Monthly Archives: January 2015

The rise of Dr. Andrew L. Tan: Inspiring family businesses

We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline, and effort.
Jesse Owens

THERE are only a handful of Taipans in the Philippines who started their life as ordinary men. One individual that has achieved immense success and continues to inspire entrepreneurs to dream big and persevere amidst the very competitive environment was my former boss and mentor of eight years, 62-year-old Dr. Andrew L. Tan.

When most of the local taipans are in the twilight of their golden years, Dr. Tan is still very much in the plate and is far from corporate retirement.

Andrew is also the single biggest reason why I took the giant leap of faith in becoming an entrepreneur, Asean family business coach and a book author.

His phenomenal rise to the top in just a little over 10 years has caught everyone in the business community gasping for breath. The tenacity and speed by which he has grown the business and amassed his wealth is legendary.

Recently, Dr. Tan moved up to the list of the Philippines’ richest men (4th in the Forbes 2014 list of The Philippines’ 40 richest. His net worth is $5.1 billion.)

As an aside, his eldest son Kevin was one of my first rank and file employees and trainee when I established the Commercial Centers Group for Megaworld in 2001. I still recall Andrew calling me one bright morning 15 years ago requesting me to interview an “employee.” It turned out to be his eldest son Kevin. When I asked him what to do with his son, he said I could do whatever I want with Kevin, even fire him if he does not
perform.

I pegged Kevin’s first pay a little above the minimum wage at that time. I felt his pay was commensurate to his zero work experience. That was the start of my relationship with the father, my boss and his son, my subordinate. Kevin was an employee and was the most hardworking of them all, reporting for work in the morning and leaving the office late in the evening.

He rose to the ranks starting as my first leasing associate and in the course of my mentoring, he was promoted a few times until he became the group head and first vice president of the Lifestyle Malls a good 10 years later.

Going back to his father, how did this first generation Tan become a taipan in a little more than a decade?

The answer lies in 5 of his biggest strengths…First (speed) to market, financial genius, his obsession to create brand equity across all of his business units and most importantly hiring, trusting and empowering professionals. On top of that was also his uncanny ability to spot trends before his competitors could.

Andrew pioneered the concept of a live-work-play development for condominiums and residential homes. He saw that buyers wanted to do it all in real time…sleep, be with the family, work and shop (and even study) within the same integrated community or City center. That game-changing concept became known as Eastwood City.

The word “dominance” in the residential segment is an understatement, I have lost count of the number of high-rise buildings he has developed starting with the first 35 storey, One Beverly Place condo along Annapolis Street in Greenhills in 1989.

His real estate group, valued at more than P140 billion, all publicly listed and under the Megaworld, Empire East and SunTrust brands, constructed and sold more than 350 projects and counting.

To complement his residential units, Andrew pioneered and seized on the booming call center and business process outsourcing (BPO) market. He was practically ahead of everyone else as his Eastwood City development was already up and running despite the market crash in 1997. Having gone early into the game, he is now the biggest developer and the biggest landlord of BPO companies with a gross leasable floor area of a little less than a million square meters of office space.

These BPO office buildings are housed in pioneering developments in the P40-billion Eastwood City, P50-billion McKinley Hill, P40-billion Newport City, P20-billion Mactan Newtown and P25-billion Iloilo Business Park.

He has also acquired a majority interest in Fil-Estate Land and re-branded it to Global Estate and Resorts Inc. (GERI). With its land bank of 3,000 hectares, GERI is poised to jumpstart capital raising initiatives to fund its massive tourism oriented projects in Laguna, Batangas and Boracay.

On top of his real estate businesses, Tan is the chairman of public listed Alliance Global Group Inc. a holding firm ranked as the country’s 10th most valuable conglomerate with a market capitalization of more than P278 Billion. AGI also owns 49 percent of Golden Arches Dev’t. Corp., the franchise holder of the McDonald’s hamburger chain.

Dr. Tan also owns Consolidated Distillers Inc, makers of the Emperador brandy, the world’s largest selling brandy by volume.His Emperador Distillers went public last year and is now worth P173 Billion. Last May, Emperador acquired the world’s 5th biggest Scotchmaker Whyte and MacKay for US $720 Million outbidding global brands like LVMH.

(Part 2 next week will be Dr. Andrew Tan’s phenomenal rise from poverty to becoming one of the Country’s wealthiest tycoon.)

Inside Family Business: Identifying, developing family talent: Key to long-term growth

“Investing in your family business’ human and intellectual capital is probably your biggest investment that will far outweigh all investments in your lifetime.”

Most families whose cultural views are based on modern interpretation believe that wealth preservation means successful management of their individual financial wealth. In part, they are correct. But that emphasis leaves out the growth of their family’s human and intellectual capital. They forget that what is critical to success are the individual and collective acts of family members and not what they own.

