What if the Time Comes, and the Next Generation Isnít Ready?

By: Henry Hutcheson

From: IGC Retailer, November/December, 2012

 
What if the Time Comes, and the Next Generation Isnít Ready?
Smart family businesses spend a lot of time and effort to ensure a successful transition to the next generation. Starting early, communicating well and getting good advice will help with the process. However, what do you do if the age gap between you and next generation is so wide that the next generation is simply not ready to take on the leadership of your garden center when the time comes? Worse, what if the need to transition hits suddenly due to health or other reasons, and the next generation is just not ready?

I know of a family business situation where the dad built a great company and was making money hand over fist. On top of that, he had the joy of working with all three kids and their spouses. Then, at an age well before retirement, he had a heart attack and died. The ownership was passed to the mother, who never worked in the business. She was bombarded on six sides about what to do. That company is no longer in business.

This example paints a picture of the worst-case scenario. Nonetheless, Iím sure youíve heard similar horror stories.

In a better case, you would be around for the transition, and preferably from a porch overlooking a lake, not a hospital bed. But how can a sudden transition best be handled when the next generation may not be ready? Letís look at some strategies.

Prepare for the Gap
The main issue here is that thereís a gap between when youíre willing or able to run the garden center and when the next generation can pick it up. Two main safety nets that should proactively be put in place for every company, whether a family business or not, are:

1. Good middle management - Having a strong management team is one of the best strategic planning initiatives any company can undertake. Without strong management, all the power, knowledge and skill rests with the head of the company. Thus, if the head is gone, nothing is left. Point in case: If youíre trying to sell your garden center, the first thing a buyer will look at, after the financials, is the strength of the management. ďHaving a strong management team in place that is capable of managing the business going forward, without the president, is one of the top factors in increasing the sale price of any company,Ē according to David Boykin, a business sales specialist at Transact Partners International.

Good middle management also provides flexibility in plugging the gap until the next generation is ready. The best alternative is that someone from the company bench could step up and fill the leadership void. However, there are certain characteristics required of such a person Ė he must have the respect for the employees, he must be comfortable that the role is not permanent, and he would be in a role where he would need to actively mentor the next generation. This last part is critical, as the wrong person could do everything to not groom the next generation, or worse, undermine the next generation in an effort to retain the top post.

If it is determined that there isnít a good candidate for the top role, the management team could provide a resource to recruit an interim leader of the garden center to ensure it continues operating. If the situation requires that the next generation take command, a good management team is valuable in assisting and guiding the new, unseasoned leader.

2. Board of Advisors - A board of advisors can play a similar role to a strong management team in that they can fill in for an interim period to manage the garden center. This interim could be until the next generation is ready, or until an outside hire can be brought in. They can also provide direction and advice to the company on the best steps to take considering the situation. Finally, they provide oversight for all activities anyhow, so if an internal candidate is chosen as an interim or permanent leader, they can provide guidance and monitor performance.

Similar to a good management team, if absolutely necessary for the next generation to step up before they are ready, a good board can go a long way in helping the new leader find his way.

Bridge the Gap
Unfortunately, although youíve just read the benefits of building a strong management team and putting together a good board, many family businesses neglect taking these actions. I point this out because if you do find yourself in an emergency transition, there wonít be time to slap together a good board or build a strong management team. The alternative is to hire in an interim president.

A good interim president can be difficult to find. There are many folks who tout being interim presidents or CEOs, but finding one who can do the work, is available and fits your budget makes it challenging. Nonetheless, itís the best alternative. A good interim CEO can be invaluable. They typically have seen many industries, have strong experience in all the functions of the business and can begin adding value from day one. Most importantly, as they are experienced at being a stop gap, they understand, accept and add value to the reason the company has a temporary leader. For example, they often have exceptional mentoring skills. Mike Carlton, an interim CEO for hire who gained his experience through being the CEO of a mid-sized bank for many years, puts it this way: ďEffective interim CEOs must be able to quickly assess the performance of a company, understand what the key drivers are and not just work with but develop the potential leaders of the company.Ē

Another viable alternative is to bring in a consultant or a strong general manager. This takes on a little different flavor, as they typically come in and work with the current management as opposed to leading it. For example, I am working with a client now where we have simply had some bad luck at finding an appropriate CEO. As such, weíve decided to put the search on hold and form a management team that includes the office manager, the two up-and-coming next-generation leaders and myself. Together, we are the management team that makes decisions and reports to the owners.

Keep Everyone Informed
Once a course of action has been determined, regardless of the choice, of utmost importance in surviving an emergency transition is communicating to all customers and employees that you are aware of the situation, it is being worked on and operations will continue.

As with all family businesses, however, there are other factors to consider in addition to the business itself: the ownership and the family. For ownership, the best decision is to place majority control with the future leader of the garden center. Unfortunately, there is not always one clear leader. Nonetheless, it is still a better answer to have one person be the final decision maker, if possible. More companies fail not because they made the wrong decision but because they either didnít make a decision or made it too late. With 50/50 ownership, decision making can be stifled or even shut down. In any case, be sure to have a well-thought-out and constructed buy-sell agreement in place, so that if either party is unhappy, they can get out.

If you need to be bought out, agreeing upon a practical sales price is complicated. If this is truly an emergency transition, my strong advice is to get some outside counsel to guide the family through this. Otherwise, there may be no more Thanksgiving dinners together if the negotiations go awry.

As for the family element, itís critical to include family members who donít work at the garden center. When leadership changes hands, control changes - and ownership and money is involved. Thus, all family members will be interested. Establishing open communication from the beginning will help stave off any sense of suspicion that could arise.

Dealing with an early or surprise cessation of leadership in a family business can be a delicate maneuver. If you put too much on the next generation when theyíre not ready, your garden center could lose key employees and valued customers - ultimately resulting in the demise of the company. But if you bring in good outside help and heed their advice, your family businesses could successfully make it through to the other side.

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