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Real Issues. Real Answers: Planning for the next generation

Succession planning is a serious issue for many LBM companies, especially those that are family-owned and may or may not have family members interested in continuing with the family business. In this month’s timely Real Issues survey, a next-generation family member involved with his company is concerned about the lack of a succession plan, and the absence of ownership transition. We sent his question along to LBM Journal readers who have opted in to receive our surveys. More than 200 readers responded, many sharing advice based on similar situations faced at their family companies.

Here’s the question:

“A key challenge facing our company is the lack of succession planning. From my perspective, the current leadership is not looking towards the future, and seeing the value that the next generation can bring to enhance the company going forward. Some very able members of the next generation are frustrated and concerned at the lack of a plan to transition ownership and responsibilities. Would appreciate advice on how to respectfully get our company’s leaders to acknowledge the need for a plan, and to begin taking steps to put one in place.”

Responses from lumberyards, building material dealers, and specialty dealers:

“The next generation leaders should request a meeting with current leadership and ownership to discuss the need for a plan and what they can offer.”

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“A special someone needs to step up and let the current senior leadership know of your thoughts with respect to succession planning or the lack thereof. This special someone needs to be a highly valued individual who is trusted by the current leadership and the so called ‘next generation of leadership.’ It’s tricky but, most times it pays to confront the issue head on. You might be pleasantly surprised at how well this open dialogue approach is received. If that ‘special someone’ doesn’t exist, that in itself is a glaring problem in need of immediate attention first and foremost. You shouldn’t pass a thriving enterprise to an unqualified individual or individuals, that’s a recipe for a disaster.”

“My advice for this up-and-coming pro is that he be relentless on the topic of succession. Better to be a thorn in the side now than to be part of a sinking ship later.”

“Yes, a lot of time this succession involves family, which also makes this even more frustrating.”

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“Hire a planner who does this. It is much easier for a third party to be the instigator for difficult conversations. You don’t need someone to tell you what to do, just to ask the right questions to come to your own conclusions about the best path forward.”

“As a second-generation owner looking at my own company, I don’t have a choice.”

“Explore the other option…selling the business.”

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“Succession planning is one of the most overlooked issues in our industry. One only need look at our workforce demographic to see that the Baby Boomers, and some of the old GenX-ers will be heading towards retirement in the next few years. Given the fact that our industry lost a large part of our mid-level workforce during the recession of 2008-2010, and they never returned to our industry, that only exacerbates the issue that we have not enough people to develop as future leaders. Developing a strong leader takes years, not months, and time is not our friend. The history books are full of stories about companies that had a leader depart, suddenly or otherwise, and did not have a suitable replacement. It caused a huge operational crisis that in some cases was not recoverable. I think that presenting the leadership with undisputable data and facts makes this an easily winnable case for action.”

“They may have a plan that assumes that you will remain in your current role, and they are relying on their ability to bring in outside leadership. With LBMs being bought up left and right, they may see that option as more profitable than selling to members within the organization. You need to start thinking about what value you could offer to the current owner in a transition and keep it positive.”

“Depends on the make-up of the current leadership. Some might never be open to mentoring the next generation, despite expert advice. A consultant might help.”

“Transparency and communication of possible changes in the future are key. It’s easier for staff to go along with a plan than to be blindsided. This also prevents rumors and encourages a healthy transition.”

“When I started in this family-owned yard, I had two uncles, my father, my brother, and several cousins working here and all had more power than I did and none of them wanted to make changes or plan for the future. Fortunately, my father was able to give me stock and a title and didn’t stand in the way when I had ideas to improve the company. I am now the last one standing. I am looking for an exit plan and a way to transfer the company to a younger, non-family member. Find an ally and start making small changes and keep trying. The hardest part is not falling into the same mindset as the rest of the family.”

“Find some examples of companies that ‘waited too long’ to create a succession plan and it blew up on them. At the company I work for, we had the same situation until I kept pressing and letting them know how important it is to be proactive in this area.”

“Explore what is going on in your market in terms of companies being purchased.”

“First off, anyone can be a leader in an organization. Learn to be a leader from lower in the org. chart and possibly lead your current generation. Secondly, just open a dialog and have the conversation from level ground to voice concerns and make sure there is an open dialog. If none of that can happen well, maybe it is time to find a new company that appreciates your ambition and leadership.”

“We are in the same situation! Planning a ‘leader’ meeting tomorrow to get the ball rolling.”

“You’re going to have to be the one to sit the ownership down and have the conversation on the future. Right now, they have made what they need to make and are not looking nor want to take on new projects or revamp the company. They’re tired and content, so you are going to have to be the one to push the issue.”

“The destiny of a company cannot be left to chance or whim. The company destiny is a matter of choice and efficient planning. Your employees need to know that there is a plan, and that they will be a part of that future.”

“You don’t say if succession is passing the company to children or to selling it. If the children, then best be quiet.”

