When it comes time to retire, every store owner should have a plan in place in order to seamlessly pass the torch on to either the next generation of the family, a faithful employee or even an outside source.
However, before an owner begins stressing over every last detail of his succession plan, he should first start by observing and seeking out the best possible candidates for the job.
After all, that’s what we’re really talking about here—the ideal person expected to fill the shoes of the person handing over the almighty reigns. Now, that’s not to say stepping down is an easy process because it’s not.
Stepping down can be an extremely difficult decision, especially after investing countless years into a business so near and dear to one’s heart, so choosing an ideal successor is essential.
“First of all, the path that is taken needs to have a high likelihood of success,” said Rob Hailey, president of Howard’s Rug Co. in San Diego. “It’s an important decision with a lot of livelihoods at stake. The owner who is moving on has a commitment to his employees who helped them all get to the success level they are hopefully proud of. To sell or to pass on to selected new leaders, be that employees or family is a tough and emotional decision.”
While owners would love nothing more than to hand over the future of their business to a successor who holds values equivalent to their own, and intends on remaining consistent with the original plans for the future, the transition process from one leader to the next can often be a daunting one.
“Identifying internal people for leadership takes time and lots of training,” explained Bill Croswell, former CEO and current executive vice president of contractor CraftCroswell in Jackson, Miss. “As an owner, finding someone with the same thought processes, goals, etc. is tough. We tell our folks our job is to fill their ‘cup’ to running over—then their job is to either clean up the mess or get a bigger cup. Those who get a bigger cup and grow along with you are who you want.”
Some business owners rely on completing a SWOT analysis, a structured planning method used to evaluate the “strengths, weaknesses, opportunities and threats” involved in a project or business venture.
“Doing a SWOT gives you a clearer picture of the areas your business is strong in, along with those that may need some additional attention,” said Carlton Billingsley, vice president of operations and general manager of Floors and More in Benton, Ark. “Empowering others who are stronger in an area that does not interest you, or you do not have a strong skill set in, allows them to begin understanding the business from a perspective that brings tremendous value to the team.”
Mahmud Jafri, CEO of Dover Rug & Home located in Natick and Boston, Mass., looks for the quality of passion in a potential successor. “Passion is No. 1—you have to have passion for the product and your customers, the ability to appreciate what you’re selling as well as the desire to help customers and guide them to make sure they make the right decisions.
“And then, of course,” he added, “comes all the other skills, such as selling, marketing, computer and social media. While each of these skills is necessary, passion—to me—is the driving force you look for when you’re ready to pass on the baton and put somebody else in the leadership role.”
Seeking out a person who has equally strong qualities, such as determination, reliability and loyalty, can also be key. But as with anything, the final say comes down to what specific qualities the owner prefers to see his future successor embody.
“I look for pride. I look for someone who cares about the company’s reputation,” added Hailey. “Small businesses cannot continue unless they provide service and value—no compromise on quality and reputation. I want my successors to care more than our competitors.”
Billingsley noted he looks for the strengths a potential successor will be able to offer as a team member. “The cohesiveness of being able to work together is an important factor, especially when it comes to the role they will contribute to the team. I also look for someone who will understand parts of the business a former employee didn’t exactly perform so well, but that I want them to improve upon and perfect.”
On the other hand, Jafri begins his search by bringing in a new crop of talent, letting that talent speak for itself and then making a decision based on what they offer against what you look for in a successor. “It’s also a mutual evaluation where they look at you, the company, the product, and you look at them, their work ethics, their character, integrity, drive, passion and so on. In other words, this isn’t something where you can run an ad and hire someone or call a head hunter—it’s a dedicated process of identifying the perfect candidate for the job.”
Candidates come in all shapes and sizes—all unique in their own way and equipped with varying skill sets that possess the potential to greatly benefit the business at hand—even if the model leader happens to come from another industry.
“Often times, we don’t hire someone from within our industry,” added Croswell. “You can teach someone the processes of your company and your products, but the intangibles needed for success have to be there, depending upon which industry they’re coming from.”
As for choosing an internal candidate for succession, Hailey believes employees, especially those who have dedicated their lives to the business, should be supported when it comes time to move up in the company.
“I think it makes a lot of sense to promote up, rewarding successful behavior and leadership. I want to leave control of the business with someone I feel has the best chance of not only continuing the business, but also improving and growing it,” he explained. “If you work with someone for a while, you can determine if they have the qualities needed to succeed. If you bring someone in from the outside, you never really know who or what you’re getting until it’s possibly too late. No one wants to have to come back to their old company, try to rescue it and do it all over again when there might not be enough time.”
