The Courage to Do Things Right
By Paul R. Brown, M.A.
Principal, BROWNSTONE Capital Advisors
In my experience, the single biggest barrier to implementing a succession strategy is courage. That may sound surprising since
most owners of successful companies exhibited a great deal of courage when starting and growing their business. However, when
it comes to handing it off to another, whether the successor is a key employee, family member or even an outside buyer, most
owners will hold onto the reigns until it is too late.
The result? Failed businesses. Broken promises. Strained relationships. All because the owner lacked the guts to carefully create
and then implement a goal-driven business succession and transition plan. Unfortunately, this is still the rule and not the exception.
Fortunately, more and more are breaking the rules. Such as this courageous owner.
I met him for lunch at a restaurant overlooking Waikiki Beach. He had successfully grown the family business, having taken it over
thirty years earlier. Now, he wanted to begin the process of transitioning it to his son. For five years father and son thought about
doing this in “about five years.” As we talked I learned a great deal about the company and its history. I also gained a general sense
of the owner’s goals and the degree to which he is committed to reaching them. Even so, when he asked me to put together a
proposal, I demurred.
When working with clients I follow a relational rather than transactional model. By “relational” I mean that the values my wife and I
followed when we began our relationship, more than thirty years ago (I was still in junior high school) are similar to the ones that I
follow when working with clients. My wife and I started out by spending time together. We listened to one another. We discovered
our respective strengths and weaknesses; like and dislikes.
As a result, we are committed to one another.
Compare this to the “transaction” that takes place during one-night stands. Without being crude (since this is a family-approved
article) the participants are primarily interested in getting something from the event, without being committed to one another. That
approach – transactions and not one-night stands – is far too common. I once worked for a large firm that – like most large firms –
graded employees on their transactions; i.e. hours billed and money received in excess of hours billed. For me, it wasn’t a very
enjoyable.
Being relational; being truly interested in my client’s success is. That’s why I could not put together a proposal for the owner. I knew
too much about his challenges, yet knew too little about what he was truly interested in accomplishing. I suggested that we take a
day to thoroughly discuss and delve into the issues affecting his succession plans. If he agreed, I would send him a list of items that
I would review before we met. I also told him that I would give him an unconditional guarantee for my time.
Last month I flew back to Honolulu to spend a day with the owner, his two brothers – also active in the business and shareholders
of the company – and his son. While there I became convinced that this succession will have a rewarding ending. Here’s why.
He’s given himself a long runway.
In my business succession seminars, I introduce The Comprehensive Succession Strategy™. During the seminar someone will
inevitably ask me, “When should I begin my succession planning.” My first response is to say, “Yesterday.” I then go on to explain
that in most instances the pilot of a plane has a better chance of making a smooth and safe landing when he or she approaches a
long runway.
In this case, the owner is giving himself a five-year plan. During this time he will gradually transition from his current level of
involvement as he addresses the numerous issues surrounding his transition. Not only will he oversee the development and
promotion of his son, but he will also prepare the company’s stakeholders (including partners, vendors, managers, employees,
customers, financial backers, etc.) for this transition. The next five years will go by fast. They will also proceed with great focus.
He’s willing to take care of the elephants.
When working with owners on their succession planning, I can usually identify a potential issue or issues that can undermine the
entire process. Unfortunately, in many cases the owner is unwilling to face the proverbial “elephant in the living room” and brings
everything to an abrupt halt. Family conflicts. Partnership issues. The lack of readiness. Unwillingness to confront. These are just a
few of the more common breed of elephants that I come across.
Choosing a successor can be a huge elephant. In a family business, parents may not want to risk hurting a child’s feelings so they
won’t formally designate the obvious successor. Or they may be holding out for the possibility of creating a partnership between all
of the children, whether they are active in the business or not.
In this case, there are some unresolved family issues blocking the succession to a new generation. The owner has already started
to resolve them, even though it required some uncomfortable phone calls. He is also ready to update his estate plan, review his
gifting program and revisit some of the legal documents that have outgrown their usefulness. By taking care of the elephants, he will
be able to tackle the rest of the zoo.
His successor has to earn the right to lead.
I have a friend, Pat McFarland, who has a way of describing underperforming children who try to run a family business. “He woke up
on third and thought he hit a triple.”
Too often, parents and owners have promoted a successor beyond his or her competence, only to see the business suffer.
In this case, we will help the owners create and implement a succession plan that is tied directly to the son’s performance. This is
important for any business, whether the successor is a member of the family or a key employee.
Currently I’m now working with two different companies from two different industries in two different states to design and implement
an employee buy-out. In both instances the successors will be given the opportunity to earn shares of the business in a merit-based
stock bonus plan. In each instance, the bonus is tied directly to the employees annual progress in his or her career development.
If they reach third, it will be because they hit a triple. Not because they happened to wander onto the field.
Is this all it takes for an owner to “finish well?” Not at all. But with a long runway owners will be able to adjust to unforeseen
challenges and unexpected setbacks. And by confronting and resolving unpleasant and uncomfortable issues that could undermine
their transition, owners show they have the courage to complete the succession plan. Finally, when they require successors to prove
their capabilities as a condition of being promoted or gaining ownership, they not only give them a reason to be confident in their
abilities.
They also give everyone in the company confidence in its future.
©2006 to present Paul R. Brown
Author’s Bio:
Paul R. Brown, M.A.
Paul Brown is a business succession/transition advisor, writer, speaker and executive coach who specializes in helping owners of
closely-held and family-owned businesses finish well. As a recognized authority on business succession planning he speaks
regularly to local, regional and national conferences, professional organizations and private seminars. He lives in Spokane,
Washington and can be reached at paul.brown@brownstonecap.com.