REINO PROJECT WORKING PAPERS NO. 9(November 2008)

MENTORING AS PART OfThE BuSINESS TRANSfER PROCESS

Riitta Korpela (ed.)

in English Saila Mäkinen

DO NOT fORGET ThE fuTuREwww.reinoproject.eu

Original: REINO-projektin Työpapereita Nro 9.

Mentorointi Osana Yrityksen Omistajanvaihdosprosessia.

ISBN 978-952-5721-28-7 (NID)

ISBN 978-952-5721-29-4 (PDF)

KOSEK, Kokkolanseudun Kehitys Ltd

Ristirannankatu 1

FI-67100 Kokkola, Finland

Mainostoimisto Heinäkuu / Kirjapaino A. Välikangas, Kokkola

Kokkola 2008

PREfACE

This working paper, which presents the results of the pilot project of Jakobstad Regional Development Centre Concordia, is part of the REINO project (Renewal and Innovation to Business Transfers of Micro Companies). The transnational REINO project is co-ordinated by the Finnish development company KOSEK. The project is funded by the DG Employment of the European Commission under the European Social Fund, Article 6 (“Innovative Approaches to the Management of Change” programme). The objective of the project is to develop permanent sup-port services to facilitate business transfers of micro companies. During the two-year project, partners in Denmark, Finland, Greece and Italy will map out and test the support services in different phases of the transfer process.

The publication “Mentoring as Part of the Business Transfer Process” is the 9th and the last working paper of the REINO project. Through previous literature in the field, the working paper first describes the history and concept of mentoring and the role of mentoring in business transfers. The expert writers of the guest articles examine the various challenges related to business transfers from different viewpoints. The report also analyzes the results of the surveys directed to entrepreneurs and mentors, concerning among other issues the soft values related to business transfers and mentoring. Finally, the working paper presents views on specific questions and issues which the mentor should take into consideration when he/she interacts with the mentee i.e. the trans-feror or the successor.

Kokkola, November 2008

Ari PeltoniemiTransnational Co-ordinator

MENTORING AS PART OfThE BuSINESS TRANSfER PROCESS

Riitta Korpela (ed.)

TABLE Of CONTENTS

1. INTRODuCTION ..........................................................................................6

2. MENTORING BEfORE AND NOW ..................................................................8

3. COMPANIES fACING A BuSINESS TRANSfER MuST fIND NEW OWNERS ..13

4. EXPERT ARTICLES ....................................................................................21

4.1 Jan Sten: An Overview of Business Transfers in Finland and in Europe 214.2 Sakari Oikarinen: What Makes Business Transfers Difficult? 244.3 Piia Tulisalo: Psychological Resources for Business Transfers 294.4 Tua Haldin-Herrgård: Tacit Knowledge Diffusion through Mentoring 31

5. RESuLTS Of ThE SuRVEYS fOR ENTREPRENEuRS AND MENTORS ............36

6. GOOD-TO-KNOW fOR MENTORS ...............................................................39

7. CONCLuSIONS ..........................................................................................48

REfERENCES.................................................................................................50

ANNEXES ......................................................................................................53

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1. INTRODuCTION

Establishing a new business is natural – and natural should also be the transfer of a company’s ownership from the transferor to the succes-sor.

According to different studies, generational transfer or other form of business transfer (e.g. sale of business to a third party) is still a cur-rent issue in many European and Finnish companies in the near futu-re. Business transfers, especially generational transfers, are long and complicated processes. One of the most critical phases of a company’s life cycle is the transfer of ownership and management. Technically, the transfer may be carried out fairly quickly, but there is also the emotional and psychological aspect to the transfer as well. There are many com-petent professionals and instances in both private and public sectors that are able to assist the entrepreneur when necessary in the technical aspects of a business transfer, such as business valuation, taxation of a sale, legal issues, financing, transfer of contracts etc. However, as to the soft values related to the transfer, many transferors feel left alone with the issue.

The transnational REINO project (Renewal and Innovation to Business Transfers of Micro Companies) was launched at the end of 2006, and its objective is to improve the operating circumstances of micro companies in business transfer situations. The project is implemented by partners in Denmark, Greece, Italy and Finland. The partners have each comp-leted their own pilots to test various support services in different pha-ses of the transfer process, with the objective of creating a permanent operations model to facilitate business transfers in Europe. The pilot of Jakobstad Regional Development Centre Concordia supports a suc-cessful business transfer by offering the entrepreneur an external and impartial interlocutor experienced in business transfers, a mentor.

Three out of four business transfers tend to fail (Sten 2007). Partially this can be explained by the fact that as the ownership is shared by an increasing number of people, the ownership is more difficult to control and there is less room for the values of the family. The parties invol-ved may also find discussing the transfer so difficult that the process is prolonged or even interrupted. The consulting services provided by the public and private sectors usually emphasize the establishment of new businesses and the support to growth companies. However, it is a known fact that business transfers are mentally strenuous proces-ses, but psychological support has not yet been sufficiently utilized in

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transfer situations. The mentor is often the one who carries forward a stagnant transfer process. The mentor is an external person who, when necessary, discusses the situation separately with each person involved in the transfer process. The mentor acts as a buffer and a mediator of emotions and issues. In addition, the sharing of tacit knowledge from the transferor to the successor may be secured through mentoring.

The objective of this working paper is on the one hand to demonstrate how business mentoring supports and promotes successful business transfers, and on the other hand to outline factors that should be taken into consideration when co-ordinated, target-oriented mentoring activi-ties are launched. The paper also aims to draw attention to the effects that psychological and emotional factors have on business transfers. Identifying emotions and soft values as well as the knowledge of their impact on the business transfer process is still in its infancy in both Finland and Europe.

The second chapter of the paper gives an overview of the origins of mentoring, examines the role of mentoring and describes how common mentoring is in today’s Finland and Europe. The third chapter discusses the reasons for business transfers and the challenges related to them.

Chapter 4 comprises four guest articles. The expert writers of the ar-ticles examine the challenges of business transfers from different view-points. In his article, Sakari Oikarinen discusses the background of the difficulties experienced in business transfers; Jan Sten analyzes busi-ness transfers in Finland and Europe on a general level; Piia Tulisalo deals with the importance of the psychological aspect in mentoring; and Tua Haldin-Herrgård concentrates on the sharing of tacit knowledge.

By discussing the results of the survey conducted, chapter 5 outlines the entrepreneurs’ and mentors’ own thoughts and opinions on business transfer issues. In January-February 2008, Carola Wiik from Concordia conducted the survey, which was participated by 7 entrepreneurs, 5 mentors and one expert in the regions of Ostrobothnia and Central Ostrobothnia. The companies taking part in the survey were mostly ac-tive in production industry and the service sector. The companies were all planning or had already launched the business transfer process. The questionnaires used in the survey can be found in annexes 1–3, and the answers are compiled in annex 4.

Chapter 6 comprises useful ways of action that mentors can utilize in their own operations. Finally, conclusions are presented.

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2. MENTORING BEfORE AND NOW

The history of mentoring

“When Odysseus, the King of Ithaca, departed for a long voyage, he entrusted his childhood friend Mentor to look after his son Telemachus and their home. Mentor was to act as a teacher and an adviser for Telemachus. The task included bringing up and guiding Telemachus, and giving him all the education and support he needed.” (Ahlström 2002).

According to the above, Mentor’s duties included a lot more than just being a teacher. This is where the origins of the concept of mentoring lie and where it has come to be used. Mentoring is not a new phenomenon: its roots lie in ancient Greece, and through the ages it has been used to support the growth and development of an individual and/or company. Through mentoring, experience-based skills and life wisdom are shared with an individual willing to learn. Mentoring is interaction that is based on the chemistry between people, trust and mutual sincerity. In a way, mentoring is a form of companionship based on the trust that two peop-le have built between them. Through professional and life experience the mentor is able to detect tangles and areas which the protégé i.e. the mentee is, with the support of the mentor, then able to deal with. Both parties share a strong willingness to grow and learn.

As a concept, a mentor is a person who observes and offers support, leadership and advice. In mentoring, the mentor provides the men-tee with the knowledge, point of view, perception or wisdom that the mentee specifically needs at a certain time. The basis is a long-term and meaningful mentoring relationship that has a positive impact on the mentee’s life. The objective of mentoring is to help the mentee to find his/her own way, through which the mentee can achieve personal growth and development (Ahlström 2002). Mentoring aims to develop an individual comprehensively and not only concentrate on a certain quality or a lack of specific skills and competencies.

Mentoring can be defined as a state of learning and behaviour where the objective is the development and spiritual growth of the individual or the group. Mentoring challenges the existing understanding and beha-viour, builds new networks and makes plans on how the desired change can be achieved. The mentor is a critical friend and in a way a role mo-del who helps the mentee in defining what he/she wants to achieve and

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how. The mentor listens, acts as a conscience in a way, and in many senses the mentor is both a friend and a supporter. When asked about the benefits of mentoring, mentees usually say that spiritual growth and gaining a deeper understanding of one’s own motives are some of the greatest benefits. (Clutterbuck 2004).

Although the literature dealing with mentoring often portrays discussion and dialog as parallel methods of mentoring, it is worth remembering the difference between discussion and dialog. In discussion, a theme is passed between the participants. The participants analyze the theme and present arguments for and against. The ultimate purpose of the participants is to win the discussion. Then again, dialog is about a cer-tain way of contemplating difficult issues. Dia stands for through and logos means words. Dialog is based on free exchange of thoughts, and the objective is to extend limits and to reach further than an individual could reach alone. The participants do not seek personal victory; the goal is to achieve new standpoints and to understand new things. The process is slow and not as heated as discussion. (Ahlström 2002).

Mentoring aims to create circumstances that allow such knowledge to be built, which facilitates the development and change of an individual’s thoughts, actions and understanding (Megginson & Clutterbuck 2005). Mentoring differs from a traditional learning process in that the basis of the discussion is always the mentee’s needs, and the discussion pro-ceeds according to the mentee’s terms. Mentoring calls for courage to throw oneself into an open dialog with someone who often is a total stranger. Mentoring is linked to spiritual development, and it aims to have an impact on a person’s behaviour and attitudes. Mentoring is a learning process, and its strength lies in the vast impact it has on the areas of spiritual growth, such as thinking, action, self-reflection and personality development. Through mentoring the mentee changes his/her thinking and behaviour by reacting to the dialog with the mentee by personal development. (Leskelä 2006).

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An overview of the co-ordinated, target-oriented mentoring of today

Mentoring is still not a well-known method, neither in Finland nor in the EU, and on a general level we lack knowledge of the organization and maintenance of target-oriented, structured mentoring. The “character” of mentoring is not familiar, and unfortunately often mentoring is con-fused with consultation. Mentoring is based on voluntary and cost-free participation, which is in conflict with the modern society where efficien-cy and benefit are measured in money and where soft values have no room. Mentoring is an economical way of supporting personal growth and business development. In addition, it is flexible and suitable for se-veral contexts on both individual and group level.

Co-ordinated mentoring still has quite a short history in Finland. During the past decades, mentoring has become a tool in company and staff development. Mostly it has been used to support companies in estab-lishment and growth. However, today as there are more people leaving than entering the labour market, the importance of transferring tacit knowledge to the successors has been recognized.

However, mentoring is becoming increasingly common, and in the fu-ture the diffusion and sharing of experience-based competency will be emphasized even more. The sharpening competition, the increasing lack of competent labour force and the growing number of business transfer situations contribute to the increasing need of tacit knowledge diffusion. In addition, entrepreneurs often feel that, despite a functional network, they do not have a true person of trust with whom to engage in unreserved conversations, no matter what the subject matter.