Families who want to stay in business for another generation must encourage entrepreneurship in and out of their companies. You need good family owners to support your company and good family board members to guide the company. You also need one or more members per generation who are wealth creators—who know how to make winning bets that produce the financial returns you need.

First, successful families see important changes in their industry and adapt by diversifying into new activities that can grow. Simply put, successful families are entrepreneurial.

Second, families succeed because they invest in productive activities (including the development of the next generation), emphasize growing assets, and consume relatively little of their wealth. These families maintain a culture that encourages family members to create things of lasting value. It’s not surprising that these families encourage entrepreneurs.

One of the best family wealth creators is Alexandre Birman who showed an interest in business between the ages of 8-14 and was strongly supported by his dad in the early years. He is the second-generation successor of Arezzo, a Brazilian luxury women’s shoes and accessories company; founder of the couture brand, Alexandre Birman, and the footwear company, Schutz, which was purchased by his family business after its remarkable success in the Brazilian and international markets.

“I never, ever, stopped once to ask, ‘Am I on the right track?’” the designer said in an interview. He has also never had to look outside the family for encouragement. His father backed him, with both funding and encouragement, when he came up with the idea for Schutz . “My father and the firm really supported me when I wanted to launch my own label.”

In one interview, Birman was asked: “As a company, Arezzo & Co. experienced significant growth for 2011, and you have an expected 30 percent revenue growth for 2012. To what do you attribute this success?”

His reply: “It’s a combination of factors. First, I would say that we are very hard workers. My father is a 50-something-year-old man who works 12 hours a day and who loves the shoes. We are also very humble people. We never let success kind of contaminate our brains. We’ve never taken long vacations, we never spend too much money. We also have an integrated process, from designing to retail. We set up the brands as independent business units. We have three sample factories that can create more than 500 new styles a week. Our longest lead time today is six weeks from order to production, and this is part of what really makes us a success.”
How should you train the next generation of family leaders?

Develop your wealth generators by providing the right opportunities to learn about business, in your core business or outside. These wealth creators need to be stretched beyond their comfort zones in their understandings and capabilities. Give them real projects and don’t protect them from failure.

A family of wealth needs to educate the next generation of wealth owners as early as possible. There has to be a plan around what they can expect, what role they will play, and what they need to know to manage the family wealth. Some of that may be technical skills, on investing or budgeting, while others may be values-driven.

To teach the technical skills, education is necessary around accounting, legal, tax or investing, to make sure the next generation of enterprise owners make the right decisions. The earlier they start honing these skills, the easier it will be for them when they get older. It is like learning a new language.

Remember, investing in family entrepreneurs has to be done objectively based on the feasibility of their business plans, and also fairly within the family. Even if some entrepreneurial projects don’t succeed, these investments will help you spot talent to keep your business growing. And you are sending an important message: this family is committed to creating value.

Managers inside your core business who think like entrepreneurs (we call them intrapreneurs) can identify opportunities that can move your family company into new lines of business, rejuvenate the founder’s legacy, and put the enterprise on a new growth path. Entrepreneurs (typically family members) working outside the business but with family financial support can keep talented kin inside a broader “family enterprise,” diversify business activities, and build assets.

A business would never squander say, thirty years of the useful life of an asset. Failure to educate younger family members to a level at which they can contribute to the family balance sheet is as much a waste of family assets as misjudging the still useful lives of the oldest members of the family. (sorianoasia@gmail.com)

The risk of not creating a family business wealth plan

“IN A family business, it’s the third generation that presents the big problems. The first generation founds the company and has the drive and the dedication to move it forward. The second generation rides that wave. The third generation wants to do their own thing. They’ve seen Broadway; they’ve had all the advantages.” Gale Petronis

There are many proverbs to describe the challenges faced by family businesses in building wealth and leaving a lasting legacy. The Chinese say “wealth never survives three generations,” while the Italians say “from the stables to the stars and back to the stables.” The languages may vary, but the sentiment is the same.

It’s been the same all over the world and through the ages: entrepreneurs start from nothing and build a business; their children maintain the business – and a wealthy lifestyle; their grandchildren grow up in affluence and lack the inclination to work and be responsible – and end up losing the business and the wealth.

Statistics show that today’s family businesses have a mean age of more than 60 years and are nearing their third generation of family leadership. That makes the concept of family businesses faltering after the second generation less relevant. As a matter of fact, in two previous articles we have discussed some businesses shattering old-school ideals such as that of Kongo Gumi, Japanese temple builder which lasted for 14 centuries (1,400 years) and succumbed only to closure due to unfavorable business climate in 2006. Then there’s the Mellerio dits Meller, a French jewellery house founded in 1613 and still active today.

“Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.” This classic quote by George Orwell can apply in family businesses as well as life.

Traditional family businesses typically focus on the single family unit versus the extended family, and on this generation and the next instead of on into the future.

What would happen if your family had a plan for the next four or five generations?

Wouldn’t it be nice if you think way beyond your generation?

I recently initiated one in Singapore and the family patriarch specifically requested that I help the family craft a family business plan spanning 30 years! Last year, a colleague based in Hong Kong requested me to collaborate with him in preparing a family business (trading) for 50 years!

There are specific tools and guidelines that family businesses can follow to help them succeed through the generations. According to family business expert John Davis, the ‘secret sauce’ of long-term business success can’t be captured in numbers but thru three main ingredients: growth, talent and unity.

There are specific tools and guidelines which family businesses can follow to help them succeed through the generations. A key concept suggests that focusing largely on building financial assets leads to losing financial wealth, while focusing on building “human assets” leads to keeping and growing financial wealth. Preserving wealth by focusing on family development refers to strengthening family functioning as a foundation for the preservation of family wealth.

A Chinese proverb states that one has to govern his family as you would cook a small fish – very gently. Focusing on “people assets” can help to preserve wealth like not spoiling children who are future successors of the business. Instead, teach them the value of money and encourage them to study hard and prepare themselves for future takeover.

To preserve a family business and financial wealth through generations, it may be advantageous to focus on growing the vitality of individual family members and the family as a whole. In this way, each succeeding generation can become another “first generation” – bringing creativity, dynamism, drive and maturity to the enterprise of being a family in business.

GROWTH

In order to stay alive commercially as a family, you must grow your assets faster than your family or business consumes them.

Returns on assets tend to wane over time as an industry matures and ultimately declines. To maintain high returns and keep your family company modern and competitive you need to make well-timed, significant bets in growth businesses. Some of these bets can regenerate your core business, but others might diversify your business activities, moving away from your original business. If you can’t consider diversification and entrepreneurial efforts, you are probably not going to survive the long-term.

Successful total wealth management planning requires an integrated approach not only to managing a family’s investments, but also to determining how financial structures and holdings compliment other key aspects of wealth maintenance and succession such as tax and estate planning, insurance and even philanthropy. The wealth planning process should include clear, consistent communications to ensure alignment with long-term family goals and a strategic view of future risks and opportunities.

To reiterate what I mentioned in one of columns last year…When a business owner dies or becomes permanently disabled, the business itself may die or be permanently disabled on the same day – not because something wrong was done – but because nothing was done!

Make your dream family business real this year

“THE Greatest Failure is never to have attempted at all!”

It sounds and feels great to be born in a family that owns a business. If you are born in a family that successfully owns a family business, you would know that despite the hardships it entails, there is pride, honor and a relatively different kind of comfort in your lifestyle that come from it.

It gives that sense of financial security among the members of the family. Knowing that you have something solid to carry and depend on is a big deal. It is something to be proud of and to look forward to especially to those with the entrepreneurial mind and spirit.

I am sure some of you have fantasized about your family owning a business. You walking in to your business office feeling all inspired with a sense of freedom and power, building wealth, training your staff and educating your kids and the whole family about the business. What a beautiful picture, is it not? While others may have thought this way, they may have bounced back to “reality”, and slap their faces with a negative approach and said, “That’s crazy. That is never going to happen. Who am I kidding? My husband (or wife) would not have approved it.” You see, that kills the idea. If I were you, I would pay a closer look at those “crazy” thoughts. Successful people have been driven by their craziness. Moreover, I would not believe that “impossible” is ever real.

In these days, life is really hard. You are lucky to have an eight-to-five job in this world of fierce competition, but not so if you are just there, and not loving it. Such is one thing common to those who would willingly resign from a regular job, and start their own family businesses only if they could. Note that: Only if they could. Now, that is the line that makes the idea all dull.

Reasons, upon reasons, and upon reasons are there piling up as high as the sky that close down the door of opportunities to them. It all boils down to these – lack of vision, knowledge and creative ideas, family support and teamwork, budget for almost anything else other than for all the basic necessities in order to live by day after day, and the most dreaded obstacle: fear. These insufficiencies get on the way. I am not surprised why there are many people who are getting so frustrated about how they could possibly build a business that will serve its purpose for the benefit of the family.

For decades, even centuries, many families have been working together, owning family businesses. Look around, many families are establishing businesses, and not only in the Philippines, but all around the world. So, why could not your family do it too if you are have the passion to do so? You see, I understand. It is not so simple to do anyway. It is not like something we all know instantly. Non-family businesses have its problems. However, when it comes to family businesses, there are unique problems.

There are many factors to consider: family dynamics, financial capital, and of course the business side (executive, management, administrative, and many other roles and responsibilities).

