Plan or perish

You talk about the kids, football, weekend plans, cars – nearly everything but what matters. Where the business is headed. Why discuss something that’s only going to cause angst? After all, you may think, it’s our family business and it’s not going anywhere. Clearly, this isn’t a healthy scenario. If this sounds familiar, it’s time to find someone who can help initiate some critical business discussions, including succession planning.

Baker Tilly International, a full-service accounting and advisory firm with offices nationwide, wanted to find out what triggers businesses into succession planning. Interestingly, the top reason wasn’t health issues of the generation in charge. Instead, the firm discovered three important triggers: Professional advice; the current incumbent generation being ready to transition; and the incoming generation being interested in and ready to step up to the roles of managing the business.

In a survey of more than 2,500 family-owned firms, Baker Tilly found six principal reasons respondents wanted to execute succession planning.

• Continuity of the business
• Family harmony
• Ongoing jobs for employees
• Keeping the business in the family
• Leaving a legacy
• Selling the business for the best price
   

The firm also identified the barriers to the succession process.

• Ensuring the fair distribution of assets among family members (“the importance of this challenge increased as succession progressed to become the single most important challenge”)
• The capacity of the business to provide adequate financial returns
• The capacity of the business to support retirement
• The capacity of the business to support the next generation
• The general economic uncertainty in their sector
   

Wayne Rivers, owner of the Family Business Institute, helps break it all down.

“Items two, three and four [of the barriers] are the same. Family businesses tend to plateau in size over time. Plateauing generally coincides with the point where the senior generation leader or leaders have either reached their comfort zones or have reached their capacities to manage,” he explains. “As a new generation of family members or nonfamily leaders come aboard, it’s often necessary for the business to grow both gross revenue and profits in order to accommodate all in a reasonable and satisfactory manner. The business trough has to be big enough so that all can get their fill, and this sometimes means embarking on a growth strategy that stretches leaders beyond their comfort zones and into the unknown.”

The survey not only presented a more modern look at succession planning, but it also identifies pointers for businesses just getting started in the process. The most common advice from survey respondents was (no surprise), start earlier.

“Families in business should develop proactive strategies designed to orient the uncertainties that exist for the business and the family as they recognize the substantial costs in not being proactive,” according to Baker Tilly. “These costs include loss of business competitiveness, family conflict, loss of wealth, and decisional paralysis.
 

Generational, personality differences

The firm also notes to recognize that character, personal qualities, and relationships of the incumbent family members and the successors matter more than ever as they seek to nurture and mature the right traits across family members.

Rivers adds, “There is a different societal norm for today’s thirty-something family business executive. He’s expected to be every bit as rugged and dedicated as his father was while simultaneously being expected to be at every dance recital, little league game, and school pageant. He’s also expected to help out around the house with the children, the chores, the car pooling, etc. It almost seems as if there’s a tug of war for the attention of today’s male between the need to be a great husband and father and the need to be a great businessman.”

Rivers, speaking to the senior generation, suggests developing metrics by which you’ll evaluate your successors in their jobs.

“If they can get all the requirements of their jobs done at an acceptable level in 40 hours a week, they shouldn’t necessarily be expected to hang around an additional 20 or 30 hours. If they’re coming up short in their job performance, you’ll have objective criteria for evaluation and corrective action,” he explains.

He also suggests helping your kids understand your position by providing them with exposure to one or more of your senior generation peers in a different family business — not for employment, but for discussion.

“Senior generation family business members must understand that it’s a different day, and today’s spouses won’t tolerate husbands or wives who are workaholics and who rarely participate in normal, everyday family activities. By virtue of the amazing amount of hours and hard work you put in, your kids may not have to work as hard as you did; that’s a part of your gift and legacy to them,” Rivers adds.

Baker Tilly provides eight guiding principles in the succession planning process, as observed by Rivers:

• Succession is not retirement
• Start with readiness
• Set your goals before the journey
• Harmony is a must
• Price is not first
• Plan early, start earlier
• Equality is not equal
• Ask before you get lost
  
   

Real-world examples

Treat your interns with courtesy and respect. One day, you might be handing over your business to one of them. Ron Amos first came to Evergreen Nursery on an IPPS internship in 1980. Tom Pinney was the owner of the Wisconsin wholesale nursery, as well as the president of the Eastern Region of the International Plant Propagators Society at the time. Twenty years later, that intern had become someone Pinney would trust with the business that had been in his family since 1864.

