Case Study: 12 Rules for the Successful Predecessor

Now it’s Mom and Pop’s turn. Last month I wrote to you about being a successful successor. What about being a successful predecessor? That takes work too, so here are 12 rules for predecessors (current owners of the business). They are similar but different than the rules for the successor.

Here’s an example of a statement I often hear: “Since we are a franchise shop, I paid to have them send a rep out to help with the business. I was told flat out that unless Mom was willing to make the commitment to do what needed to be done on her own, I should simply work as an employee until things got better or the doors closed! I agree.”

Just because you’re the brilliant founder of this business does not mean you can retire in place and set up some sort of perpetual motion machine that will keep paying you cash forever without any further work on your part.

Getting Your Way

The General was having a staff meeting. The General was pontificating about a new marketing plan he devised while at the last trade show. The Lieutenant is worried since he just came back from the battlefield. The General hadn’t visited the battlefield in years. “Sir,” the Lieutenant says, “I know that you are fascinated with the latest tank and you really want one, but our battlefield is a swamp. And unless that tank can float, it won’t do us a lot of good.” The General agreed, but took all of the assets at his disposal and traded them for a tank anyway. He liked the salesman. Besides, he’s the big picture guy and doesn’t have time for details. Think this army will succeed? I don’t.

Sometimes Junior and Junior Miss are right. And they are right most of the time when they are doing the work while Pop (and sometimes Mom) fiddles. Just because you have a successor in place, and just because they are capable of taking on additional responsibility, doesn’t mean you can quit and do what you want to do. Someone still has to drive this car, regardless of who owns it. And this boils down to the predecessor’s role in the business, right up to the minute they turn it over to someone else and walk away. Instead of being the pontificating General, be a good President. Do what’s most important, not what’s most fun.

Yes, but some owners insist that they don’t have to work. Take this quote from a print shop owner from their local newspaper, “[Running a print shop] isn’t all it’s cracked up to be, but I hope to build something for the future … I guess everybody has that dream of someday sitting back and having someone else run it for you,” he said. “It hasn’t happened here, yet.” Well, it’s not going to either. If that is your idea of being successful, then get a better idea. All you want to do here is to do what’s most fun.

Evaluate the Situation Realistically

Do you have enough money to retire now? If yes, go for it and do what’s most fun. If no, and especially if the business is going to form part of your retirement, then get busy.

If you need $750,000, is your business worth that? If yes, then sell the business to Junior for that amount (or to someone outside the business) and get out of the way so Junior or Junior Miss can make more money—and don’t read any further. You don’t need to work since your goals are already met.

But, if your company is not worth that, then you’d better be working on the business, polishing it, and improving it until it is.

Remember, only about 35% of all businesses available for sale in the US really sell. So, if you have a successor in place, you’d better be training and teaching. And guilt is not a transition plan. Just because you bred them, fed them, and led them doesn’t mean they will stay put forever. This is particularly true if there is more than one.

Yes, I know that your parents didn’t give you a business. But, you’re not going to give it to your kids either. You’re going to sell it to them. Why? You’re going to sell it to them because that’s the fair thing to do, especially if there is more than one sibling. Yes, the lawyers and accountants will encourage you to work it out in some sort of transaction that may not be an outright sale, but the idea is the same. The business is worth so much. You should get only so much and the next generation should pay only so much, based on what the business is worth.

Don’t whine that your kids ought to run the business because you bred them. These kids have great opportunities, especially if they went out to get a real job. Either they have the skills or you are protecting them from reality and they will fail after you’re gone.

If they have the skills, then you need to pay them what they are worth. The concept of “one of these days this will all be yours” is only valid if you discount the price to them, based on their work over time. Don’t expect them to be underpaid for 20 years and then pay you a premium for the business. You will be robbing them of the money they need to succeed.

So, in an effort to make life simpler, I offer the following 12 concepts.

