One man creates a hot tub business from the ground up. He has no partners and no investors. As an entrepreneur, he encounters failures, but over time, he overcomes those obstacles and develops a multi-state business worth a few million dollars.
As he gets older, he would like to see his three children take over the business after he retires. Simple, right. But if the owner and his children — the successors — don't initiate some dialogue addressing this transition before the owner retires, the headaches could pile up quickly.
As a business owner, you need to spell out what you expect of your children as the new owners of your business, because the legacy you leave has a dynamic unlike any you've ever experienced.
SINGLE TO SEVERAL As the sole owner of a business, you gave yourself the luxury — and responsibility — of making unencumbered decisions, good or bad. The second you decide to leave it to your kids, you're entering into a partnership, albeit a temporary one, that you may not have wanted. You're going from one to multiple owners. As a result, the next generation doesn't have the luxury of making decisions without checking with their siblings — now their business partners — first. Decisions now will come from a committee rather than a single voice, and there is no partnership model to follow because you had been flying solo up to the point of succession.
PASSION OR PAYCHECK
Assuming you've integrated your children into your business as employees already, ask yourself: why are they there? Do they all, or at least some of them, have a passion for running the business? Or is working for Pop or Mom simply an easy salary? When the going gets tough, how invested are they in the business and how prepared are they to stick with it?
You built the business from scratch, which makes you more willing to gut out the hard times than someone who didn't. Passion comes from heeding your life's calling. Some of your kids may feel the family business is their calling; others may not. It's important to discover who's in it for the long haul before you shift responsibility.
CONCEPT OF OWNERSHIP
This can be the most contentious issue if not handled early in the transition period. Ownership implies certain rights, responsibilities and obligations as it applies to an enterprise.
Say the owner offers operational and majority control to his oldest daughter, who was his second-incommand, and then hands out 10 percent to each of his other kids.
What do those minority owners get for their share. Is there operational control or profit sharing. Or do those owners simply hold a piece of paper saying they own 10 percent of the company?
What owners are often doing when they distribute ownership of the company is asking their children to take pride in ownership, even if they weren't allowed to do so before. So how do siblings take ownership when there's a strong parent in front of them suppressing them at every opportunity? How do you give your successors the opportunity to fail in order to succeed? As an entrepreneur, you probably failed many times before you succeeded. Through trial and error, the company evolved into what it is today. As a parent, what's your tolerance for failure. Do you allow your children to fail and if not, how are they learning? It's the difference between empowering and enabling.
I hear these comments a lot, often at the same negotiating table: "I'd turn this over to my kids if they'd ever show up and act interested," and, "I'd be glad to take over this business if he'd just get out of the way."
SMOOTH SUCCESSION
To discover one's calling is the single most important duty of each human being, and to pursue that calling is each human being's responsibility. Is that a little heavy for an article about transitioning pool and spa businesses from one generation to the next? Maybe, but the message can help clear up any sibling resentment.
When the senior owner retires and hands the reins to his children, he's creating an environment where ownership may be divided equally, but the responsibilities may not be. The kids are being asked to fill specific, yet limited roles, and not necessarily the ones they want to fill.
Don't forget to run the business like a business, not like a family. If you can help your children form a sibling partnership early in the transition process, you can clarify expectations, accountability and consequences for behavior. If someone's not performing to expectations, it may be that they're willing but simply in the wrong role. You need to find the solution for that, either through rearranging responsibilities or adjusting percentages of the company.
Or, you could be blessed with three kids who want the business to grow. Last year, Paul Claffey formally turned the ownership of Claffey Pools, his 18-year-old pool retail and service center, over to his three kids. For several reasons, that event was a mere formality: he trained the children — Charlie, Shelley Claffey Broder and Brian — in his Southlake, Texas, business from the ground up; the training period lasted nearly 11 years (Shelley first came on in 1992 while Charlie and Brian followed soon after); and all three, as well as Paul and their mother, who was the company's office manager, acted as a board of directors. "We would hold our meetings in order to decide [on major issues]," says Shelly, who, at 35, is Claffey's vice president, although her day-to-day role is as a sales representative. Once the kids took over the business, they employed their strengths to "bring the business to the next level," she says. "That's always been the key to our success. Charlie (Claffey's president) came from GTE and brought some corporate America to this mom-and-pop and I've always preferred sales. Brian's a jack-of-all-trades. I'm not the best manager, and Charlie's probably not going to build any pools, but I'm good at sales and he's good at the financial aspects."
NEW CALLING
Ownership is a higher calling than pure management. In a small business, management and ownership are usually one in the same, but as long as you're still in the picture, the kids may consider themselves just managers.
Some of that comes from a psychological barrier that the senior owner places on his kids. I worked with a family where the father gave the company to the kids but neither one wanted it. They didn't feel like running the company — although they had assumed full ownership of the company — because the father was still basically running the company and the siblings didn't want to put forth any extra effort. Neither sibling had any interest in pulling the leadership out from under their father.
The question the senior owner needs to ask himself is: Am I perpetuating myself, the company or both. If you overstay and don't allow the system to grow, the chances of company's survival go down. The former owner can be a coach to his children and mentor them to become the company's new visionaries. If he doesn't recognize that he's meddling in the day-to-day, he needs to find a new interest or calling. If the kids need to discuss this with their parent, they should bring in a mediator or simply exercise their powers as owners and give the father a chance to channel his energies to benefit the company.
OWNERSHIP CONFLICTS
Are all the kids assuming they're going to head the company the way you did. You could distribute the shares evenly among the kids, but even if one child gets the majority of the stock, the minority owners still have rights and a say-so in decision-making. In some cases, a kid will get a chunk of the company but have no idea what to do with it. If there's no profit sharing, no dividends and they have no income-deriving role from the company, what good is it. If the parent's intention is for that child to derive revenue or have a say in the business, that needs to be clarified before the transition occurs, otherwise tension will grow between siblings.
Another consideration is deciding who will retain ownership. While active partners are most likely involved in the business already, the inactive partners still need to mind their business interests. What if the actives aren't performing well. What if the actives want to put capital at risk?
To answer these questions, inactive owners need to keep themselves informed and educated. They've got to develop communication with the actives, and the actives should, in turn, educate their siblings. Inactives don't have to understand day-to-day operations, but they do need to have a sense of the overarching strategies of the company and they must understand the company's financial situation.
DIALOGUE CURE
A family business that communicates well has a better chance of making it past that tenuous second-generation transfer barrier, but as much as it's the senior owner's responsibility to map out the future of the company for his siblings, the successors need to understand their roles and either accept or decline those responsibilities.