Mentoring as a means to facilitate business transfers

Mentoring is usually connected with the development of an organization and the support of individual spiritual growth. The method of mentoring is based on the dialog between the mentor and the mentee. Mentoring is not a hasty discussion where the mentor provides ready answers; it is a long-term process. The objective of the dialog is to help the mentee in developing his/her inner conversation, as well as outer dialog with ot-hers. Especially inner dialog teaches the mentee better decision-making and develops his/her problem-solving skills. It is important that the mentee feels safe in the discussions and trusts the mentor. (cf. Ahlström 2002; Clutterbuck 2004). Mentoring also supports change and the ac-

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ceptance and implementation of the transformation process. Mentoring is a suitable tool for the support of both transferors and successors.

In our lifetime we are encountered with numerous new situations. These situations may be problems, but they can also be learning challenges. The factors causing the situations may be internal or external. A grown person may try to block or deny the situation; he/she aims to act as before or to deal with the situation alone. It is natural for people to react to new situations by resistance and to hide the insecurity inside. We may actively try to be prepared for the new, or we may even aim to cause the change by our own actions. We may also try to learn to understand and deal with the new situation with the help and support of other people, with peer support. (Vaherva 1999).

The crises faced can bring a person to a standstill. Such situations may be anticipated, but they may also be violent and unexpected. In addi-tion to bringing a person to a halt, crises tend to trigger off a battle of survival and development within the person. One starts to think about the meaning of life and aims to see one’s identity from a new perspecti-ve. One may seek the company of other people who have gone through similar experiences. At best, reciprocal social activity leads to transfor-mative and communicative learning. The previous experience and skills are compared with the new, and consequently the meaning of things and the new aspects expand one’s competency and complement one’s understanding. Reciprocity also contributes to identity development and community, supports critical thinking and helps to understand diversity. (Vaherva 1999).

Functional family relationships contribute to a successful business trans-fer. Business transfers are closely connected with emotional issues. Although the relationships between family members were sincere and confidential, it is not necessarily easy to bring up difficult or unpleasant issues in the family without outside help. To deal with these issues, ex-ternal expert advice is needed in such situations. (Stenholm 2003). The external person may be someone who has personally gone through the generational transfer process and wants to act as a voluntary, impartial interlocutor to the transferor; a mentor.

Business transfers, and often especially generational transfers, are complex, time-consuming processes. By adapting Stenholm (2003), it can be stated that several training, business and development organi-zations have reacted to this challenge by developing training courses

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that aim at business transfers. The emphasis in these courses is usually on the successor and his business competency development. In these courses the transferor often acts as the successor’s mentor. This is a very good way of sharing tacit knowledge from the transferor to the successor. However, especially during a generational transfer process, as logic and emotions are in constant battle, the transferor and the successor both need a mentor outside the family. Landsberg (1997:50; Koiranen 2000:64) makes a distinction between the concepts of paren-ting by biological parents and mentoring by an external, senior expert.

The mentor is an equal interlocutor, with whom the transferor is able to discuss openly and confidentially. With the mentor the transferor can without reservation discuss matters that are difficult to discuss within the family, especially in the beginning. The mentor helps the transferor to gain a comprehensive view of the matter and awareness of his/her whole potential. One of the most important goals of mentoring is to help an individual invest in a certain issue and take action to reach a certain goal. The mentor’s strength also lies in the way he/she brings an out-side point of view to the matter. Sharing new ideas and aspects contri-butes to understanding and trust. (cf. e.g. Nakari et al. 1999; Juusela et al. 2000; Koiranen 2000; Clutterbuck 2004; Megginson & Clutterbuck 2005; Arhén 2007). However, the mentor is not the adviser in small, daily details. “Eagles do not catch flies” (Koiranen 2000:125).

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3. COMPANIES fACING A BuSINESS TRANSfER MuST fIND NEW OWNERS

According to different estimates, one third of the companies within the EU will carry out a business transfer by the year 2010. This means that every year approximately 610,000 small or medium-sized businesses within the EU should carry out a business transfer. Due to the retire-ment of baby boomers, in Finland the most transfers are expected to occur between 2005–15 (Stenholm 2003). In Finland, business trans-fers would concern approximately 7,000 companies per year until 2010 (Stenholm 2003:17). However, for different reasons, the number of completed business transfers so far (summer 2008) is remarkably lower than 7,000/year. Not nearly all the companies whose owners could give up the company for age reasons end up among the companies for sale. The reasons for this are for example the legal form of the company, the core business of the company being personified in the owner’s compe-tency, or the prevailing market conditions. It is interesting to speculate whether the number of business transfers will increase or whether there will be fewer companies for sale?

Only one out of five Finnish family enterprises is transferred to the se-cond generation; the number is the lowest in Western Europe. (PRIMA 8, October 2005.) In addition, according to separate studies only one out of ten family enterprises is transferred to the third generation. Partly this can be explained by the fact that, according to studies, approxima-tely one child out of five is not willing to continue the family business. However, the studies show that most family entrepreneurs wish that the successor comes from the family. (e.g. Stenholm 2003; Malinen et al. 2005.)

From the point of view of business continuity, business transfers are critical processes. The company is transferred from one era to anot-her, and characteristic to the process is uneasiness and vulnerability. The company’s life cycle and the entrepreneur’s age do not always go hand in hand, and because the company is a “personification” of its owner, it might even face a great transformation in the transfer situa-tion. As the transfer process progresses the successor aims to specify the company’s operations and update its business plan, and he/she will consider his/her own willingness and potential to growth, in addition to development needs.

Generational transfer can be compared to a certain kind of power game, even to a sociodrama. Kets de Vries, who has studied leadership, power

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and business economics, uses the term “succession game” in connec-tion with management change. He compares the leader to a king who is useful to his community only as long as he is flawless. The elderly king begins to weaken, and he is unable to carry the power of growth. The wellbeing of his people is threatened, and the king’s magical power must be transferred to his successor. Just as anyone giving up on his/her work, many retiring entrepreneurs may find it difficult to deal with succession issues and their own retirement. It may even be so that although their attitude is ostensibly favourable towards succession, in reality their actions may prove the contrary. (Kets de Vries 1991).

If not enough time is reserved for the generational transfer and its preparation, the risk of failure increases remarkably. Carrying out a generational transfer, from planning to completion, takes 5–10 years on average. The planning and implementation of the transfer is often begun too late. According to Stenholm, one reason for this is that in small businesses the issue is not considered important or it is too deli-cate. However, it is specifically the generational transfer that has been found the most difficult of all forms of business transfer. This is because it is connected with social, cultural, financial, legal, strategic as well as moral issues which are difficult to face and deal with. This will easily lead to the generational transfer being postponed and pushed forward. (Stenholm 2003).

A statement of the distribution of ownership

The identity of the new leader or leaders

How the new leaders are to be trained for their roles

A definition of the roles of other key members of the business during the transition

Mechanics for the purchase or sale of stakes in the business

Taxation and legal considerations

Financial considerations

Retirement considerations

A procedure for monitoring the process and dealing with disputes and problems

A timetable

Figure 1. Contents of the succession plan (FEE 2000, in Stenholm 2003).

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Reasons for business transfers

The entrepreneur’s age is clearly the most common reason for business transfers; in Finland, the entrepreneurs’ age distribution has shifted during the past years. According to the statistics of the Finnish Centre for Pensions, during 1996–2001 the proportion of entrepreneurs over 50 of all entrepreneurs contributing to pension funds had increased to more than one third. In the previous survey, one entrepreneur out of five was 50–54 years old. According to the national census of Statistics Finland, which also included those entrepreneurs not contributing to pension funds, the proportion of entrepreneurs between 50 and 74 yea-rs old grew to almost one third between 1995 and 2000. (Stenholm 2003; Heinonen 2005). The changing numbers give reason to believe that the number of business transfers in Finland will increase in the near future.

According to both Stenholm and Heinonen, it is interesting that ent-repreneurs themselves do not consider business transfers current. This contradiction increases the pressure of achieving successful transfers. Stenholm (2003) emphasizes that, according to estimates, less than 1/4 of companies facing a “forced transfer” will survive the transfer. The transfer is forced in the event of sudden death or illness of the entrep-reneur.

When preparing for the transfer, it is also worth considering the transferor’s life after the transfer. For many entrepreneurs, the compa-ny and entrepreneurship have been an integral part of the transferor’s life, and his/her social network outside the business may be limited, which is why the transferor may find it difficult to find new content of life after the transfer. The company has filled most of the transferor’s eve-ryday life, and the sudden increase of leisure time confuses the transfe-ror. (Koiranen 2000; Stenholm 2003). This tends to provoke resistance to the transfer, often unconsciously. In addition, people tend to idealize and glorify the past. We try to push away painful and oppressive issu-es; denial provides a shelter from depression. It is natural for us to be careful and sceptical towards the new, because our behaviour is deter-mined by conservative forces. Crises usually bring about an increasing dependency on the past. In the middle of all agitation, the transferor may cling even harder to the past, his/her change resistance increases even more. (adapted from Kets de Vries 1991.)

The succession issue is a delicate matter, and it also has an impact on the company’s future vitality. In addition to the company’s future, the

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transferor has to think about his/her own life after the transfer as well. He/she has to face the fact that he/she is neither irreplaceable nor im-mortal, and that there is life both outside and after the business. Both conscious and unconscious resistance tends to be contagious, and the situation may lead the company and the owners to a state of ferment. The company’s economy and competitive capacity may weaken, and its operation, the whole existence is threatened. Behind all this lies the transferor’s fear of leaving nothing behind or of the successor not res-pecting his/her life’s work. Psychodynamic processes work in the backg-round and prevent the transfer process from progressing. (adapted from Kets de Vries 1991.)

Challenges related to business transfers

The greatest challenges of business transfers, especially generational transfers, are usually related to emotional aspects rather than technical issues. Especially generational transfers are almost unexceptionally long and complicated processes. Emotions and soft values play a significant part in the process and its success. Usually, many emotional challenges must be faced even before the tax consequences, value of the business, financing etc. have been clarified. Practice has shown that especially the transferor is not willing to discuss the sale or the price seriously until the soft values related to the sale have been dealt with.

An entrepreneur considering a business transfer is indeed provided with detailed consultation and support when it comes to the technical issu-es of the transfer process. It has been recognized that business and generational transfers are challenging and time-consuming processes, both technically and emotionally. Contrary to many public statements, taxation and financing are not obstacles to a successful generational transfer (Koiranen 2000; Stenholm 2003). Instead, an entrepreneur planning to retire feels left alone with issues that are affected by emo-tional factors. In today’s society, efficiency and benefit are measured in money, and it is usually considered inappropriate to connect soft values to business.

Public debate often suggests that one of the most important obstacles to business transfer processes is the difficulty of finding successors for the retiring entrepreneurs. Another popular reason for the slow prog-ress of the transfers is that companies are waiting for pending tax le-gislation and potential tax relieves for generational transfers to come to effect. Instead, less public attention is paid to the way soft values

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affect a successful business transfer. (Stenholm 2003; Heinonen 2005; Peltoniemi 2007; Sten & Oikarinen 2007.) In addition, the literature and studies in the field only scratch the surface when it comes to the emotional and psychological aspect of the business transfer. However, it is a known fact that soft values have a significant impact on successful business transfers. It has been said that the business transfer process consists of 95% emotions and only 5% technical aspects.

When a written generational transfer plan is drawn up, it usually outli-nes issues related to taxation and the economy. Then again, sincerity and mutual trust of the family members is more difficult to put on paper. These issues call for active discussion and exchange of opinions as well as courage to bring up questions. (Stenholm 2003). Potential conflicts or fear of conflicts may lead to unwillingness to prepare for the transfer and the transfer being postponed. A conflict within the family or some other close group is deeper and more emotionally charged than a con-flict between parties who are less familiar with each other. In addition, conflicts bring about unease, imbalance and “hyperactivity” towards a certain direction. Uncertainty then raises more worry and uneasiness (Lewin 2002).