“Look at a possible ESOP.”

“Succession planning is an essential element of leadership and key requirement to sustain a well-run organization. Nobody likes to be pushed out of the door and succession planning is the first step, but a true leader will recognize their personal struggle is impacting the well-being of the company. Approaching the individual(s) who are charged with running the company and asking them what their plans are for the future of the company once they retire, or even in the event of earlier departure, might be a good way to open the door to communication. A well-thought-out process and plan might give comfort to the next generation and might provide an opportunity for current leadership to consider their roles in a transition process not only for the company, but for them personally.”

“Unfortunately, your succession struggle sounds eerily familiar. There is a quote, ‘There are three answers to any problem: 1) accept it, 2) change it, or 3) leave it. All else is madness.’ Although I loved the industry and was ecstatic to move the business to the next generation, the torment of staying in limbo became more than I could bare. Because I was not in a position of authority to orchestrate a succession plan myself, my strategy became a mixture of 2 and 3. The current owner (who happened to be my Pop) and I spent countless hours talking about future succession with little-to-no action. Ultimately, I gave six month’s notice. This was not done as an ultimatum, but rather a plea to show my desperation to be all in or all out. If, at the end of six months, there was no significant movement in the way of a succession plan, it would be time for me to move on. Fortunately, this lit the fire that started the transition to the third generation.”

“Keep the younger people involved make them feel needed and let them grow with our knowledge before we are gone, and the true knowledge and drive is gone.”

“We are looking towards the future. Not sure of the actual succession plan.”

“It sounds like these people have too much time on their hands. If they have issues, ask for a meeting with owners and let them know their concerns.”

“Generation skipping was done from the second to the fourth generation of our business and it was also used from the third to the fourth in one of our other family businesses. Unfortunately, now with President Biden, the wait-and-see mode has got to be looked at. Taxes are hard to jump over in passing along a family business. What generation is this company you are talking about? I am working on the fourth to the sixth-generation transition now myself.”

“The younger generation needs to start the discussion with or without the older generation, then emphasize their desire for the business to continue.”

“Many times, company leaders fear the time involved and the changes that will occur when the search and onboarding for new leadership begins. The employees already know that at some point leadership will change, so the easiest, most fair, and honorable thing for ownership to do is to map out the process, meet with and keep the employees informed of the process. Fear and silence within an organization is destructive.”

“You are fortunate to have some very able members of the next generation. However, they may not be interested in ownership and the responsibility needed for a successful succession. The current leadership will need to be encouraged that the next generation has the passion to take on the challenges. Once your leaders find someone with that desire, they will gladly take steps to put a plan in place.”

“I am currently trying to find someone to train or buy our business. The problem is how do we find these people? How do we get our name out there? I am currently advertising and have no one showing interest. So, is it the owner’s fault, or is it the people who are looking to purchase a company not actually showing interest?”

“If your company doesn’t do succession planning, suggest they start. This should also be part of the strategic planning process and it sounds like the company you work for doesn’t do that either.”

“I tried to interest the folks here on transitioning to ownership through stock buy, but they were not interested in assuming responsibility. Because of this, I am going forward with trying to sell my company. They need to let the owner know they would assume that responsibility!”

“Most owners are Type A people and only react to blunt interactions. They should hit it head on. Approach by saying, ‘I love this business and would like to help lead it into the future. I need you to help me if that is what your plans are.’ If they do not respond favorably, you have your answer: find something else to do.”

“As a current older (74) owner and the active buyer, I have stepped aside from the day-to-day management and leave that to my three sons who are doing very well. I will leave them my stock when I pass on and it will be theirs to do with as they may. I may stipulate that the stock and or company must be kept in the family for at least 10-15 years after my death. My three sons make more running our business than they would anywhere else, so them leaving is not a huge concern for me.”

“I am the leader and I need a plan. I took over from my Granddad and Dad. Now what?”

“Figure out the friction and make sure you explain the intent of what you are trying to accomplish. Sometimes we (young folks) have trouble seeing our own blind spots, so it’s important to approach the conversation with humility.”

Responses from wholesale distributors, manufacturers, and service providers:

“Put a plan in place and inform the employees.”

“The company that I work for is in this exact situation. To be honest, I have not found a solution at this point and being part of the second generation without a succession plan is extremely concerning and frustrating for all involved. I have expressed my concerns and offered to help with putting together a plan. I have forwarded a webinar on the subject hoping this would spur some direction.

I have been considering encouraging the shareholders and other employees to get involved and try to force the issue, but I am reluctant to do this as I don’t want to be seen as organizing a coup or being disrespectful. I am very anxious to see how others answer this question.”

“Ask them what the plan is. An employee deserves to know the future path of a company. Just as the company has invested in you to make the company successful, an employee invests in the company to make them successful. Don’t take ‘I don’t know’ or ‘none of your business’ as an acceptable answer. Be persistent, but not ignorant.”

