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By Matthew Pletzer, Lift Consulting, LLC
Call it being fortunate or unfortunate, I
grew up in a family of entrepreneurs. My grandfather, Leonard, owned Pletzer
Insurance Agency in Spring Green. My other grandfather, Shelton, owned
Shelton's Bar and Restaurant in Cross Plains. My father, Gene, owned Gene's
Professional Hair Care in Madison.
Entrepreneurship is in my blood and I've seen
my share of transition from one generation to the other. In the case of my
grandfather Leonard, he was fortunate to have his daughter Judy working for
him. When it came time for him to retire, his succession plan was already in
place: Judy. Grandpa worked out a fair
deal for Judy that would allow his legacy to live on while providing income for
him and my grandmother throughout their retirement. Today, Pletzer Insurance is
in its third generation with my cousin Chad Price at the helm. Pletzer
insurance agency is an example of good succession planning at play.
Unfortunately, my other two experiences did
not go as well.
My grandfather Shelton was diagnosed with ALS
and was forced to sell his business to his four sons. During its hay day,
Shelton's was the place to be. Friday
night fish fries were standing-room only. Unfortunately, my grandfather’s time
came far too early and he was not able to enjoy the retirement he always
dreamed of. That said, he was fortunate to have children that worked at the
restaurant for many years, who were poised to take over. The restaurant
survived for quite a few years later, but eventually went under when the
brothers disbanded. Shelton's lasted 49 years. It was a sad day when it closed.
In my father's case, he ran a very successful
hair replacement business for over 34 years. Dad was the lifeblood of the
business. Although he had four other stylists, the business and reputation was
clearly built on him. Heck, his name was the business's name.
My father tried many times to entice me and
my sisters to join the business, but we did not share his passion for the
business that he did. So, my father continued on, building the business without
our involvement until the worst day of my life, when I found out he was
diagnosed with pancreatic cancer. With his diagnosis came a prognosis to live
no more than six to 12 months. Fortunately, my father beat the odds, but not by
much. On March 3, 2013, my father passed away surrounded by family.
In passing, my father left us with quite a
mess to manage. We had a business with long-standing employees but no one to
manage the day-to-day operations. Our assistant who ran the operations in his
absence quit the month before my father's death. Needless to say, it was a
trying time for my family. I was traveling for work three days a week, my
mother was in no state to manage the business, and my two sisters were too busy
with their growing families to take it over. We were left with no option but to
close or sell.
Fortunately for us, we found a suitable buyer
and were able to sell the business and property. Unfortunately, we were forced
to sell what was supposed to be a long-term annuity for our family – the
building. Without the building, the valuation for the business just wasn't
there to attract the right buyers.
These experiences fueled a passion in me to
ensure this story doesn't repeat itself for our clients. In our case with
Gene's, things could have been much worse. That said, we have found the stakes
are much higher for our clients.
In our experience, we have seen closely held
family businesses are often the focal point of the family. They are the glue
that holds the family together. In my father's case, he said he was
"married to his business"; he even wore a ring that said “Gene's
Professional Hair Care” on his ring finger to prove it. If that glue is not
carefully peeled away from the family, the trauma that it provides through the
separation can be unrepairable. Our goal is to ensure that doesn't happen.
My grandparents', uncles’ and father's stories
are very similar to those in the construction industry. Many construction
organizations are multi-generational – built off the reputation of the family
and the quality of the work provided. Unfortunately, as in our case, as the
glue (the family) is removed from the business, more often than not the
businesses falter or fail altogether. Add on top of that an economy that many
would argue is primed for another economic downturn, the odds of a successful
succession to the next generation of owners only becomes more challenging.
So, the question is … what do we do about it?
How can we ensure the companies that have worked so hard to build do not fall
victim to the "glue effect" and the economy?
Just like a doctor, we believe prescription
without diagnosis is malpractice. Often, for business owners who literally grew
up in their business, it can be a challenge to see the trees through the
forest. To clear up the picture, we would recommend having a third party
evaluate your organization to provide an objective diagnostic as to how your
business ranks for potential succession: At Risk, Average, Well-Maintained or
There are six elements that we would
recommend consideration for evaluation:
1) Your People
2) Your Processes
3) Your Performance Metrics
4) Your Team’s Passion
5) Your Positions.