Siikarla (2001:27) has stated that the most important problem in ge-nerational transfers is not the technical aspects of the transfer but the entrepreneur him/herself. By this he means for instance that the ent-repreneur i.e. the transferor has to be psychologically prepared for the transfer and ready to give up on the company. In addition, the dynamics and the culture of discussion within the family both have an impact on the transferor, which then may turn many questions challenging to sol-ve in connection with a generational transfer. The immediate family is a close community, but its members are also influenced by other com-munities they belong to. People belong to several communities, groups, and the rate of the communities’ influence and the members’ commit-ment changes from time to time, situation to situation. It can be argued that we are dominated by the influence of different groups at different times. We may feel inner conflict; on the one hand, our own hopes and expectations struggle within us, on the other hand there are certain ex-ternal expectations upon us. (Lewin 2002.) Conflict may arise when the successor receives different opinions from for example his wife and her relatives than from his own relatives.

The importance of soft values does usually not become clear until the parties begin to discuss the transfer and make concrete plans (Stenholm

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2003; Malinen & Stenholm 2005). Only when the transfer is discussed in more detail may the transferor realize how big a role the company has had in his/her life. In addition to having been a means of liveli-hood and a place of work, the company has also contributed to the transferor’s identity and self-esteem, and it has been a part of his/her social network and external respect. The increased leisure time and the changing status of the family may confuse the transferor. (cf. Koiranen 2000; Lewin 2002; Stenholm 2003.) When the transfer is at hand the entrepreneur may feel sudden resistance, either consciously or uncon-sciously.

How to transfer wealth in such a way that would contribute to harmony in interpersonal relationships? Usually, interpretations of the fair trans-fer of ownership vary from one family member to another. Choosing the most suitable and competent successor may raise conflicting emotions within the family. Friction in the family relationships may be caused by discussions on whether the company is to be transferred only to a child/children working/who have worked in the company? If that is the case, how shall the other siblings be compensated? And how are the children’s spouses regarded e.g. as employees? It may be psychologi-cally stressful for the transferor to decide whether the company should remain undivided after the transfer, or whether it is to be split between the children. (Koiranen 2000.) The above mentioned issues are not easy to discuss even within the family, and if left undiscussed the issues will become even more complicated. In addition to his/her own emotions stirring up and confusing the transferor, the emotions and outbursts of others involved in the process may inflame the situation. In order to have the courage to discuss emotions openly and in a constructive man-ner, we must feel safe in the discussion. (Erämetsä 2003.) Otherwise the transfer process is bound to fail or at least be prolonged, because the emotions were not dealt with. An experienced, external mentor acts as a buffer between the transferor and his/her immediate circle, and usually the mentor is the one who is able to launch the discussion on the matter.

Special features of family enterprise

Entrepreneurship is considered challenging, and according to the lite-rature on the subject, an especially challenging form of entrepreneurial activity is family enterprise. Family enterprise is not only about the business and the risks related to it. Family entrepreneurship combines business, ownership and the family. This combination brings an extra

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spice to the enterprise. And when a family business is faced with a ge-nerational transfer, it is inevitable that emotions and soft values have an impact on the transfer process. For instance, when the transferor is closing in on retirement age it is likely that the children already have families of their own, and the “inner circle” in which the transfer is dis-cussed has expanded. Hence, a successful generational transfer is often dependent on the family’s way of having discussions and solving con-flicts (cf. Koiranen 2000; Heinonen 2005).

Figure 2. Family business system (Tagiuri & Davis 1996, in Heinonen 2005).

OWNERS

FAMILY MEMBERS MANAGERS

The future business transfers will mostly affect family businesses. Family-owned companies are a significant employer in Finland; appro-ximately 50–60% of the working population in Finland are employed by a family business. The Finnish Family Firms Association has estimated that 86% of Finnish companies are family businesses. Matti Koiranen (2007) has stated that at least 70% of all companies in Finland are family businesses. These companies represent approximately half of all jobs in Finland. These figures indicate clearly that the generational transfers of family businesses in the near future alone will be a signifi-cant challenge to the society.

There are no exact figures on the number of family businesses in Finland available, because the classification of companies as family bu-sinesses is not totally consistent. According to studies by the finan-cing company Finnvera, the Small Business Institute of Turku School of Economics and Business Administration, and the Federation of Finnish

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Enterprises, the transfers of ownership will affect more than 100,000 jobs. Successful business and generational transfers are important to the national economy, since the continuity of family businesses has an impact on the whole country’s economy as well as on the continuity and development of the economic structure. A business transfer preserves 5 jobs on average, whereas the establishment of a new business crea-tes 2 jobs on average (European Commission). In addition, especially the successful transfers of micro companies safeguard the existence of services and competency in small municipalities.

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4. EXPERT ARTICLES

4.1 Jan Sten: An Overview of Business Transfers in Finland and in Europe

Jan Sten successfully defended his doctoral dissertation at the Swedish School of Economics and Business Administration in Helsinki, Finland. The thesis was on selling family businesses to outside buyers. He is the owner of the company Train Station, and he works with family businesses and owner families directly or via other organizations working with the same target groups.

In the past few years there has been a lot of discussion on family bu-sinesses, and the reasons for this are many. One of the reasons is, of course, that the research and training related to family enterprise has increased during the past ten years (Sharma, Hoy, Astrachan and Koiranen, 2007). On the other hand, the different organizations atten-ding to the interests of family businesses have produced fruitful results. But the fundamental reason for family businesses being in the centre of attention especially in Finland has to do with business transfers. A sig-nificant number of Finnish businesses are faced with a business transfer process in the near future (Prime Minister’s Office, 2003).

Is the situation in Finland unique, or are other countries struggling with the problem of finding successors for small and medium-sized busines-ses as well? This is exactly the case. It can be argued that Finnish family entrepreneurs are facing roughly the same challenges as entrepreneurs in other countries as well. Since the population in Finland is relatively older compared to other countries, the problems will become relevant in a somewhat earlier stage. The other issues to be solved are the same for everyone; at least this can be concluded from a recent study by PricewaterhouseCoopers (2007). The PwC study is based on an inter-view of 1,500 business executives in 28 countries, and it has produced several interesting results. The first result is related to the difference between a generational transfer and the selling of a business. In the Nordic countries the course of development is quite clear. The proporti-on of sales is increasing at the expense of generational transfers. Only a good one third of Nordic entrepreneurs believe to find a successor in the family, whereas in North America nearly half believe to find a successor in the immediate family circle. The differences appear even more clearly when the study is narrowed down to companies which will carry out a business transfer within the next five years.

The increasing number of business acquisitions has long been a central topic in Finland, but there has been no clear boom of acquisitions yet.

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It is true that the number of transactions has clearly increased, but no great rush has yet been seen, and probably will not either (Sten, 2007). One of the most critical reasons behind this is that most of all Finnish companies employ only one person. This in turn means that there is not so much to sell in the company. The value of the business is bound to one person, and as the current entrepreneur retires, there is not much left to transfer to the successor. Another problem is posed by business valuation. The PwC study indicates that most entrepre-neurs have not subjected their businesses to value determination. The Finnish barometer on small and medium-sized businesses confirms the same (Federation of Finnish Enterprises & Finnvera plc, 2007). One of the reasons that the valuation has not been made is that entrepreneurs in Finland find it too difficult. The valuation calls for assistance from a consultant, but many entrepreneurs would not be willing to pay more than EUR 170 for the service (Meriläinen, 2004), and the consultants are usually not eager to carry out the valuation for such a low fee either. The unwillingness to have the company valued, and not implementing the valuation until it cannot be avoided, can cost the entrepreneur dea-rly. It is not unusual that the entrepreneurs have an all too optimistic idea of the company’s value. There is a danger that the money that the entrepreneurs have pinned their hopes on for retirement is nothing but a dream after all.

There is another, more comprehensive problem related to the lack of business valuation: it is very likely that there is no business transfer plan either.

The PwC study shows that more than 50% of the interviewed have no concrete plan for carrying out a business transfer. What is more, the figure is even higher when examining companies with less than 20 employees. These numbers are alarming for at least two reasons. First, a business transfer signifies a great change for the transferor, and se-cond, the transfer means a great change for the company and its inte-rest groups as well.

It is evident that the lack of a business transfer plan poses a great risk to the entrepreneur. However, an even greater risk is that the entrep-reneurs have not given enough thought to life after the transfer. How does the entrepreneur plan to fill his life, when he is no longer involved in the business? All of a sudden there are many hours a day to be filled with other activities. But with what? Many entrepreneurs are not able to give any satisfactory answer to this question. This fact can partly ex-

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plain the reasons why a business transfer plan has not been drawn up. The entrepreneurs have simply not been willing to really think about the time of retirement yet.

The lack of a business transfer plan signifies a personal risk to the ent-repreneur, but at the same time it poses a threat to the business as well. Not having the transfer plan easily creates uncertainty about the future, and uncertainty then reflects weaker ability to make important and far-reaching decisions. Decisions are not made because it is un-certain what the future holds. Will the children continue the business? Could someone really be interested in buying the company? The un-fortunate answer to these questions is that if the current entrepreneur neglects to develop the company, he is running the risk that no one is willing to continue the business after his retirement. If the entrepreneur is left wondering and slows down at the same time, the company is no longer attractive as an investment target. It is a situation that no one will benefit from, and unfortunately it can easily become a vicious cir-cle. The staff will become aware that the company is not invested in as much as before. Sooner or later both customers and suppliers will make the same observation. When the company has reached this point it is extremely difficult to change the course of development. To cut a long story short: by anticipating the situation and by drawing up a concrete plan for the future business transfer, all these negative forces can be fought against. At the same time the entrepreneur must make sure that the company’s own investments at least maintain their value.

One of the aspects of a well-planned business transfer is that the trans-fer creates an image of consensus in the owner family on how to pro-ceed in the company’s best interest. Since the business transfer is a complex and often also a delicate process, some differences of opinion may well arise. Nevertheless, it seems that a well-documented plan will help prevent the problems caused by disagreement. Disagreement should not, however, be avoided at all costs, because it can be useful for the company’s development. The parties involved should just be aware of how to handle disagreement. On this subject the PwC study does not give any consolation: it shows that more than 2/3 of the interviewed had not thought of any ways to solve family conflicts.

Many kinds of conflict may arise, but certain themes seem to provo-ke discussion more than others. The most important cause of dispute seems to be disagreement on the company’s future strategy. This will easily become a stumbling block for the whole business transfer. The

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older generation wishes to follow the accustomed course, whereas the younger generation is in favour of growth and change. The best way to prevent such conflicts is to draw up a business plan that both parties can accept. Another significant problem in family businesses is related to hiring family members in the business. Disagreement may arise on members of the family that fail to meet expectations, or it can be a question of who can and who cannot be employed. Often such discussi-on concerns especially the spouses of the family members. The problem can be more easily prevented by drawing up a shareholders’ agreement and making a decision in principle on employing family members.

As to the reasons for conflict and the lack of a business transfer plan, there seems to be no great differences between Finland and other European countries. We are all equally poor at preparation. However, there appears to be a certain difference in successor preferences. A generational transfer has a stronger position in several European count-ries as well as in the United States. This is partly explained by the differences in family culture, but the distorted understanding that the number of acquisitions will increase in Finland has lead the entrepre-neurs to consider an acquisition the more attractive option. As to these entrepreneurs, there are two points that must be highlighted: First, most entrepreneurs have nothing to sell, which is why there will be no buyer either. The company for sale is simply too closely bound to the current owner, and when he retires there is nothing left to sell. Second, it is difficult to sell the company if the sale has not been actively plan-ned. Business valuation would be a good starting point. It should not be considered an expense but rather an investment.

4.2 Sakari Oikarinen: What Makes Business Transfers Difficult?

Sakari Oikarinen is the co-founder and Managing Director of Confidentum Ltd. Confidentum is a service company which is specialized in supporting the ownership and active renewal of family businesses. Confidentum concentrates on the challenges of leadership that owner-managers of the new generation are faced with. The company aims to commit to a long-term and loyal partnership with the customer companies.

Is there demand for businesses for sale?

