Succession planning is an important priority for any business. However, for family businesses, the challenge can be particularly difficult. First, the current ownership must be confident in the commitment and capabilities of either the son or daughter of the family or another manager in the company if no offspring exist. And, of course, the individual identified must want to lead the company and believe that their skills and interests are a good fit for successfully running the business.
Even if those requirements are in place, the current owners must work with other family members to identify which family member or external candidate is right for senior leadership. Often, the obvious choice (e.g. the oldest offspring, the most experienced in commercial flooring) is not the best option. As many experts in family businesses can attest, emotions run high at this phase of the decision and families can be torn apart.
Across the membership of Starnet, nearly 70 percent of the companies are family businesses and each company has followed their own path in identifying future leadership. Frequently, this path is passing the business from one generation to the next, and as evidence, we have member companies who are in the third, fourth and even fifth generation of leadership. However, for each company, the planning process to develop future leadership and appoint the new leadership team is different.
Two Brothers Choose a Non-Family Succession
In the case of CraftCroswell of Jackson, Miss., brothers Bill and Bob Croswell started the business with the guidance and financial backing of Bob’s father-in-law, Maynard Craft, in 1973. The early years of the business required hard work, limited staff and taking risks. However, at the same time, the brothers decided that they didn’t want their children in the business at any point in the future.
“We had observed other companies where the next generation became involved in the business and the results were not good,” commented Bill Croswell. “We knew that one of us would die first and we did not want to burden the other with a younger family member who didn’t agree with our overall direction and would possibly disrupt our organization. Bob and I completely agreed on this plan. We wanted to win or lose together, and we feared that a son or daughter would bring complications which would hurt the business.”
As a result, they developed a plan which included a buy-sell agreement funded with a whole life insurance policy which would compensate the surviving spouse if one of the brothers died. The insurance was expensive for a young business, but Bill and Bob knew that the insurance would automatically fund a buy-out, leaving the surviving brother with total ownership of the business.
Over the next 30 years, Bill and Bob grew their business successfully. They evaluated offers to sell the business on occasion but determined in the end that remaining independent was the best option for them.
However, in 2014, the brothers were approached by Upchurch Companies, a large multi-faceted building company from Greenwood, Miss. It was a good fit as the Upchurch family is highly respected and their leadership is excellent. For the Croswell brothers, the timing was right as they were nearing retirement and needed an exit strategy.
“We deeply admired the Upchurch family and knew that our business approach was consistent with their operation,” commented Bob Croswell. “Like CraftCroswell, they were a family business and they were hardworking people. After the purchase, Bill and I agreed to stay in the business, training and mentoring the new leadership team. We didn’t have a firm ‘end date’, but we felt that we would know when it was time to leave.”
In the beginning, the new operation had some struggles with leadership. Bill and Bob stayed with the business through this adjustment period and the transition is now on track. Both brothers are delighted to see the progress and they are helping the younger managers in the company prepare to take over completely in the future.
“We are enjoying this phase of our business life,” stated Bill. “And, we are having a great time working with this team and sharing our experiences. They are a wonderful group and we are seeing excellent results in the business.”
Two Brothers who Created an Internal Non-Family Team
Two brothers from Menomonee Falls, Wis., took a significantly different path at Lippert Flooring and Tile. Les and Jeff Lippert are the third generation of a family business which began in 1949 when their grandfather, William Lippert, started the company at his kitchen table. Originally, the business consisted of a residential ceramic tile contracting firm. A cultured marble manufacturing business began in the mid 1960’s, focused on producing residential and commercial bathroom fixtures for both domestic and international markets. Alan Lippert, Les and Jeff’s father, took over the business from his older brother in the late 1960s. In 1989, the manufacturing business was separated from the contracting business. In 1992, a commercial flooring contractor was acquired. In 1999, Les Lippert stepped from the helm of the commercial flooring business to become the president of the company. His brother, Jeff, assumed responsibility for the sales and estimating side of the business and he worked with Les to create a growth plan for Lippert Flooring and Tile’s future.
Over time, Les and Jeff recognized that their children were not interested in running the business as a fourth generation team. The brothers also recognized that they wanted a clear “end date” of their own leadership in the business and they decided that they would exit together. As a result, while enjoying business success and strong market share growth, Les and Jeff began designing a succession plan which did not involve family.
“Instead, we crafted a team of younger managers who have the capability and skills to become leaders of tomorrow’s business,” commented Les. “This team consists of individuals already in the business who have the commitment and energy to replace Jeff and me in the future. Their collective skill set includes business development, operations, sales and financial operations. Their guiding principles are simple: understand and sustain the business’s culture and values and commit to challenging the status quo to develop the best possible business solutions for our clients which drive future growth and success.”