1. The business leader must select, train, and install his successor in his lifetime (Dr. Leon Danco, “Inside the Family Business”, Center for Family Business, Cleveland, OH). And I add that it is not enough to just be a member of the family. You must choose from among all qualified to lead the business, not just among your sons or daughters. You must be willing to train them to run the business. If they are not willing or are un-trainable, you must move on to someone else.

2. There can be but one leader of a business at a time. You cannot retire in place. A leader does not prepare his successor by stepping aside yet staying at the helm. This frustrates successors and infuriates predecessors.

This conduct can lead to no one directing the business and no one taking responsibility. The ship is adrift and the pilot is teaching the first mate a lesson by running the ship ashore. Good job. The leader (king) must remain leader (king) until the next leader (king) takes the helm. To do less is to abdicate responsibility.

Alternately, this conduct can lead to the successor pretending to run the business. “I do everything but the checkbook. Dad still does that.” This is not preparation. This is “playing business”. Further, giving a successor checkbook responsibility and then taking it back as punishment is a sure way to kill a transition.

3. You cannot make demands upon the successor that you will not willingly do yourself. Go sell. Learn how to produce. Learn about finance. You are in charge until the successor is in charge. The worth of the business at the time of the transition is based upon what you do, not what the successor is expected to do. One person, and one person only, can run a business.

You must understand the concept of command. You are in charge regardless of who may advise and assist. You would be wise to listen to all those under your command, whether they are related or not. And you would be wise in not placing too little weight on what the other participating family members say, as they would be wise in not placing too much on it.

4. It is impossible for you to give away your responsibility to run the business. It is not possible for you to “share” power or do part of a function. It is only possible for you to assign real functions (jobs) and then see that the jobs are carried out.

5. You are responsible for the results of the business until you have finalized the transition (sale) of the business. You must be part of this performance-oriented concept and not be a drain on performance.

In family-based businesses, we founders take the assets from the family and put them into the business. Therefore, we are responsible for returning to the family more money and more time than we would otherwise. And if we are not doing that, then we need to fix it so it happens, or we need to go get a real job.

6. You, as leader, assign jobs (authority) to all within the business. You must also assume responsibility to see how these jobs are carried out. You must lead and do so with enthusiasm, loyalty to those serving under you, and eagerness. You do not have any more authority over others than they are willing to give you. You earn the right to lead—you cannot command it.

7. It is from assuming leadership that others will follow you as well as learn, participate, and achieve. If you don’t accept the responsibilities of leadership, you can never be expected to develop a successor, let alone a successful business.

8. It is as important for you to earn the confidence and acceptance of the workers under your command. Not assuming responsibilities for leadership will be met with resentment, confusion, and conflict, not only from the successor, but from other workers as well.

9. You must know the business of the business. You must have a good work ethic. You must lead people—never manage them. You may not be more academically qualified than your successor, but that does not mean they know what you do. You must teach them what you know. They cannot learn it anywhere else.

10. You set the work ethic of the organization. If you do not work hard, you cannot make them work hard. If you lie, cheat, and steal, they will lie, cheat, and steal. It is up to you to insist that the successor adopts and learns your work ethic that has made your business successful. If the successor refuses, get another successor.

11. The successor must have specific technical knowledge gained by serving in various jobs in the business. In doing these jobs, the successor has no more authority than anyone else. It is through the development of the technical competence of the organization that the successor is best prepared to lead. It is your duty to see that the successor is so trained.

12. It is the successor’s job to accommodate you; it is not your job to please the successor. However, it is not your right to insist that the successor do what he is unwilling to do. It is your right to choose another successor if that should happen. And it is not your right to retire in place.

So there they are—12 concepts for you, the predecessor, to consider. I don’t think they can be ignored without adverse consequence.

Tom Crouser is principal of Crouser & Associates, Inc., 4710 Chimney Drive, Charleston, WV 25302, www.crouser.com or call 304-965-7100. He works with businesses undergoing an internal transition of ownership, either among family members or those working in the business, and welcomes your inquiries. Message him at tom@crouser.com and follow all of his posts at www.tomcrouser.com.

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