In order to succeed, any product or service needs a sufficient demand and the right kind of supply. First, let us approach the issue from the point of view of demand and potential buyers. Approximately 1/6 of those planning to become entrepreneurs could consider buying a bu-

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siness instead of starting a new one, which indicates that the number of potential buyers is one of the critical elements. As approximately 30,000 new businesses are established in Finland every year, around 4,500 of these new entrepreneurs could be company buyers. Based on this calculation the number of buyers should be sufficient, since it has been estimated that the number of companies for sale each year is ap-proximately the same.

The second critical, buyer-related element for the market to function well consists of the lines of business and the regions in which the new entrepreneurs, based on their own competency, plan to establish their businesses. The most potential buyer for a company today is probably an over 30-year-old person with a family, in other words a “working per-son” type. These people have already settled down to a specific region because of the spouse’s work or the children’s school, and therefore it is more difficult to move around after a business to be bought. According to the most recent data of Statistics Finland, the highest degree of va-riation in the enterprise base is in Southern and South-Western Finland. In these regions the variation in the market is the highest, which means that the number of businesses starting up and closing down account for approximately 2/3 of all changes in the enterprise base. Once again it seems that the sufficient number of potential buyers is close to the number of businesses for sale; where there are people and jobs, there are also businesses for sale.

The third critical, buyer-related element comprises of the fields which the new entrepreneurs establish their businesses in. Real estate, rese-arch and business services, wholesale and retail, construction and other fields of social and personal services account today for more than 80% of all changes in the enterprise base. That is to say, new businesses emerge the most in precisely these lines of business, and exactly these fields are those that lose companies the most. Rationally thinking, de-mand and supply should meet in this respect as well. Moreover, accor-ding to business brokers companies in these exact fields are the ones that are most sought after. From the point of view of demand, all the elements required for a market to function should already exist.

And what about supply?

The retirement of current entrepreneurs concerns fairly evenly the who-le enterprise base, and there are no great differences between lines of business. However, regionally the ageing of the entrepreneurs proceeds

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in a slightly different manner, but in this respect the situation in the business transfer market is good, since it is the regions in Southern Finland that are ageing the fastest. As mentioned above, the fields that new businesses are established the most in are also the ones that lose entrepreneurs the most. In this respect as well, supply seems to be qui-te well in balance with demand. Consequently, the market is concentra-ted quantitatively in Southern Finland and by industry on the traditional fields of services and trade.

In addition to quantities, we should also consider the product itself; how does a business for sale meet the needs of buyers? In the near future the companies approaching a business transfer are still mostly owned by the company founders, and they have not necessarily been established let alone run or developed in order to be sold or transfer-red to the next generation. The business ideas of small companies are largely based on the professional skills of an individual person, and the foundation for the business activity is the need that the entrepreneur has noticed for specifically his/her competency. The demand being real and the entrepreneur having entered the market at the right time, in the course of years as the business has become established, demand has ensured that there has been room in the market for a business just small enough. In most cases, the entrepreneur has been satisfied with the company’s well-established position in the market and having a manageable-sized business through which he has been able to com-mercialize his own skills profitably enough. It is a definition of policy the owner has once made. At that time, retirement was still far ahead, and there was no need to change the operation of the business. In a way, businesses are reflections of their owners. Metaphorically speaking, a business for sale is like an apartment which is sold furnished and with relatives included.

Of course, the owner’s emotions are involved as well. Entrepreneurs often describe their businesses by saying that “the company is like a child to me”. The company in itself is probably not the child; in the background there may rather be the idea of giving up entrepreneur-ship i.e. a certain lifestyle, that is a lot more human reasons than just a company and its business. Because this is the case, the transferor is not willing to retire: how could he retire, when his work is an essen-tial part of the content of his life? One cannot retire from something if the void created by the transfer is not filled with something else. How could it best be filled? By continuing entrepreneurship in another form. The seller should remember that the TRANSFEROR SHOULD NOT

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GIVE UP HIS ENTREPRENEURSHIP although he is selling the company. Entrepreneurship is the content of life that should remain even after the company has been sold. The old saying puts it right: “Love is forever, only the partners change”. Realizing this would perhaps activate the retiring entrepreneurs in selling their companies and make it easier for them.

Is the buyer able to buy?

The buyer for his part is searching for a place that he can renovate as he pleases and then invite his family to a housewarming party. The buyer buys a business opportunity, whereas the seller sells a company he has established himself. This may well be one reason why the buyer’s and the seller’s views do not meet. We have also a lot to learn about the culture of company acquisitions. Buying a company instead of setting up a new one is still a fairly new phenomenon in Finland. Therefore, the buyer does not have previous experience of acquisitions either, so he feels sceptical about the new situation. The buyers still clearly lack the systematics of buying. Many consider the option of buying in a too early stage of their entrepreneurial careers; they are searching for a business to buy in a stage when they do not even know what they are looking for. They do it in order to find ideas for their own business idea (i.e. entrepreneurship). As they are searching for companies for sale, in reality they are nowhere near the decision of buying. These hesitant buyers of course confuse the seller even more. We must keep in mind that the seller is very likely selling his company for the first and the last time – the situation is unique for him. The buyers should first draw up a business plan and then decide whether they want to start the business by establishing a new company or by acquiring an already existing bu-siness. Practice has clearly shown that an entrepreneur who has bought a company as a systematic process is clearly more enthusiastic about buying more companies in the future; he regards growth easier by ac-quisition. The threshold of buying becomes lower by experience.

From the buyers’ point of view it also seems as if they were expecting for someone to come and offer them a company to buy. In several ent-repreneur training events and on Internet forums these company bu-yers ask where the companies for sale can be found. They are confused because they hear that there will be a lot of businesses for sale in the near future, but still the businesses are nowhere to be found. The buyer candidates do not necessarily notice that a company as an object of sale is such that sellers do not willingly put it for sale on the Internet. As re-

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gards many other items and services, the culture of buying is very open and free, which is why the buyers are confused about the atmosphere of mystery surrounding company acquisitions. The buyers should noti-ce that companies are all around us, and the one who actively inquires will find a company to buy – for instance by stepping into a shop and asking, “Any chance this business is for sale?”

Will supply and demand meet?

If it has been established that there is supply and demand, another question arises: is the matching between sellers and buyers efficient enough? It seems not. The situation resembles a traditional Finnish open-air dance: the shy girls on one side and the quiet boys on the other, waiting for the music to begin – and if the music will not play, nothing happens. But where can we find a band that would begin to play and the pairing up would start? In our country, different kinds of training events have been arranged to a large extent for both sellers and buyers. According to the most recent count, there are more than one hundred private and public business market places and company directories in this country.

So it cannot be lack of information an effective market depends on. One can only wonder where the problem lies… and here is a guess. Could it be that not all retiring entrepreneurs want to sell their companies in the end but close it down on the quiet? Does this foretell an era of business closures in the coming years? Is it possible that many businesses are so small after all that they are sufficient for the current entrepreneurs and fulfil their needs, but that they are not marketable – they would not be able to bear the costs of financing an acquisition would require? If this is the case, here we have a great many “growth companies”. Could we make these companies grow just enough so that they would become profitable and saleable? Could it be that buyers are picky and think that they are getting a real money-maker for a ridiculously low price? Do they lack true understanding of entrepreneurship and its profitability af-ter all? Could it be that by looking into businesses for sale they actually see their own future all too well and therefore back down? Is it possible that supply and demand are not in a straight line after all? Are the new entrepreneurs willing to do business in the traditional fields in which retirement is expected, or are they more interested in more modern business areas, based on the fact that their educational background or skills and competencies are usually better than those of the current entrepreneurs? Could it be that becoming an entrepreneur and retiring

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from it is such a big deal that it takes time to think about it? Surely this is the case, but an active approach is an asset in business transfers as well. If all parties concerned take an active role in the matter, together we can surely make the business transfer market work as well.

4.3 Piia Tulisalo: Psychological Resources for Business Transfers

Psychologist Piia Tulisalo, MA (Psych), Managing Director of Prover Oy, is especially interested in competence development, the psychology of change and the utilization of psychological resources. She offers consultation and training as well as competence assessment and personnel selection. In practice, her work consists of manager training, workplace and team coaching, organization development as well as the commissioning of good practices of staff management in for example various transition processes.

From the point of view of an individual person, a business transfer or a generational transfer is always a great change. As in connection with any change in the circumstances of life, a change in the ownership of a business or one’s own role calls forth various thoughts and emotions. One’s mind is consumed with worries about livelihood, the company’s profitability in the future, the successor’s/buyer’s competence and abi-lity to for example take care of the company’s potential employees. In families with many children the entrepreneurial parents often ponder on the children’s equal opportunities or the future distribution of inheritan-ce. In this way the past, the present and the future are all entwined in the same moment.

Emotions may arise when one has to give up on the daily life and routi-nes, concrete things (office, desk, telephone, car) or relationships con-nected to the business. Many entrepreneurs or entrepreneurial couples have found new friends, hobbies or long-term cooperation or customer relationships within the business, and they are doubtful about letting them go. Uncertainty about the future and one’s own status and role may from time to time come strongly to the surface. Sometimes the emotions may even impede the progress of a concrete business transfer. In the background there are usually previous experiences on life chan-ges, events related to personal or family history, stages of one’s ent-repreneurial career or other, significant passages of life. As the situation proceeds, the memory trace is activated in one way or another, having an effect on the present discussion or even on decision-making.

In addition to experiences, in the background there is also the natural fact that people are different. In practice the differences appear partly

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in the way how strongly we react to changing situations. One may expe-rience new challenges as the ‘elixir’ of life, whereas the other may feel incapable of getting hold of the situation and becomes passive in the increasing pressure. It is evident that the ability to control and endure stress is different from person to person. At a deeper level, the changes in one’s role may be seen as changes in self-esteem, self-confidence and self-assurance. The previous, safe and familiar role as an entrepre-neur changes into something else. And the new role does not, at least at first, feel as cosy as the old one.

In part, personality traits contribute to the differences between peop-le as well. Some may be more sociable and absorb energy from being around other people, whereas others may enjoy more of self-reflection. Some of us make decisions based on law, statutes or facts. Then again, for some of us the most important aspect of decision-making is the way the decision in question will affect our own life or the lives of other people. For some, significant knowledge translates into what can be personally seen or experienced in practice. Others give higher value on their own thoughts and opinions, on the intuition principle. Some prefer systematic approaches, whereas others enjoy spontaneity. People are also different in their readiness to deal with emotions or their ability and willingness to verbalize (put into words) their thoughts. In addition to the differences in personalities, other factors affecting the transfer si-tuations are age, health and physical condition and the comprehensive state of one’s life.

Without identifying one’s emotions or the factors in the background it may be difficult to understand oneself or others in the same situation. Hence it is important that an entrepreneur going through a transfer – both the transferor and the successor – has the opportunity to exchan-ge thoughts with someone else. By talking to someone, by reflecting and thinking aloud it is usually easier to catch one’s own thoughts. It is easier to get hold of what we really think and what we actually want. When you know what you want it is easier to make decisions and stick to them. Defining one’s inner determination always takes its time, but it is clearly the most important phase, considering the success of the transfer.

In addition to time, a successful transfer calls for active work of chan-ge: sufficient anticipation, bringing up different options and comparing them, and so forth. In addition to the actual transfer phase, e.g. to the transfer of ownership, what is needed is a comprehension of how life

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will go on after the transfer. In practice, the transferor should consider in as concrete manner as possible what he/she is actually giving up on and what he/she is getting instead. The more there is knowledge and realistic insight into the future situation the better. Here ignorance is not bliss – rather a curse.

In addition to one’s own pursuits it is also important to define the com-mon interests of the family members, which cannot be done without sufficient discussion. In family enterprises, a culture that encourages open exchange of thoughts and experiences has sometimes already been established. But sometimes it is the business transfer or gene-rational transfer situation itself that requires such an atmosphere to be built. This is a good thing, because at best a mutual discussion – the sharing of thoughts, experiences and expectations – also enables the diffusion of tacit knowledge from one entrepreneurial generation to another. In this way, an important process becomes a positive experi-ence of success that strengthens the family bonds, independent of the way the transfer is carried out in practice.