Amos was hired by Tom Pinney, whose family had run the nursery for four generations. Pinney was looking to help the nursery evolve from its roots as a field-grown, seedling business to a propagation nursery. Amos was brought on board to build that new facet of the business. He joined as a propagator in 1982, became vice president in 1995 and purchased the nursery in 2001.

Pinney had planned for a traditional succession in which the next generation of his family would take over the business in 1995. But it wasn’t working out.

“Some businesses have been able to carry on keeping the family intact,” Pinney says. “We had some chances to do that, but the family themselves saw Ron was a better choice. They were gracious enough to see the light. When Ron took over it was no longer the Pinney family. I can live with that.”

It was a period full of difficult decisions for Pinney, but he believed strongly in Amos’ ability to gain the respect of customers and employees through treating both fairly.

“It’s tough, I wanted to have a clean ship for him to take over,” Pinney says. “There were things that needed to be done; family members needed to be released. Whether I made right decisions or not, I don’t know. I hope I did, but family members were not left out in the cold. They either retired and got stock, or I tried to help them seek other employment, finish a degree or get going in different career.”

As Pinney took on more responsibility nationally, with leadership roles in the American Nursery and Landscape Association, he had delegated more and more of Evergreen Nursery’s management to Amos.

Eventually, he knew it was time to step away.

“When I sat down in my office one day, I said ‘He’s done everything you asked him to do, you’re going to get out of the way, get out of there,’” Pinney says. “I got immersed in other things while he ran and built his own nursery — his footprint. It is his and he’s created it. It’s not the Pinney family’s anymore. It’s Ron Amos’ baby. He’s made it what it is.”

There were certainly rough patches. Some were quite early in the transition process. The September 11 terrorist attacks occurred 10 days after Amos purchased the nursery. But Pinney says economic disasters are just part of the learning process.

“We all know, in any business, that anyone who says they haven’t gone through a tough financial time either hasn’t been around very long or is lying,” he says.

Although Pinney is still very interested in the business, the retired nurseryman doesn’t interfere in Amos’ day-to-day operations.

“I give him credit,” Amos says. “When we first started the transition, he questioned the big things, and then as it got to the point where he started nitpicking, then I think I said once, ‘At least now you can only find little things.’”

Amos has grown Evergreen Nursery into Wisconsin’s largest wholesale nursery. To bring the story full circle, he is the current president of IPPS Eastern Region — no doubt keeping an eye out for potential interns.

Spring Meadow Nursery’s Deppe family hasn’t begun the formal process of succession planning, but it’s a subject on the mind of Jeremy Deppe, general manager and son of Dale and Liz Deppe, who founded the Michigan nursery in 1981. Both parents are actively involved in the business, Jeremy says. Dale helps set the direction of the company and it’s Jeremy’s job to make sure the nursery stays on track.

“I love it and have fun every day working with my folks,” Jeremy says.

Becoming GM of a massive growing operation wasn’t in Jeremy’s original plans, who’s been back at the nursery for 11 years.

“When I went away to college, I never really wanted to come back. I told my folks I wasn’t coming back into the business,” he says.

But like many children who grow up in the nursery business, he returned and stayed.

It may not be formal, but a succession plan of sorts has begun in the day-to-day operations.

“I meet with the senior management team and I lead those meetings,” Jeremy says. “Dale has always been one who allows his employees to make the decision they feel is best. He’s not a micromanager, and he’s taught his senior management team to be the same. All employees are encouraged to think like an owner. I don’t know if it’s strategic on his part, but he’s not the end-decision maker, but will give his input.”

Jeremy knows there are scores of other next-generation leaders in the green industry, and he makes it a point to reach out to them and offer advice for working with the other generations.

“I know succession planning is important and many companies in our industry are faced with this dilemma. To me, it’s not about if I’m an owner of the company. The legal stuff will come, but it’s more about the joy and honor of being a part of this company my parents started.”

For more: Baker Tilly International, www.bakertilly.com; Family Business Institute, www.familybusinessinstitute.com