Eventually, your head and your heart could get affected on the downside when it comes to issues in professionalizing all activities while keeping the relationships in the family alive, sibling rivalry, succession, generational transitions, the family’s reluctance to intervention of non-family members, participation of in-laws, retirement and many others. Sounds familiar? Maybe not to someone who is new in the industry. So, when families struggle to establish their own businesses, I find it normal and understandable. Establishing your family’s own business has its many complexities.

The most sensible step to do is to become prepared, learn, and start whatever you can the earliest possible time, and not just “as soon as possible:” set a date and do it with your family!

There is no doubt about it. Establishing a family business is really life changing.

You could be free from the shackles of employment; your family would be there to support you, and they would be receiving tremendous benefits; you could provide outstanding products and/or services to the public, serve the community, the nation and who knows, the whole world.

One laments, “I am sick and tired of working as an employee. I want to stop this. I have a great idea.” Then, that person goes to meet the family and blurts out excitingly, “Let us have our own family business!” “Wow! That sounds amazing, but how?

We have not done that before in our family ever. What are we going to do? In the end, when there are doubts, I always refer to what Lao Tzu, A Chinese Taoist Philosopher wrote in his “Tao Te Ching” (The Book) …”the journey to a thousand leagues begins with a single step.”

Conflict-free Christmas for family businesses

IN THE Philippines, the Christmas season begins on the 16th of December and ends on the 6th of January, which is the feast of the Epiphany or the Three Kings. Christmas or Pasko is the most awaited celebration and the happiest event in the Philippines.

This is also the time of the year when all the members of the family get together.

Feeling the effects of the holiday season?

You’re not alone. Although the holidays are a special time to be with the ones we love and show them how much we care, holidays can be a stressful time for families.

Families are complicated things, and with different personalities around the house, things can get fairly tense.

Family members and dividend sharing

There is nothing like it for a family business to erupt into hard feelings that ruin the holiday season. This is a time when many family businesses begin closing the annual books – and family members who had all year to dream about big profits and large distributions often get disappointed by reality. It is also a time when many are hard-pressed for cash, when sales are down or work hours have slacked off and the paycheck has shrunk.

Stress due to expectations of a bigger dividend share and discovering that the value is smaller can easily be a source of tension. Especially when you worked so hard and the sharing is equal among working family members. Misunderstandings can lead to ill-chosen words. Words lead to conflict and presto, there goes the holiday cheer and goodwill down the drain or out the window.

In this season of hope and love, I have outlined my wish list for family members seeking peace and harmony in the family business. These are simple interventions I have initiated to narrow the generational gap between the parent or “survival” generation and the sibling/cousin or “quality life” generation.

Encourage live-work-balance in the family business

For families who work together, balance is important because the business is part of the family and the family is part of the business. The ramifications of losing balance can have long-lasting and unpleasant effects. Families should take advantage of the holiday season to employ a few simple techniques to enhance the value of their time together, so that getting through these tough times is much easier.

Reshape family communication and set up a conflict management system

Family discussions during family time (holiday or not) must not include talk about the business. Create a fun program that rewards those people who refrain from “talking shop” during family time and provides a friendly penalty program for those who do. For example, this could involve putting a hundred pesos in a charity jar every time business is talked about during family time or buying everyone brunch at a favorite family restaurant.

Expect quantifiable performance from working family members

Ask each family member to identify one goal that the rest of the family can help that person achieve in the coming year. Let each family member know what it is that he or she can do to support forthcoming efforts. Determine ways in which family members will check in with each other regarding progress on goals but avoid calling frequent business meetings during the holidays.

There are also a few rules of thumb that help to prevent conflict and that should be standard operating procedure for family businesses. Observe them if you already have them in place. Put them in place if you still do not have them in place. It will help not only your Christmas spirit and family relationships but also the business itself.

  1. Have only one boss. Having a single leader is less complicated from the point of view of corporate decision-making.
  2. Hire the right people, whether family or non-family, on the basis of
    qualifications.
  3. Full disclosure. Keep everybody informed, in writing, on a regular basis. If there are disappointments or surprises at the end of the year, it means there was a failed communication between working and non-working family members
  4. Declare profits, distributions, bonuses and disbursements on an objective basis agreed upon at the beginning of each year. Dividend sharing must never be a topic for debate at the end of the year. Be sure to keep adequate working capital and reserve capital. In other words, disburse on a sound business basis, not on the basis of family need.
  5. Keep the annual family meetings brief and results-oriented. Make sure there is ample documentation of details in writing several weeks before the annual last quarter meeting. Be sure to have that meeting!

Friendship and goodwill end at perhaps, on a commercial scale – if you let it. As age-old wisdom dictates, some things, such as Christmas, are priceless. Don’t let a needless business squabble ruin it for your family or your business.