4.4 Tua Haldin-Herrgård: Tacit Knowledge Diffusion through Mentoring

Since 1995, D.Sc. (Econ. & Bus. Adm.) Tua Haldin-Herrgård has worked as Assistant Professor at the Vasa Campus of Hanken School of Economics. Her research covers tacit knowledge, and at the moment she studies tacit knowledge diffusion in the generational transfers of family businesses. She is often referred to when an expert of HRM, knowledge management and mentoring is needed.

Summary

The approaching generational transfer in the labour market as well as business transfers have shown how difficult the diffusion of tacit kno-wledge can be. Sharing skills and competencies that are based on ex-perience and cannot be recorded in databases requires personal invol-vement, close relationships and time for consideration. These factors make mentoring a suitable tool for the diffusion of tacit knowledge, especially at management level.

We have long been presented with scenarios of what will happen when the baby boom generation retires. That time has now come, and tra-ces of the feared labour shortage can already be seen in working pla-ces. According to Professor P. Malinen, we are now in the middle of an era in which almost 50% of businesses in Finland have to carry out a

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generational transfer at management level. At this point we can only imagine how it will, in both positive and negative sense, affect business and working life. However, there is an increasing interest towards how knowledge is shared in working places. Since experience-based compe-tence is connected with great resources that are threatened to be lost, the interest towards the diffusion of tacit knowledge has increased.

What does tacit knowledge mean?

Knowledge can be tacit because it is not allowed or wanted to be revea-led, but this is not what is meant by tacit knowledge. Tacit knowledge means the kind of skills and competencies that are difficult and some-times even impossible to express in words. Tacit knowledge is also di-rectly tied to what we do, and therefore it cannot be taken away from its context. We master the art of riding a bike, but we are not able to exp-lain what we actually do when we do it. People knowledge, intuition and common sense are properties of tacit knowledge, but so are leadership skills and negotiation skills as well. Typically, tacit knowledge is based on personal experience or long practice. Therefore, tacit knowledge is usually connected with expertise and older, more experienced people.

There is often an unused potential lying within tacit knowledge, because training and management has been concentrated on the tip of an ice-berg, which is often used to describe knowledge assets.

The visible tip of the iceberg consists of articulated (explicit) knowledge, i.e. the knowledge that can be found in databases and manuals and that is used in lectures and discussions. Explicit knowledge is easy to under-stand, and therefore it is easily consulted when developing knowledge resources. Instead, tacit knowledge lies beneath the surface, and it is difficult to estimate its dimensions. Nevertheless, everyone knows that most of the iceberg’s mass is under the surface. The same metaphor can be used to describe tacit knowledge within us. Tacit knowledge is so difficult to express because, first, it is often subconscious and so obvious to the possessor that there is no need to think about it at all. Second, it is also personal and complex, i.e. different for everyone. Above all, tacit knowledge is usually embodied in its owner. It cannot be stored to anywhere else but the person himself. The day an employee leaves his job for good his tacit knowledge slips out the door as well. Many executives and managers are like the captain of the Titanic: they did not notice the hidden part (of the iceberg) before it was too late. This has usually caused problems that concern the whole organization,

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especially because the tacit knowledge of an organization is a valuable resource of competitive advantage. Explicit knowledge is accessible to everyone, even competitors, whereas tacit knowledge which is difficult to put in words is a safety wall that prevents it from spreading outside the organization. The only problem that remains is how to share tacit knowledge within the organization.

how can tacit knowledge be shared?

Since tacit knowledge is characteristically different from explicit know-ledge, different methods are needed in order to diffuse it as well. These methods are usually based on direct interaction between people, and they include different forms of cooperation: mentoring, team work and networking to mention a few.

The problems of sharing tacit knowledge result from the lack of percep-tion, language, time and values, as well as an increasing distance.

Although we carry tacit knowledge within us, we do not always perceive it. Tacit knowledge is such an integral part of our behaviour that we do not think about it, we use it subconsciously. Therefore, to be able to share tacit knowledge we need to be more aware of our modes of ope-ration and our skills and competencies. Although we know that the way we do things is based on tacit knowledge, we do not feel that we mas-ter the language needed in order to express it; words are not enough. In spite of this we use expressions in our daily speech that specifically refer to tacit knowledge. We talk about “green thumbs”, people know-ledge, and our own abilities. Developing tacit knowledge takes time. In this age of periodic employment, projects and constant change we ra-rely have the time to learn from experience. It is worth asking whether we have enough time to develop tacit knowledge. If we wish to invest in tacit knowledge, we would probably do well to stop and think, feel, begin in good time and use more time for what is happening right now, instead of rushing forward.

Although knowledge in general is highly valued, the same does not apply to tacit knowledge. A fine example of this is the “know-what” of a small village teacher compared to the tacit, practical “know-how” of a blacksmith. Even today the emphasis is on education which develops articulated knowledge, whereas the forms of education that develop tacit knowledge, such as the apprenticeship training system, have not been emphasized to the same extent. We are more often rewarded for

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formal competence than for tacit competence, such as people know-ledge or “crafts”. Therefore, we must come to realize the value of tacit knowledge in an earlier stage. Unfortunately it is often the case that the value of tacit knowledge is not understood until a person possessing such knowledge leaves the organization due to e.g. retirement.

The problem of the increasing distance between co-workers is caused by the fact that tacit knowledge is difficult to store outside its possessor and the context. The diffusion of tacit knowledge calls for personal con-tact and mutual participation from both the master and the novice. The situation therefore requires close relationship between the two parties.

Can tacit knowledge be shared through mentoring?

Yes, definitely. In fact, everything that is needed for a successful diffusi-on of tacit knowledge already exists in the mentoring process. Mentoring requires that the more experienced (often, but not always, older) per-son gives support and guidance to the one who has less experience of the situation the mentoring concerns. During the process, the mentor and the mentee must be in close contact with each other, and they must meet personally in order to share thoughts and experiences. The mentor is not the actual teacher in substantive questions, but rather an inspiring interlocutor in abstract issues, such as problem solving and matters of values and leadership etc.

The mentor has to have experience in a certain field, usually expertise. In other words, the mentor must possess a vast amount of tacit know-ledge. The mentor also has to be willing to share his knowledge, which in itself requires him the ability to reflect his own skills and competen-cies, and that way also increase his knowledge of his own tacit compe-tency. The mentee for his part has to be willing and able to receive the knowledge from the mentor. This requires the mentee to be active in both self-reflection and in expressing his needs.

The mentoring process includes precisely those factors that are said to facilitate tacit knowledge diffusion: close contact, time and direct communication. The mentor and the mentee have to meet each other constantly during the process in order to discuss matters in peace and quiet. Since the process derives from the mentee and his needs, it is guaranteed that the connection to the mentee’s work and situation is maintained, in other words the connection to the issues that tacit kno-wledge is needed for. In working life today, where everything is often a

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struggle against time, it has been noticed that specific meetings, such as lunch meetings, have provided an important escape to reflection and discussion.

In the constant flow of information today, it is not easy to recognize tacit knowledge. In order to succeed both the mentor and the mentee need willingness and clarity of the situation. The tacit world beneath the surface does not only give us more possibilities but also the satisfaction of knowing that we have the privilege of encountering and developing a “master’s sureness of action”.

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5. RESuLTS Of ThE SuRVEYS fOR ENTREPRENEuRS AND MENTORS

Carola Wiik, who worked as Project Assistant within the REINO project at Concordia in the first few months of 2008, conducted a survey ai-med at both entrepreneurs and mentors. The survey was carried out in January-February 2008. The objective of the survey was to map out the respondents’ experien ces of business and generational transfers. In this survey, the term business transfer was used to indicate the sale of a company to an outsider, and the term generational transfer was used to indicate a transfer within the family, mainly to a child/children. The survey was conducted in the regions of Ostrobothnia and Central Ostrobothnia, and it was participated by 7 entrepreneurs, 5 mentors and one expert. Two of the entrepreneurs were transferors and 5 were successors, and they were mostly active in production industry and the service sector. Three of the mentors had personal experience of ge-nerational transfers, and one of them had been involved in a business transfer by selling a company to a third party. The expert participating in the survey acts as a consultant and an expert in business transfer issues and concentrates on business valuation, anticipating tax con-sequences and on finding successors. In business valuation he makes assessments, both from the seller’s and the buyer’s point of view, on whether the acquisition is more profitable when carried out as purchase of shares or as business acquisition. In addition, he prepares the sales agreements and assists in finding funding.

A central topic in the answers of both entrepreneurs and mentors was the difference between a generational and a business transfer. Both transferors and successors as well as mentors considered emotional and psychological factors (i.e. soft values) to have a more significant role in generational transfers than in business transfers. One of the successors considered the emotional aspect as the first perceivable, a “sneaking” factor in the transfer process. When emotions are activated the whole process is accelerated. According to the respondents, business transfers are mostly about coming to an understanding with the buyer in order to draw up a sales agreement. The mentors also considered that techni-cal issues (business valuation, taxation, transfer of contracts, financing etc.) were emphasized more in business transfers, whereas psychologi-cal aspects were emphasized more in generational transfers.

The answers also pointed out that in a generational transfer the owner-ship should be transferred in such a way that there will be one person clearly in charge in the company, a majority owner. Sharing the company

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for instance 50/50 between two children was considered a bad option. The transferors and the mentors also pointed out that the psychological aspect is the one to launch the process, after which the technical pro-cess and the psychological process go hand in hand. In addition, both transferors and mentors stressed that although technical issues play a significant part in the transfer, that is exactly what they are, technical and self-evident issues, for which expert advice is available. The survey indicated that business valuation is also affected by emotions.

In general, the respondents considered emotional and psychological as-pects to have a greater impact on the process than technical issues. The mentors’ responses indicated that emotions and soft values may be very strong and they may have a significant effect on the transfer process. Successors considered leadership after the transfer as one of the most challenging factors of soft values. It was also pointed out that it is emotionally challenging especially for the successor to be compared to the transferor, in other words the new leader vs. the “old” leader. The successor’s new role as the one who “knows everything and carries all responsibility” was also considered challenging. Business valuation was considered the most challenging technical issue. How to come to such a price which all parties can accept? All the respondents had referred to expert advice on technical issues. The lack of time was considered a problem; usually, the process is not launched early enough.

All the respondents agreed that a psychological interlocutor, a mentor, is needed. The survey showed that there is need for a mentor both from inside and outside the family. For instance, in tacit knowledge diffusion the mentor should come from inside the family, but when there is need to question decisions and consider different options and solutions, the mentor should come from outside the family. In addition, the survey indicated that launching the process may be difficult in itself because an active process calls for moving from discussion to action. On the ot-her hand, compromising and decision-making calls for discussion after discussion.

The survey clearly showed the difference between a mentor and a con-sultant. A consultant is mostly referred to in technical issues, whereas a mentor is a psychological supporter. In addition, the mentee may share such information with a mentor that affects the process but that he/she is not willing to share with a consultant. Hence it is important that the mentor and the consultant can work side by side. The mentor is also often the one to carry forward the process, especially if it has become stagnant for different reasons.

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The survey for the technical expert pointed out the importance of finding the right price agreeable by all parties concerned. The buyer and the seller must feel that they are on the same wavelength, and someone has to act as a mediator who “refines” the selling price until it pleases both the buyer and the seller. It was also highlighted that, usually, the smaller the company the less the use of consultants. The expert also considered soft values to have an impact on the transfer process. He also considered important that there be enough time to weigh different options.