“We want this team to feel ‘extreme ownership’ for Lippert Flooring and Tile,” Les added. “Each team leader must evaluate their options with a clear focus on fulfilling the business’s well-defined goals and know that there is no room for ego in the process. Each team’s members are called on to serve the organization with their unique responsibilities. Consistent excellence and accountability combine to create trust between teams. If they trust each other, everything is possible. If they don’t, little to nothing is.”
Today, the strategy is working. “Jeff and I are confident that we have the right team,” stated Les. “We have created a business family instead of a family business. We plan to continue to work within the organization until we are ready to shift into a mentorship role allowing us to work externally to guide the new leadership team. We envision a leadership committee for the near term, recognizing that, ultimately, a single leader designate will be necessary. However, at this point, we are more concerned with evolving the skills of the full team.”
Two Brothers Inherit their Family Business Directly
Jeremy and Jason Watson inherited their family business, Commercial Carpet Consultants in Elmhurst, Ill., from their father, Jerry Watson, in 2016. Both brothers had worked in the business for many years, but the transition from their father was rapid and without fanfare. Jerry wanted his sons to assume the business and he was confident that they were ready to take over. So, Jerry departed one afternoon, carrying only his briefcase. Jeremy and Jason were in charge.
The transition had its challenges. Jeremy was in the lead position, but he has a very different style than his father. Jerry was an excellent sales and installation manager and he worked within the very competitive environment in the Chicago market to drive success. He allowed the business to remain in a reactionary status and his team supported him to deliver successful projects.
On the other hand, Jeremy is committed to developing a leadership style which motivates the employees and leverages business practices which serve as a foundation for business growth.
“I know that I have to learn some fundamentals and I am working on developing those skills,” Jeremy said. “My dad was very successful, and I appreciate what he did for the business. However, I am backtracking to learn the financial and business leadership abilities which I believe I need to drive the business forward. I have enlisted outside consultants who will help me learn to run the business with strong financial discipline. I also believe that they will help me to be more proactive with the business which should alleviate stress on the staff.”
As the business leader, Jeremy is pleased that the business continues to thrive. “We are benefitting from a strong economy and our business is doing well. During the recession in 2008-2010, we struggled and were forced to incur debt in order to rebuild the business. The greatest takeaway for me is to eliminate debt as much as possible. With our current success, we are positioned to grow in the future and my focus now is to stay on that track.”
A Successful Business with a Family-Based Succession Plan
Finally, let’s turn to Howard’s Rug Company in San Diego. The owner is Rob Hailey who purchased the business in 1990 from two partners who collectively ran the business in four California markets. Hailey traded his total ownership share for the one location in San Diego in order to focus on the commercial business in that market.
It was a good move. Hailey built on a solid foundation fueled by strong business relationships and a growing market. As the sole owner, he was able to develop a business which reflected his vision and personal goals. He recruited a team of associates who complemented his goals and were confident that their commitment would reward them financially.
“I love the business and I love being the leader of this team,” commented Hailey. “I guide the business strategy and I make the final decisions. In exchange, I believe I am very generous with my team and I view them as part of the family. Of course, we are in a great market, so that is a huge plus.”
“A key thing is to know that, as the leader, you are only as good as your team. I try not to have an ego. I am only one job away from making a bad project. Anyone in my role has to work everyday to be smart and not make mistakes.”
Currently, Hailey has two family members who are training for future leadership in the company.
“We actually have competent family members who are already successful and interested in the family business as a profession,” said Hailey. “Our son Jesse Hailey has a background as a CPA and our son-in-law Marius Isidore has a law degree. They, along with other senior associates are seasoned, experienced and incentivized. We are in good hands.”
“The flooring and tile contracting business has opportunity especially in larger metropolitan markets,” added Hailey, “The products we sell and services we provide will continue to be in demand and we understand how to satisfy our customers’ needs. Why would we sell our successful business to another entity when, if properly managed, our family business can take care of the next generation of our family and our long-term business associates and employees?”
For Rob, the decision is simple. “If you like to work and still want to commit your time to the business, you have to be ‘all in’. I’m not done yet! I’m still contributing to the business success and I am gratified with this decision. At this point, if we sell the business, we are forced to find something else to do. And that option involves venturing into an area where I am less competent and would have a long learning curve and different financial risks. If we sell the business, we get involved with managing the investment with wealth advisors, stock market or other vehicles where you are no longer in control like our current business. And there are definite risks with that decision. My preference is: “See you at work tomorrow!”
Family businesses can be the best and the worst of any management situation. The advantages are clear: because the business is intrinsically connected to the financial future of the family, the commitment to success runs deep. However, it is very clear that the burden of running the business must fall to a limited group of family members. Navigating the current business while creating a future is not easy, but the quality of those decisions will guide future success. Within Starnet, there are many examples of companies who are challenged to succeed in this journey, regardless of their unique circumstances.
