s challenge right now really boils down to a question of funding. The company’s growing and needs to be able to finance its growth, and there are so many ways to fund a business, each with pros and cons.

Luvali may not be suitable for venture capital at this stage as the business may be too small and not have growth prospects at the level that would satisfy equity investors.

Ideally, for a business like this in a situation like this, one of the best options would be to get an operating line of credit with a bank to fund orders. This would give Luvali the lowest-cost interest without giving up any equity in the company.

Alternatively, Luvali could sell shares in the company, starting with some close friends and family. They’re the easiest people to sell shares to, since they know you and are most likely to believe in you and support you.

A more creative solution would be combining debt financing with a small equity kicker. So, for example, if Luvali needed a certain amount to be able to place large volume orders with their manufacturer, they could borrow a portion of this amount from a group of friends and relatives and fund the remaining balance by selling shares in the company to the same people.

It sounds like this company has momentum, so they should do as much as they can to stay ahead of the curve.

Éric Wazana, founder and creative director, Second Denim Co., Montreal

Our company is all about serving smaller chain retailers with less than 30 stores, so I can understand what Luvali is going through, since we went through something very similar. Our products became very popular, very quickly, and everybody wanted them delivered in their stores yesterday.

My advice is to plan as aggressively as possible. Look at your sales projections and take the necessary actions to ensure you’ve got the products to meet these projections.

Ms. Dinsmore has a great problem: People want her stuff. She can negotiate with the stores and say, “Look, you can only buy this much.” This way, she can grow in a healthy way. If she bites more than she can chew, she is going to get into trouble because she won’t be able to deliver everything to everyone.

She also needs to secure a manufacturer who can work on terms that are more favourable for her. It’s true that there’s limited expertise in bag manufacturing in Canada, but there are a few people who are doing it well and I’d love to introduce her to some of them.

Local manufacturing is also more expensive, but don’t forget that prices in China are also going up; it’s only a matter of time before their manufacturing costs catch up to ours. The trick with local manufacturing is to make your product as production-friendly as possible and maximize your production line by not making your design so complicated.

THREE THINGS LUVALI SHOULD DO NOW:

Get funding to be able to place bigger orders with the manufacturer

But forget equity funding for now; instead get a line of credit from a bank or borrow from your family and close friends.

Spell out the delivery schedule to all current and potential customers

This way you can avoid, or at least minimize, surprise orders.

Negotiate better terms or find a manufacturer that will work on terms more favourable to your business.

Make sure you convey the fact that you’re growing fast and starting to mingle with the big players.

Special to The Globe and Mail

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