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6. GOOD-TO-KNOW fOR MENTORS

The basic principle of mentoring is that it is clearly separated from consultation. Consultation is a business activity in which the consultant provides his/her expertise and knowledge in exchange for monetary compensation. Mentoring is gratuitous and based on reciprocal and con-fidential discussion. By sharing his/her own experiences and by asking the “right” questions the mentor helps the mentee to see new options and solutions. The mentor can “perceive” the growth potential within the mentee, and assists the mentee in developing him/herself in the right direction. Mentoring is a more unofficial but at the same time a closer reciprocal relationship than for example initiation, training, coaching or consultation. (cf. Koiranen 2000; Juusela et al. 2000; Clutterbuck 2004; Arhén 2007.) In addition, it is good to remember that, although involved in a mentoring relationship, the mentee makes all necessary decisions him/herself and is responsible for any actions taken.

Mentoring resembles the old master/apprentice system, from which terms such as master, mentor, advisor and senior derive from. The titles symbolize special competence, appreciation and responsibility related to a certain task, as well as life experience and wisdom. A good mentor is expected to have analytical problem-solving skills, comprehensive way of thinking as well as sense of reality. The mentor is to be wise and have both life experience and professional experience. The mentor’s mode of operation is to be such that it sets a good example for others. He/She should have a good self-esteem and confidence in his/her own actions, and he/she should be safe for him/herself and others. The mentor is to be open and sensitive to both his/her inner self as well as to others. In addition, the mentor should have a vast network and the ability to act as mental support. (cf. Ahlström 2002; Lankinen et al. 2004; Megginson & Clutterbuck 2005; Ahrén 2007.)

In mentoring, the role of the mentor is to discuss and ask. The mentor questions and asks questions such as “what do you think, what do you feel and why”. In this way, the mentor helps the mentee to see different options and draws attention to the consequences of various decisions. The most important task of the mentor is to listen to the mentee and encourage the mentee to share his/her thoughts. It is natural for us to process difficult issues by talking to a person we trust. In this way the mentee gains distance and is better able to see solutions and options than by merely pondering the issues alone. (Ahlström 2002.)

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The support of a mentor is important during a transformation process, e.g. a business transfer. Especially the transferors are faced with po-werful surges of emotion within a transfer process, and considering the identification and development of one’s own meaning processes, peer support may be crucial to the progress of the process. Subconsciously, people observe their own behaviour, interpret emotions and experien-ces through reflection. An individual’s subconscious processes questions such as what do I feel? why? how? what are my expectations? how to proceed? etc. The ability to reflect is the road to spiritual growth, and in the middle of the tumult caused by the transfer process, it may be even impossible for the transferor to examine his/her own actions and thinking through objective reflection; the transferor freezes in a way, and carrying the process forward seems overwhelmingly difficult. Peer support and discussion then unlocks the doors in a way, and through reflection the transferor’s understanding increases.

A successful business transfer usually calls for the transferor’s spiritual growth as well. The cornerstone of spiritual growth is the development of an individual’s self-awareness. The better one knows and is awa-re of him/herself, the better he/she is able to realize and understand his/her own thoughts, emotions and aspirations. Self-awareness is also connected with the ability to perceive one’s self, which usually grows stronger with age. In other words, as people grow older they learn to increasingly operate from their true self and of their own free will. Thoughts are no longer controlled by external expectations, family tra-ditions or for instance the norms of society.

It can be stated that with the maturity brought by age, people tend to operate more and more according to their own goals and objectives. However, emotions may mix up this rational thinking, and suddenly one is not able to organize or interpret one’s observations. In this situation, peer support helps him/her to develop his/her proactive stance towards the world and his/her own development.

People’s way of reacting to change and accepting the changes is always different from person to person. In addition to tacit knowledge diffusi-on, a transformation process always includes explicit knowledge, indica-tions of new possibilities and solution models etc. With these elements people are able to form knowledge of new entities and at least partially control the new situation. Living a transformation process also calls for courage, because the result of the change cannot be guaranteed.

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As a mentor, when you are discussing with especially a transferor, the questions below will help you at the beginning of the process, and you will gain an overview of the situation easier. The questions will also help you to better understand why a process has become stagnant or pos-sibly even taken a few steps back. Although at the beginning you may feel that the mentee is not ready to open and share much with you, you will notice that the trust that has developed between you with time will give the mentee courage to discuss matters openly.

Examples of some questions the mentor should ask:

In the mentee’s opinion, what phase is the transfer process in at the • moment?What kinds of emotions and thoughts has the process provoked so • far?What new have you learned of yourself/the situation so far?• What issues have come up so far?• So far, have any concrete decisions been made on the transfer?• Who have the matters been discussed with? Within the family/ot-• herwise?What kinds of objectives/hopes do you/the immediate circle have • about the transfer?Life after the transfer?•

Figure 3. Individual transformation process (Kübler-Ross 1984, in Petäjä & Koponen 2002).

Em

oti

on

al

resp

on

seChange VISION Beginning

Denial Development

Anger Testing

Bargaining Acceptance

Depression Exit strategies

Time

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The transformation process and the mentoring relationship is always a learning process as well, so questions bring up more questions, which can often be very unexpected. You will notice that psychological and emotional factors have a significant role. The most important role of the mentor in the transformation process is often to act as a buffer who carries the process forward. Especially a generational transfer process may become stagnant for years, because bringing up and discussing the matter is considered difficult even within the family. Here, the men-tor is the external, impartial person, who is able to discuss separate-ly with each party involved if needed. In these situations the mentor acts as a mediator of emotions and issues. Generational transfers are especially complex and time-consuming processes. Before issues such as tax consequences, the value of the business and financing can be dealt with, many psychological challenges must be faced. Especially the transferor is often not ready to discuss constructively the sales price until matters related to the so called soft values have been processed on some level.

The mentoring relationship can be compared to for example the deve-lopment of a team or interpersonal relationships. Trust, commitment and equality are not born spontaneously; they must be earned and con-sequently built on. In a mentoring relationship, a certain kind of testing phase can be detected, when the mentee tests the mentor’s sincerity and trustworthiness. All human relationships can be described through initial enthusiasm, regression and either intensification or termination.

Em

oti

on

al

resp

on

se

Termination Meeting

Observation Creative existence

Adaptation Cooperation on role level Confrontation

Time

Figure 4. The development cycle of a mentoring relationship (Petäjä & Koponen 2002).

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Co-ordinated, target-oriented mentoring

As a process, co-ordinated mentoring can be described for example by the figure below:

Mentoring from a general point of view and from the mentor’s point of view

The process begins with mapping out the client’s needs (step 1). Here, through private interview the co-ordinator of the mentoring activity cla-rifies the client’s i.e. the mentee’s so called problem and the basic infor-mation of the company. In the interview the co-ordinator also gains an idea of the mentee as a person, which will help the co-ordinator to find a suitable mentor for the mentee. As mentioned before, the cornerstones of mentoring are mutual trust and openness, as well as interpersonal chemistry. In this interview the co-ordinator also discusses the basic principles of mentoring, ethical rules and other “rules of the game” with the mentee.

In the next phase (step 2) the mentor and the mentee meet each ot-her. The person leading the activity arranges the meeting, and it is re-commended that the co-ordinator also participates in the first meeting. Before the meeting the co-ordinator has ensured that the agreed time is suitable for both parties. The parties have also been informed of each other. The first meeting is about getting to know each other and map-ping out and reviewing the mentee’s “problem”, objectives and expecta-

1. Mapping of customer´s needs

2. Tailor-made matching 3. Contract

6. Conclusion 5. Monitoring 4. Mentoring

Supportprocesses

Figure 5. Organized mentoring as a process

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tions. Here it is also good to revise the rules and see to that the mentee already at this stage makes the next appointments with the mentor. As a mentor, you can give “homework” to your mentee in the first meeting to be completed for the next meeting. The homework will clarify the mentee’s objectives and contribute to the meetings being factual. Of course, the meetings will include the usual courtesies and telling the latest news, but as a mentor you must see to that the meetings will not be drawn out over two hours and that the meetings are more than just “chatting over coffee”.

As a mentor you are also recommended to acquaint yourself with the written agreement (step 3) in advance, if such an agreement is used in the activity you are involved in as a mentor.

The actual mentoring begins at step 4. The parties have met each other and the pair work begins. At the beginning, when the parties do not know each other well and there may be a lot to deal with, it is good to meet a couple of times a month. As a mentor you encourage the discus-sions by actively asking your mentee about his/her views and emotions and his thoughts about the case/”problem” so far. Building the trust is easier when you as the mentor share your own experiences and help the mentee to see the “big picture” of the situation as well as possible. In this way you are also helping him/her to gain new views, solutions and perceptions about the case.

However, remember still that your role as the mentor is more about lis-tening than telling! In the early phase you will notice that your mentee tests you and your trust in a way. You do not have to get frightened about this or consider it a bad thing; it is natural and part of the early stage. Since your mentee does not know you and most likely it is a uni-que situation for him/her to be able to discuss with a peer who under-stands the situation he/she is in, he/she will give you his/her story piece by piece. Wait patiently and let the mentee open up slowly.

In this phase at the latest, as a mentor you will notice how much you will gain yourself by being a mentor. When asked, mentors say they learn new things, gain new aspects and understand things in different ways than before; their networks expand, they meet new people, and they maintain their own skills and competencies without even noticing it, etc. Many mentors state that the most important reason for becoming a mentor is the willingness to help as well as the interest towards the wellbeing of the area they live in and the companies operating there.

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The next phase in the process flow chart is follow-up (step 5). Although you as a mentor have been instructed that the mentee is the active party and it is the mentee’s responsibility to take care of the commu-nication with the mentor and see to that the meetings take place, you can very well contact your mentee between the meetings as well. Often the mentee gains many new aspects already in the first meeting and becomes so enthusiastic that suddenly he/she notices that a lot of time has passed and he/she has forgotten to contact the mentor… and now they are too embarrassed to contact you.

In step 6, the instance that co-ordinates the mentoring is likely to re-quest your views on how the mentoring activity has succeeded. As a mentor you may have questions that you have thought about during the mentoring relationship, and these issues are worth dealing with in connection with the final evaluation. You may have wondered about the line between mentoring and privacy, how much you should invest in the case, ethical rules etc. Of course, at any time during the mentoring pro-cess you can discuss the matters with the co-ordinator as well as with other mentors.

Notions about the process flow chart for the instances co-ordinating the mentoring activity

An organization or instance who organizes target-oriented, co-ordi-nated mentoring activity or the person co-ordinating the activity should bear in mind that it is usually better to leave the matching of mentors and mentees to the organization/instance itself. Of course, the mentee can express his/her wishes which will be considered as far as possible. However, for neutrality’s sake it is better that the decision on the men-tor is made by a third person, e.g. the co-ordinator. The co-ordinator knows its “own” mentors, their special expertise and their prevailing situation. If needed, one company/mentee may have more than one mentor. Especially in generational transfer situations it is recommended that at least the transferor(s) and the successor(s) both have their own mentors.

The meetings between the mentor and the mentee may take place “anywhere”. Some mentoring partners go for walks together, meet for lunch or depending on the situation arrange meetings at the company’s facilities. They may also meet at the facilities of the organization co-ordinating the mentoring, especially when an impartial space is needed. The person in charge of the activity sees to that the facility is quiet and

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reserved for the mentee and the mentor for the entire time the meeting takes place. It is also a good idea to set out tea/coffee or other small snack.

Step 3 is above all a formality. Not nearly all the instances who orga-nize mentoring use the written agreement. However, it is good to take the agreement into use when the operations expand and the number of mentoring partners grows significant. It is worth remembering that the-re is no contract of employment between the mentor and the mentee or the mentor and the co-ordinating organization. Hence, the insurances of the above mentioned organizations do not protect the mentor. The written agreement is also an excellent way of committing the mentee and reminding him/her of being the active party who also takes care of communication with the mentor. It is also recommended that the agreement state the mutual obligation to observe secrecy and that the mentee is independently responsible for decision-making and any ac-tions taken, that the mentoring is voluntary and it may be ended at any time, whether the activity produces any expenses to the mentee, and anything else considered necessary.

