May 13, 2015
Family succession challenges independents
A recent piece in The New York Times detailed the many challenges owners of health food stores spawned in 1970s and 1980s are facing with succession as they reach typical retirement age.
The challenges include not only trying to monetize a closely-held business, but particularly the complications of selling to a family member and the owner "letting go" emotionally of the business in the process.
The article reminded this writer of hurdles owners of specialty running shops have been facing trying to sell shops they first opened during the first running boom.
PwC’s US Family Business Survey that came out earlier this year found:
- Seventy-three percent of U.S. family businesses admit to not having a documented and robust succession plan;
- Forty percent found it difficult to hand over control fully to their successors;
- Fifty-six percent believed they would stay involved in their companies longer than is optimum to ensure a smooth transition.
Source: PwC’s Family Business Survey, 2014-2015, U.S.
"We are seeing an increase in what we call the ‘sticky baton syndrome,’ where the older generation hands over management of the firm in theory, but in practice remains in control of what really matters," said Alfred Peguero, PwC’s US Family Business Survey Leader, in a statement.
A recent FPA/CNBC Business Owner Succession Planning Survey of small-business advisors similarly found that less than half of owners include family in the succession-planning process, although 31 percent in general wind up selling to family members. Challenges in selling within the family include:
- Equalizing the business owner’s estate with non-employee children (a problem cited by 50 percent or respondents);
- Distributing executive control among family members and children successors (cited by 45 percent);
- Uncertainty about family’s ability to run the business (cited by 42 percent).
- Health Food Retailers Make Way for the Next Generation – The New York Times (tiered sub.)
- Majority of US Family Business Leaders Don’t Have Robust Succession Plan in Place, PwC U.S. Family Business Survey Finds – PWC/PRNewswire
- Small biz owners ignoring succession advice: Poll – CNBC
- Family Business Survey 2014-2015: US – PwC
BrainTrust
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Recent Discussions
Discussion Questions
What advice would you have for independents around succession planning? What advice would you have for an owner about “letting go” of the business?
Poll
My advice would be do it early, way before you plan on retiring or selling the business, and then stick to the plan. Thinking about letting go for a decade or three is good practice, and may make the transition easier when it’s time to sell.
I believe lots of business owners think about retirement, selling off the business or integrating other family members into a firm in the abstract. Early planning can help introduce a dose of reality.
Some of us may remember a grocer in Ohio who — at 67 and past his retirement age — was still waiting for his father, then in his 90s, to retire and sell him the business. His situation highlights another aspect of the problem. Selling off to a stranger or a competitor is one thing. Transferring ownership to another family member is much, much tougher for a variety of reasons.
As to letting go, again, I’d advice practicing. Businesses, especially small businesses don’t generally do well with two CEOs.
If you want to hold on, don’t sell and if you want to sell, don’t hold on.
Having sat on board meetings with independent retailers, and also on meetings with owners and their personal financial advisors, I can tell you this is a real problem for more families than not. This runs the spectrum of “I want $X for myself and $Y for each of my kids, so just sell this business to the first offer for what I want,” to “My kids want no part of this business, except the real estate,” to “I want to look outside my company for leadership because I am not comfortable that my management can take the baton.” The first step is to document a plan. Period. As the owner, what is it that you would like to see happen to the business after you pull away from it entirely? If you can articulate that, often with the help of an industry expert’s coaching, you will be far less emotional in your decision making as the process progresses.
Part of this challenge is for independent retail business owners to understand why and how their shoppers are invested in the business, so that a forward-leaning business strategy can be developed, leveraged and cultivated over the future. Sustaining an independent business requires insight, not just desire.
Determining if a relative can guide the future of a store has to be guided by that person’s willingness to manage to a business plan that maintains or increases the value to the customer.
I know a number of “family businesses” that succeed and fail due to the reasons mentioned above. For the succession to succeed, the older generation and the younger generation must be in alignment with work ethic and passion for the business. The older generation must be willing to step back for the younger generation to take over when willing and ready. (It’s the ready part that sometimes causes problems.) If there is more than one potential successor in the next generation, it must be mutually agreed upon who will take over as the leader. Consider an exit strategy if the succession will cause families to break up. Those are just a few thoughts and observations that come to mind.