A good third-party organization should have
experience conducting assessments through staff interviews, utilizing
assessment tools such as DiSC™, Devine, Strengths Finders, 360-analysis, etc.,
conducting market research through in-depth interviews, surveys, focus groups,
Once you have a good evaluation and
assessment of the current status of your team, your organization and your
processes, it will empower you to have a clear understanding of where your gaps
are and what you need to do to overcome them.
From our experience, the gaps typically fall
into a handful of categories. Below are a few of the more prominent ones we
1) Not having the right team in place
2) No documented procedures and processes
3) Stale marketing/sales strategy
4) Outdated technology
Let's dive into greater detail.
Not having the right team in place
We have found that family-based businesses’
strengths and weaknesses often lie within the name "family." They
typically involve family and/or treat their employees like family. At times,
this can mean being too lax on roles and responsibilities or not having clear
roles and responsibilities at all. It can also lead to taking for granted the
developmental needs of the staff. Over time, a compounding effect can occur
here, and when it comes time to sell, it can often be too late. A loss of a key
stakeholder such as the primary owner – even if family continues to be involved
– can be far too large of a gap for the family to address in such a short
period of time. Proactive training can be a key to success. All too often,
organizations promote people and then train them. This immediately sets them up
for failure. The more proactive your organization can be with training, the
more empowered your people will be when and if a succession plan is put into
No documented processes or procedures
Many closely held businesses are built upon
the backs of one or two individuals being the face of the company. We find they
often lead the sales efforts of the organization as well. Over time, one
becomes more comfortable with selling in their own way and success continues to
grow. Once that person is gone, however, it's rare that the processes that the
person relied upon are documented in a fashion that others can pick up right
where they were left. This forces the new "owners" or successors to
recreate the wheel. In doing so, sales typically slow and performance lacks.
Organizations should take the time to document their processes and procedures
whether it be accounting, sales, billing, project management, etc. before they
are put in a position where they are forced to do so. This is working "on
the business," not "in the business." In a time of need, it can
be difficult to pull the business owner away from their day to day activities
to do so, but it can be one of the most profitable activities when preparing an
organization for a transition.
Stale marketing/sales strategy
Reputation and referrals are often the keys
to success in the construction industry. People refer to people they like,
people like people like themselves, therefore people buy from people like
themselves. If an organization is built off of a "personality" such
as my father's business, when that personality is removed, the referrals often
dry up, as does the business. To hedge this off, we recommend a slow transition
away from the "personal brand" to the "professional brand."
This is where processes and procedures should be sold, rather than personality.
As with anything, however, this transition can take some time and isn’t
something that should be done overnight. It should be carefully plotted, much
like the moves in a chess match.
Gone are the days of carbon copies and Excel
spreadsheets. Now are the days of integrated CRMs and ERPs. Many business
owners become comfortable with their practices and believe, "If it's not
broke, don't fix it." The challenge with this is that it typically leaves
a potential successor or suitor for your business without accurate records,
confusion and potential loss of operational efficiency. If you don't want to be tied to your business
through the sale with an employment contract and you want to walk away free and
clear, you owe it to yourself and your employees to get with the times,
regardless of the pain required to do so. The more your business can run
without you, the higher the valuation you will have. With that said, if you are
like my father, there is a good chance that you are a "control freak"
and don't necessarily want to have your business run without you. You thrive
upon your team’s need of your approval and bask in the attention it provides
you. Although attention is great when you're working, if you want to retire,
you'll need to deal with losing the attention anyways. So why not adopt some
technology that allows the business to run without you now, so you can reap the
As you go through this list, you may be
feeling the weight of the world on your shoulders. As a fellow business owner,
I know I do as I write this. With that said, I'm in a position where my
business has time, and since we consult on these practices, we feel that we are
in a better position than most. Not everyone has that luxury though.
You may be asking yourself, “How soon do I
need to start working on all of this before I want to sell or transition?” The
answer is now. It may be too late, but
it can never be too early. In the case of my father and grandfather, it was too
late. They didn't get to enjoy the spoils of their lifetime efforts and
achievements, and unfortunately, due to their lack of forethought, their
families did not get to enjoy them nearly as much as they should have, either.
According to Generation Equity, there are
over 12 million baby boomers who own a business and more than 70 percent of
them are looking to retire over the next few decades. This is only going to
increase competitiveness in the marketplace. Those that take the time to
prepare their business for succession now will reap the rewards later. The
question is, which side of the coin do you want to be on?
Matthew Pletzer is the
Founder of Lift Consulting, LLC, a certified Sandler Training facility.