Step 4 consists of pair work between the mentor and the mentee and does not require much from the co-ordinating instance. Of course, if the mentor and the mentee wish to have their meetings at the co-ordinator’s facilities, the facility should be provided accordingly. At the beginning of this stage the co-ordinator should be in contact with both parties and make sure that everything goes well, that the meetings are held and that they are target-oriented.

Step 5 is important for the development and success of the mentoring activity. The co-ordinator should be in regular contact with the mentors as well as all the mentees whose mentoring relationship has begun but not yet ended. Through the follow-up the co-ordinator gains valuable information on aspects that are working well and those that potentially need to be further developed. It is important that the follow-up also sees to that the meetings agreed will take place. The mentors may feel frustrated and confused if the mentee does not make any contact.

Step 6 of the process consists of the final evaluation. All processes should have a clear beginning and end, a mentoring relationship as well. It would be useful if the final evaluation gave an overview of the activity as well as the mentor’s and the mentee’s views on the mentoring pro-cess. The final evaluation should also assess whether the goals set were achieved and what were the benefits of the mentoring process.

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The support processes at the centre of the process flow chart can in-clude e.g. training and coaching for both mentors and mentees, consul-tation by an external consultant, specifically tailored training etc.

One of the basic principles of mentoring is that the mentor is voluntarily involved and does not receive any compensation. Hence, the organiza-tion that co-ordinates the activity must see to that the mentoring does not take too much of the mentor’s time. A good standard is usually that the mentor spends approximately 5–10 days per year for the activity. Some mentors wish to be more actively involved, some only want to participate in certain activities. The co-ordinator should agree on these issues with the mentor when the mentor is interviewed in connection with joining the activity.

Since the mentor participates without compensation, it may be worth for the co-ordinating organization to take notice of the mentor in some other way. One example is to arrange joint events and meetings for mentors, which may be casual and bear a certain theme, include men-toring-related coaching, “field trips” to other organizations who co-or-dinate mentoring, leaflets, company visits etc. Such events will also motivate the mentor, and they are a good way of thanking the mentor for his/her efforts on the benefit of the businesses in the region!

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7. CONCLuSIONS

The emotional ties to the company and the sharing of tacit knowledge are often factors that complicate the transfer of ownership from the transferor to the successor. This report has presented such business transfer related soft values, the extent and emphasis of which are in-dividual, depending on the company. Hence, there is no one and only solution to the issues related to business transfers, especially when emotional and psychological factors slow down the process and conse-quently cause problems between the old and the new entrepreneur.

The present working paper brings up the role of mentoring as a facilita-tor of especially such entangled business transfer situations in which an external person is needed to act as a mediator and awakener. These si-tuations come up in connection with generational transfers in particular. Often the mentor acts as a business godfather for the mentee as well. The mentor has years of experience of business life, so he/she is able to give support and advice, and above all to be that someone to talk to.

The surveys for both mentors and entrepreneurs showed that emotional and psychological aspects have an important role especially in genera-tional transfers. The survey also indicates that the transfer process is still not begun early enough. It also seems that the transferor holds the key position in generational transfers in particular, and that at least on some level the transferor has to deal with the psychological aspect of the process, after which the technical issues can be dealt with.

All three groups (transferors, successors and mentors) hoped for more support from the society and the public operators to the different pha-ses of the transfer process. In addition, the respondents hoped for more seminars and information and training events to promote busi-ness transfer processes. Networking with other entrepreneurs in similar situations, examples of successful business transfers, as well as peer support were some of the respondents’ suggestions for actions facilita-ting business transfers.

Mentoring is known to be beneficial to generational transfers in particu-lar, and it is also an economical way of developing businesses and orga-nizations. Hence it is of first priority that decision-makers and sponsors understand the nature of mentoring and its benefits, and make sure that necessary resources are guaranteed for the activity. In order to be successful and to develop further, the activity needs a “home base”

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and a co-ordinator. The co-ordinator also acts as a contact person for mentors and the cooperating instances. The people and entrepreneurs interested in mentoring may also refer to the contact person when they have questions or wish to make contact with a mentor. Practice has shown that most people have a high threshold of contacting a mentor directly, even if they knew who the ones acting as mentors were.

This working paper briefly examines the mentoring relationship as a process. There are no universally applicable instructions for these situ-ations, because each mentoring relationship is unique. Sometimes all that is needed is one meeting to clarify the issue, and sometimes the mentoring process may exceptionally last as long as several years. This working paper has also touched the surface of “the qualities of a good mentor”, although all mentors cannot be cast in the same mould and say that a mentor has to have all the certain qualities. In general, it can be said that a mentor is a person with sufficient professional and life experience, the ability to look at matters from different viewpoints as well as the willingness to listen and discuss matters with other people. In addition, he/she keeps up with the world, the economy and the de-velopment of his/her own line of business. Finally, it can be said that the most important quality of a mentor is a big heart!

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REfERENCES

Ahlström, Gunilla (2002). Mentorskap – erfarenheter för personlig och professionell utveckling. Malmö: Liber AB. ISBN 91-47-06345-9.

Clutterbuck, David (2004). Everyone Needs a Mentor. Fostering talent in your organisation. 4 th edition. London: the Chartered Institute of Personnel and Development. ISBN 1 84398 054 1.

The Finnish Family Firms Association, website. www.perheyritystenliit-to.fi

Heinonen, Jarna (ed.) (2005). Yrityksen sukupolven- ja omistajanvaih-dos. Käsikirja luopujille ja jatkajille. Pieksämäki: Tietosanoma Oy. ISBN 951-885-246-4.

Juusela, Tuulikki & Tuula Lillia & Jari Rinne (2002). Mentoroinnin monet kasvot. Helsinki: Yrityskirjat Oy. ISBN 952-9660-31-6.

Kets de Vries, Manfred F.R. (1991). Yritysmaailman sankarit ja häviäjät. Miksi yksi johtaja onnistuu ja toinen ei? Weilin+Göös. p. 131-170 ISBN 951-35-5228-4. (Original title: Prisoners of Leadership. 1989)

Koiranen, Matti (2000). Juuret ja siivet. – Perheyrityksen sukupolven-vaihdos –. Helsinki: Oy Edita Ab. ISBN 951-37-3150-2.

Lankinen, Paavo & Asko Miettinen & Veikko Sipola (2004). Kehitä osaa-mista – hyödynnä kokemusta. Talentum Media Oy. p. 83-127. ISBN 952-14-0871-5.

Leskelä, Jori (2006). Mentorointi ja ammatillinen kasvu. In: Ammatillisuus ja ammatillinen kasvu. Aikuiskasvatuksen 46. vuosikirja, 164-190. Ed. Anneli Eteläpelto & Jussi Onnismaa. Vantaa: Kansanvalistusseura /KVS Foundation. ISBN 951-9140-25-5.

Lewin, Kurt (2002). Resolving Social Conflicts & Field Theory in Social Science. Washington: American Psychological Association. p. 1-121.

Megginson, David & David Clutterbuck (2005). Coaching och mentors-kap – utveckla dina egna tekniker. Jönköping: Brain Books AB. ISBN 91-85327-00-X.

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Meriläinen, T. (2004): Keskisuomalaisten pk-yrittäjien tulevaisuu-dennäkymät yritysten omistajavaihdoksista 2004. Keski-Suomen TE-keskuksen julkaisuja A7. Työvoima – ja elinkeinokeskus /Employment and Economic Development Centre.

Peltoniemi, Ari (ed.) (2007). Baseline Analyses Denmark, Finland, Greece, and Italy. In series Reino (Renewal and Innovation to Business Transfers of Micro Companies) Project. Working Paper No. 1. Kokkola: KOSEK, Kokkolanseudun Kehitys Ltd. p. 45-68. ISBN 978-952-5721-00-3.

Petäjä, Merita & Eeva Koponen (2002). Muutosprosessin ohjaaminen. Aikuiskouluttajan opas. 2. korjattu painos Helsinki: Dialogia Oy. ISBN 952-5422-04-6

PricewaterhouseCoopers (2007): Perheyritysraportti 2007 – Pohjoismaat. Omistajayrittäjäpalvelut.

PRIMA, Periodical of the Confederation of Finnish Industries, No. 8, October 2005.

Prime Minister’s Office (2003): Työllisyystyöryhmän loppuraportti. Prime Minister’s Office Publications 5/2003.

Sharma, P., Hoy, F., Astrachan, J.H., and Koiranen, M. (2007): The prac-tice-driven evolution of family business education. Journal of Business Research, 60, 1012-1021.

Siikarla, Pertti J. (2001) Onnistunut yrityskauppa ja sukupolvenvaihdos. Helsinki: Yrityskirjat Oy. p. 25-34 ISBN 952-9660-38-3.

Statistics Finland (2007): Statistical Yearbook of Finland 2007. Helsinki.

Sten, J. (2006): Transfers of Family Businesses to Non-Family Buyers. The selling Business Family Perspective. Diss. Swedish School of Economics Business Administration. Report nr 160. Helsinki.

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Sten, Jan (2007). The introduction ”Miten mentori voi olla avuksi kun sukupolvenvaihdosprosessi ei etene.” In the seminar ”Yrityksen omis-tajanvaihdos vaati pitkän henkisen valmistautumisen.” 24.4.2007. Ammattikoulu Optima, Pietarsaari.

Sten, Jan & Sakari Oikarinen (2007). Process Flow Chart for Business Transfers. In series Reino (Renewal and Innovation to Business Transfers of Micro Companies) Project. Working Paper No. 1. Kokkola: KOSEK, Kokkolanseudun Kehitys Ltd. ISBN 978-952-5721-04-1.

Stenholm, Pekka (2003). Yrityksen sukupolvenvaihdos ja sen tuke-minen. Ministry of Trade and Industry Finland, Studies and Reports 7/2003. Federation of Finnish Enterprises, Finnvera Oyj. (2007): Pk-Yritysbarometri Autumn 2007.

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ANNEX 1 QuESTIONS fOR COMPANIES ABOuT ThE BuSINESS TRANSfER OR GENERATIONAL TRANSfER PROCESS

Which process are you involved in, business transfer or generational 1. transfer?

How was the process initiated and when was it launched?2.

How long did the process take from the point of initiation, and has 3. the process now been completed?

What kinds of different phases can you identify in the transfer pro-4. cess?

What kinds of technical challenges were you confronted with within 5. the transfer process (e.g. business valuation, taxation, legal issues etc.)?

Have you consulted any experts during the process, and if so, which 6. fields of expertise have they represented?

How did you discover the experts?7.

Was the consultation of experts considered useful?8.

What kinds of emotional challenges were you confronted with during 9. the process?

Did you feel the need for a psychological mentor? If so, did this per-10. son come from inside or outside the family?

Which aspects of the transfer were easy, which were considered dif-11. ficult?

Did the sharing of experience-based competency and skills, the so-12. called tacit knowledge, pose any challenges, and if so, what kinds?

What was the most important problem in the whole process?13.

How should the society/public sector support/facilitate the trans-14. fers?

Are there any other specific issues you would like to bring up?15.

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ANNEX 2 QuESTIONS fOR MENTORS ABOuT BuSINESS TRANSfERS AND GENERATIONAL TRANSfERS

Are there any differences between business transfers and generatio-1. nal transfers, and if so, what are they?

Are there separate phases to be identified in the process, and if so, 2. what are they and which were the most challenging ones?

How great a challenge do technical issues (business valuation, taxa-3. tion, legal issues etc.) pose?

How important part do psychological aspects/soft values play in the 4. process?

Which are more challenging – psychological aspects/soft values or 5. technical issues?

What is your role in the process?6.

How were you contacted?7.

Does the company you act as a mentor for use any outside consul-8. tants in the process, and if so, which issues does the consultant deal with?

Do the consultant and mentor co-operate?9.

In your opinion, when should a psychological mentor inside the fa-10. mily be used, and when outside the family?