- “Letting go” is the WRONG strategy. It’s VERY hard, if not impossible, to do a negative — like don’t eat fattening food. You must have something beyond that attracts you more than what you are leaving. The real question is, NEXT?
Some people have a hard time letting go of their kids, too. Your business has a lot of characteristics of another “kid.” If you won’t let them grow up, then YOU haven’t grown up, either. Time for some big boy pants!
- There is a good chance that this will be the most significant financial event in your life, other than starting the thing years ago. Get serious professional help from someone you trust who A. knows and understands you and B. has LOTS of experience in managing these transitions.
Remember, it is nearly impossible to “do” a negative. You MUST “do” a positive, that is positive for you. What’s NEXT?
Surprised that more did not weigh in on this daunting question. I think it is a challenging dilemma because of the strong emotional element that comes into play. In the independent pharmacy space, where our company spends a great deal of time, this is a very real and present concern.
For those planning a succession strategy, the “letting go” piece is one of the most difficult. However, preparing for succession — whether to a family member or not — does not mean that the present owner should give up. The value in the business and the successful transition to a future owner can create a legacy for the family members. Running the business for a smooth transition to new ownership is a much better outcome than running the business into the ground.
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My advice would be do it early, way before you plan on retiring or selling the business, and then stick to the plan. Thinking about letting go for a decade or three is good practice, and may make the transition easier when it’s time to sell.
I believe lots of business owners think about retirement, selling off the business or integrating other family members into a firm in the abstract. Early planning can help introduce a dose of reality.
Some of us may remember a grocer in Ohio who — at 67 and past his retirement age — was still waiting for his father, then in his 90s, to retire and sell him the business. His situation highlights another aspect of the problem. Selling off to a stranger or a competitor is one thing. Transferring ownership to another family member is much, much tougher for a variety of reasons.
As to letting go, again, I’d advice practicing. Businesses, especially small businesses don’t generally do well with two CEOs.
If you want to hold on, don’t sell and if you want to sell, don’t hold on.
Having sat on board meetings with independent retailers, and also on meetings with owners and their personal financial advisors, I can tell you this is a real problem for more families than not. This runs the spectrum of “I want $X for myself and $Y for each of my kids, so just sell this business to the first offer for what I want,” to “My kids want no part of this business, except the real estate,” to “I want to look outside my company for leadership because I am not comfortable that my management can take the baton.” The first step is to document a plan. Period. As the owner, what is it that you would like to see happen to the business after you pull away from it entirely? If you can articulate that, often with the help of an industry expert’s coaching, you will be far less emotional in your decision making as the process progresses.
Part of this challenge is for independent retail business owners to understand why and how their shoppers are invested in the business, so that a forward-leaning business strategy can be developed, leveraged and cultivated over the future. Sustaining an independent business requires insight, not just desire.
Determining if a relative can guide the future of a store has to be guided by that person’s willingness to manage to a business plan that maintains or increases the value to the customer.
I know a number of “family businesses” that succeed and fail due to the reasons mentioned above. For the succession to succeed, the older generation and the younger generation must be in alignment with work ethic and passion for the business. The older generation must be willing to step back for the younger generation to take over when willing and ready. (It’s the ready part that sometimes causes problems.) If there is more than one potential successor in the next generation, it must be mutually agreed upon who will take over as the leader. Consider an exit strategy if the succession will cause families to break up. Those are just a few thoughts and observations that come to mind.
Some people have a hard time letting go of their kids, too. Your business has a lot of characteristics of another “kid.” If you won’t let them grow up, then YOU haven’t grown up, either. Time for some big boy pants!
Remember, it is nearly impossible to “do” a negative. You MUST “do” a positive, that is positive for you. What’s NEXT?
Surprised that more did not weigh in on this daunting question. I think it is a challenging dilemma because of the strong emotional element that comes into play. In the independent pharmacy space, where our company spends a great deal of time, this is a very real and present concern.
For those planning a succession strategy, the “letting go” piece is one of the most difficult. However, preparing for succession — whether to a family member or not — does not mean that the present owner should give up. The value in the business and the successful transition to a future owner can create a legacy for the family members. Running the business for a smooth transition to new ownership is a much better outcome than running the business into the ground.