“Take the issue to the Board of Directors and request that succession planning be a topic on the next board agenda.”

“The above statement is true, but as an owner, there is a fine line. How much do you disclose as you formulate plans? Succession planning is deeply personal when it is a family business, spanning generations. In addition, the finances of a company and tax ramifications are again very personal and only involve owners, not employees. As an owner it would be helpful to have advice on this subject.”

“We were a second-generation, family-owned business. The business was not going to continue under the third generation. The family decided to exit via creation of an ESOP. We are now 100% employee-owned and doing quite well!”

“Why this is a blind spot for so many extraordinary businesspeople is a question mark in my mind. In my estimation leaders need to understand the risk involved in this transition and leave themselves adequate time for at least one ‘do over.’”

“How about this ‘LBM pro’ discontinue his complaining, put together a plan complete with case studies, precedent, and history, and submit it for consideration?”

“I’d love to speak to this LBM pro directly. There could be multiple layers to this. It could be that leadership already knows that there is not a succession plan, and they are already planning on selling. That is not something that is often shared outside of the ownership group itself. It could also be that they are working in the background to set up an ESOP. This is something that can take years to set up and is probably something that they don’t want to do during this current market as it could set an unfair valuation for the future employee owners. This is most likely the case in an owner situation where the ownership group truly cares about their employees and the family-owned status of their company. You will know if you have that type of owner or not. I would also ask if this LBM pro is sitting back and waiting, or if they are taking the initiative to show the ownership group that they have a competent leadership group to hand the company over to. Assess yourself, can they truly trust you, or do you just think you are a rock star? You also have to be humble enough to know if you can truly take the task on. If the answer to both of those questions is yes, you then need to ask yourself if you are going to carry through the values that the ownership group set in place and has used to build their family-owned company with. If the owners are good people who are looking for the next generation, they will accept this type of push. If they are set on selling, there is nothing you can do.”

“Point them to their accounts receivable. Accounts receivable is probably affected the most by a poor succession plan. Next generations have a whole lot more going on outside of work and may not spend the same amount of hours on-site. Less hands-on management leads to accounts receivable issues that can kill the business with one bad decision, or more likely slowly strangle the business by being too conservative.”

“I would request a meeting with the owner(s) and bring up this subject matter to them. Do a little research on what you believe are the areas of concern. Come in with suggestions, possible solutions, and try to lock down time frames for the succession. Put together an organizational chart as you see it and present it to the owners for their comments and review. Many times, the owners don’t know how or who they can truly trust to succeed them or how much interest and devotion they will get. Be a part of the team that creates the plan if you are allowed to.”

“There is book called ‘Slaying the Demons: How to be in Business Today and Still Sleep at Night.’ Give your owner(s) a copy. When doing so, schedule a meeting to discuss how important it is for all sides to get a plan in place. I’ve been in your shoes, and I can almost guarantee it will not be just one discussion to get the ball rolling, but stay professional and consistent with the conversation. It’s not an easy topic for the current leadership for many reasons.”

“Point to the failure of other companies because of the absence of succession planning. Owners of family businesses want to see the company survive.”

“Communication is key. Perhaps find other respected business owners that your leaders know, who may share their experience with them. There are also many good articles in this publication discussing the importance of this topic as well as webinars that may help them to realize the importance of succession planning. Be patient, as I am sure they have much of themselves invested in the company over the years and don’t want to give up control. Make sure they know that you are not looking for immediate change, but just want to be prepared for when that day comes. Getting them to realize that the day will come may be your biggest challenge.”

“Advise on selling the business to a company that is already in the industry that would like to enter that market and keep the current employees on hand.”

“Start creating the new (don’t call it a succession) business/marketing/ strategic plan. Gain inputs from all. If there is a lack of planning, it falls squarely on the next generation. Start showing what you’ll do and that you’re capable. Leaders lead, followers complain. Get after it. Prove your worth. Nobody handed the current leadership anything. They, too, probably had to earn it and take it.”

“Decide what your next role will be. Then decide who in this next generation is best suited to run your business. Talk with them to see if they are on board with being the leader. Get your lawyer and CPA involved so you can work out an acceptable compensation package for your exit and their succession. Start a detailed training program where you have them take responsibility in each area for a few months before turning over the reins to them. Give him lots of support and positive reinforcement but make it clear that they will be in charge, and when the transition is made it will be up to them to make the company move to the next level.”

“I’d start with pointing out the qualities of the current leadership that have made the company successful, and stress that without proper and specific planning, vetting, and training, the business will be at risk should something unforeseen happen to disrupt the path. Also, it’s good to point out that while the current success is a great thing, leadership also bears a responsibility to their employees to ensure that the company continues to provide a solid culture and financial future for them and their families in the event current leadership is no longer present or able to work. Finally, point out what a shame it would be to lose the powerful legacy that is possible to ensure with a solid plan that looks to the future.”

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