Is there a specific problem typical of these processes?11.

How should the society/public sector support/facilitate the trans-12. fers?

Are there any other specific issues you would like to bring up?14.

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ANNEX 3 QuESTIONS fOR TEChNICAL EXPERTS

Please define the technical process of a business transfer and the 1. phases it includes (business valuation, taxation, legal issues etc.)

In which phase of the technical process is an external consultant 2. needed the most?

Which of the phases requires the most time/effort /which is the most 3. challenging one?

In your opinion, do the entrepreneurs in the region use enough con-4. sultation, or do they prefer managing on their own?

Do you know if it is difficult or easy for entrepreneurs to find the 5. right consultant?

Have you noticed if soft values have any impact on the process, and 6. if so, in what way?

In your opinion, what kind of a role do soft values have in the pro-7. cess?

How can you help if you notice that soft values are slowing down the 8. transfer process or even bringing it to a halt?

Do you believe that the need for consultants will increase in the fu-9. ture, and if so, which are the lines of business that are affected the most?

Can you think of anything else that may have an effect on the techni-10. cal process?

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ANNEX 4 A COMPILATION Of ThE ANSWERS Of ThE SuRVEY

THE TRANSFERORS

The differences between a business transfer and a generational transfer

Generational transfers may provoke emotions to a higher degree than business transfers, which are mostly about reaching an agreement with the new owner. Sharing the company 50/50 between for example two children is usually not a successful option. It is important that someone bears the greatest responsibility. The previous owner has to transfer the responsibility with openness and resolution – the total responsibility, not only a part of it. The business transfer is more about technical de-tails rather than emotions and soft values. The parents should not stay in the company to supervise the children and the decisions they make. Running the business should not be made too easy for the children, eit-her; the company should not be given to them on a silver plate. If the parents choose to stay in the company as minority owners with board responsibility, their responsibility is only supervisory, not operational. It is important to inform the children in good time about the plans for a general transfer.

Phases of the process

The psychological aspect, which in fact launches the whole process, and the technical aspect. Usually, both are experienced during the transfer, often parallel.

The role of technical issues

Technical issues are self-evident and very important. It is important to have the company valued objectively, and it is also important that all members of the family are aware of the valuation. In the end, legal and fiscal issues are only technical matters, for which help is available. Emotions are connected with the business valuation as well. The techni-cal issues should be discussed within the whole family, as well as with an external evaluator. It is also important to consider in advance, how the value of the company could be increased.

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The role of emotions and soft values in the process

Soft values and emotions have a great impact on all kinds of processes. Since the transfer is a process between generations, emotions and soft values can have a significant effect on how the process progresses. The general opinion is that soft values are clearly more challenging than technical issues.

Consultants Some companies have also involved consultants in the process, and the opinion is that mentors can easily work side by side with consultants. The mentor often receives such information that is not shared with the consultant but that can have a crucial role in the process. Hence it is important that the mentor and the consultant can co-operate in difficult cases. The mentor can also suggest consultants to the entrepreneur.

When to have a mentor from within the family, when from outside

If emotions play a big role in the process, an external mentor should be consulted. The same applies when the process concerns several family members who may not be directly connected to the company or do not work within the company.

Specific problems

All cases indicated the problem of timing. The process is not launched early enough.

how the society can facilitate business/generational transfers

Information events and seminars should be organized, and information about successful transfers should be disseminated. In legal and fiscal issues, the society should also lower the threshold for companies facing a business or a generational transfer.

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THE SUCCESSORS

Companies facing a generational transfer

When the process has been launched

Some of the respondents have been active in the family business for a long time, and they have started as summer workers in the company. They have had the opportunity to try several duties in the company and they have worked within several departments.

For some, the process has already come to an end, whereas for others it is still unfinished. Those whose process is still going on believe that it may take a long time before it will be finished. It is impossible to esti-mate how long it can take.

One of the respondents has not yet started the process; he has only managed to think about the issue with his partners. In this case the situation is a little different, because the company has several owners who are not related. However, they all have children who could be po-tential successors, but they are too young at this stage. In addition, one of the company’s employees is a potential successor after the transfer.

Phases of the process

When asked about the different phases of the process, one of the res-pondents considered it very important that the tacit knowledge of the older generation is shared with the younger one. The opinion is that a lot of progress has been made when the post of Managing Director has been transferred to the next generation.

One of the respondents considered the psychological aspect as the pri-mary issue. Thoughts emerge slowly, they are passive at first but be-come more active as time goes by, and the process is accelerated. All of the respondents considered that the psychological process constitutes a part of the generational transfer.

Technical challenges

As to the technical challenges, some of the respondents considered business valuation, i.e. finding the right price for the company, as chal-lenging. It is crucial to find a price that all parties are able to accept.

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All respondents had consulted an expert in technical issues, and they had discovered the experts through recommendations by acquaintan-ces and other entrepreneurs. One respondent had also found contacts in connection with a seminar organized by Concordia, and another res-pondent through a training event by Hanken School of Economics and Business Administration. One of the respondents had sought expert ad-vice for reorganization of the company’s management and the Board. Help had also been received from the business advisory service of the Employment and Economic Development Centres. In addition, the fi-nancing company Finnvera and local banks had been of assistance.

The respondent about to launch the process considered that now was the time he needed a mentor the most.

Most respondents thought that they had received all necessary advice from the consultants, and they considered an outsider’s point of view important. The respondent who had not yet started the process had had the first technical evaluation done, but considered yet another one.

Psychological challenges

Leadership and the responsibility it brings were considered a great chal-lenge. The staff may compare the new owner to the old one, and con-sequently the new leader may sometimes feel “small”. One respondent had left his “top job” to become an entrepreneur, uncertain of the future. A smaller paycheck, a lot more responsibility and longer working hours. Of course, the requirement of knowing “everything” was considered a psychological challenge. It is important to set clear targets, because it makes the job easier.

The respondent who had not yet begun the process: The fact that there are several co-owners has an impact on the process; there are many different opinions and future plans. Some may be willing stay in the company longer than others. Persuading the candidate to become a successor was considered a psychological challenge.

The need for a mentor from within the family and from outside the family

The need for a mentor from both inside and outside the family came up in all responses. One of the respondents has discussed his problems with other entrepreneurs as well. The one who had not yet begun the

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process considered his need for a mentor to be significant. One respon-dent considered it important to have a mentor from outside the family, who then would be able to question decisions.

Difficult and easy issues

Two generations having differing views on the matter is considered a difficult issue. In addition, getting the process started and the actual, active work instead of “just talking” was considered difficult. Matters have to be constantly discussed in order to come to a compromise or a solution that pleases all parties. The respondent who had gone through a business transfer (not a generational transfer) felt that at the begin-ning it was difficult to let go both the social life and the top job related to the business. The respondent who had not yet started the process thought that it was difficult to find a successor, because the children were not yet old enough to be successors.

Challenges related to tacit knowledge and professional skills

In one of the companies participating in the survey, many key persons will retire in the near future. The company has received support through the Employment and Economic Development Centre, in order to be able to share tacit knowledge in a structured manner with the younger emp-loyees and the new Managing Director. It was also considered important that the process be long enough, so that no hasty decisions have to be made. One of the respondents stated that his knowledge of the field is even vaster than the previous owner’s.

The most important problem

One of the respondents considered the sharing of tacit knowledge the biggest problem/challenge. Another respondent imagined that there must be an inner battle within the transferor, since his entrepreneurial career has been long and successful. One respondent thought that a great challenge was to develop the company to a more professional di-rection; the company had been established on the basis of the previous owner’s leisure activities.

how the society can support business/generational transfers

One respondent said that it would be good if there was free consultation available for both technical and psychological issues. One respondent

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stated that the society could provide support in fiscal issues and trai-ning. Considering other entrepreneurs, it is also important to bring up successful examples to show that a generational transfer is feasible. It is also important that the younger generation is informed about the transfer by the older generation as early as possible. One of the respon-dents suggested that the state should organize a support system for the successor, which would facilitate the continuity of the business.

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THE MENTORS

The differences between a business transfer and a generational transfer

Generational transfers may provoke emotions to a higher degree than business transfers, which are mostly about reaching an agreement with the new owner. Sharing the company 50/50 between for example two children is usually not a successful option. It is important that someone bears the greatest responsibility. The previous owner has to transfer the responsibility with openness and resolution – the total responsibility, not only a part of it. The business transfer is more about technical de-tails rather than emotions and soft values. The parents should not stay in the company to supervise the children and the decisions they make. Running the business should not be made too easy for the children, eit-her; the company should not be given to them on a silver plate. If the parents choose to stay in the company as minority owners with board responsibility, their responsibility is only supervisory, not operational. It is important to inform the children in good time about the plans for a generational transfer.

Phases of the process

The process consists of both the psychological aspect, which includes strong emotions, and the technical aspect, which is easier but may still cause conflict. Conflict may arise when the parties of a business transfer in particular have completely different views on the value of the compa-ny. The psychological and the technical aspect go hand in hand.

The role of technical issues

Technical issues are self-evident and very important. It is important to have the company valued objectively, and it is also important that all members of the family are aware of the valuation. In the end, legal and fiscal issues are only technical matters, for which help is available. Emotions are connected with the business valuation as well. The techni-cal issues should be discussed within the whole family, as well as with an external evaluator. It is also important to consider in advance, how the value of the company could be increased.

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The role of emotions and soft values in the process

Soft values and emotions have a great impact on all kinds of processes. Since the transfer is a process between generations, emotions and soft values can have a significant effect on how the process progresses. The general opinion is that soft values are clearly more challenging than technical issues.

Consultants

Some companies have also involved consultants in the process, and the opinion is that mentors can easily work side by side with consultants. The mentor often receives such information that is not shared with the consultant but that can have a crucial role in the process. Hence it is important that the mentor and the consultant can co-operate in difficult cases. The mentor can also suggest consultants to the entrepreneur.

When to have a mentor from within the family, when from outside

If emotions play a big role in the process, an external mentor should be consulted. The same applies when the process concerns several family members who may not be directly connected to the company or do not work within the company.

Specific problems

All cases indicated the problem of timing. The process is not launched early enough.

how the society can facilitate business/generational transfers

Information events and seminars should be organized, and information about successful transfers should be disseminated. In legal and fiscal issues, the society should also lower the threshold for companies facing a business or a generational transfer.

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THE EXPERT

The technical process

The valuation of the business calls for discussion in order to find the right price – not too high, not too low. Various business valuation met-hods.

The most challenging phase of the technical process

There has to be a mediator between the buyer and the seller, who aims to adjust the price so that it would satisfy both parties. It is important that the buyer and the seller feel that they are on the same level.

The aspect which requires time and effort the most

Finding a serious buyer. If there is more than one buyer, they should not be made to compete with each other.

Does the company use enough external consultants

Large companies have enough resources to be able to use consultants when necessary.

how soft values affect the process

Soft values definitely have an impact on the process. It is important that there be enough time to consider different options.

The need for consultants in the future

Through expanding industries and a more global operating environment, the need for consultants will increase in the future.

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PuBLIShED REINO PROJECT WORKING PAPERS

8. 2008. Regional Process Flow Charts for Business Transfers.

7. Toni Brunello. 2008. Vaccination as a Good Practice.

6. Ninetta Chaniotou. 2008. Females as Transferors and Successors. Greek Perspective.

5. Tapani Hirvonen. 2008. Employee-Buy-Out (EBO) Model in Business Transfers.

4. Toni Brunello. 2008. The Bank of Cases: Manual, Tool and Example Cases.

3. Jan Sten - Sakari Oikarinen. 2007. Process Flow Chart for Business Transfers.

2. Johanna Salmi - Veli-Matti Koljonen. 2007. The Outcomes and the Evaluation of the Pilot Project “Anticipation Method”.

1. Ari Peltoniemi (ed.). 2007. Baseline Analyses: Denmark, Finland, Greece and Italy.