Considering most business owners pour their heart and soul into their profession, they, like anyone, want to be sure that whoever ends up filling their shoes is someone who holds the same passion for the business, its products and its customers. In some cases, the next person in line to lead is a family member.
“Family businesses can also be complicated by family issues, infighting, egos, etc.,” said Joshua Cohen, managing partner of Carpet Capitol, a fourth generation family business in Cleveland. “It takes a special group to plan a perfectly seamless succession transition. Ours has been a several year journey. For us, certain duties have been handed over slowly with time to adjust and train, while others at times have been abrupt with little time.”
Billingsley mentioned that Floors and More is in the process of transitioning from the second to third generation of family, “so it has been an important initiative in retaining and finding qualified personnel who can continue to build on our momentum. As the new generation, my perspective is focused more on our experience with what has worked for our company and how we will move forward.”
While planning for succession can be one of the toughest and most critical challenges for many family and closely held businesses to face, it can also serve as a great chance to maximize remarkable opportunities and create a multi-generational institution that embodies the founder’s mission and values long after they are gone.
“I have been the leader for 40 years—Howard’s is my life work,” Hailey expressed. “We have considered selling and have had several offers—they just didn’t make sense at the time. We are lucky; we have a combination of family and employees who like the opportunity, want the job and realize that if handled correctly the business can be lucrative and take care of the next generation of leadership just like it did for us. The people that have risen to the top are more capable to lead our business and our industry than I was.”
Much has changed over the past 40 years, to say the least. Nowadays, business owners have all the advantages the 21st century has to offer, including staying better connected with clients, fellow employees as well as competitors, and also remaining knowledgeable, in general, and capitalizing on the educational resources available to them and their employees.
“We take advantage of every opportunity to attend sales and leadership training—both within our industry and outside of it,” added Croswell.
Billingsley agrees. “Start with basic tasks, have them complete Webinar and live trainings and also spend time with them on several different projects so you can answer their questions. Let them make their own decisions while also coaching them on what and why you made the decisions you did for the business. I always look for opportunities to teach and train.”
Hailey also believes it’s crucial for a business owner to prepare their successor by working with them on a daily basis. “Pass on the skills that made the company a winner. Get there early, stay late and work alongside them. Ask questions of them; ask how they would like to handle situations and then let them do the problem solving while they have someone to talk with in case things don’t work out exactly as hoped. Problem solving is a different process every day—impossible to anticipate in every situation. Find people who think on their feet, then let them run.”
Many factors determine whether a succession plan is necessary, and sometimes the logical and easy choice will be to simply sell the business lock, stock and barrel. Nevertheless, many owners prefer the thought of their business continuing on even after they’re gone.
Jafri’s son, Hasan, is only in his twenties and already shows signs he is the right candidate for his father’s succession. “I am not quite there myself to hand over the reigns just yet,” notes the elder statesman, “but family is usually and typically the natural and right choice if you have all the stars aligned. Because whether you like it or not, you will always end up supporting your kids in some way, shape or form and there’s no better way of doing that than teaching them how to catch fish as opposed to feeding them fish all the time.”
Cohen noted, “Willingness to work hard is key as my responsibilities have increased in preparation to take over our business, which I now am the managing partner of—tenacity is so crucial. I find myself constantly moving, helping others, being available and planning. Being organized is also crucial.”
It’s no surprise proper business succession planning requires sound preparation. Business owners seeking a smooth and equitable transition of their interests should seek a competent, experienced advisor to assist them in this matter.
“Don’t wait 35 years to figure it out,” Croswell expressed. “Get with a qualified CPA and financial planner, set your long-term targets and work on a plan to get you there. It sounds easy, particularly if you’re young, aggressive and currently growing your business. But one day, all of a sudden the reckoning hits you and it’s an uneasy feeling.”
Hailey emphasized the fact that timing is everything during the succession process. “Owners must be ready to move on and give the new leadership a chance to succeed without being micro managed. The future business needs to belong to the new people—it can’t be the same as before. The next generation may have new insights, bigger appetites and better skills for both managing people and promoting the business. Pick winners, train them and let them do the job.”
Hailey noted the future leaders of Howard’s Rug have selected themselves. “They are highly trained—college degrees, CPA certified, legal background, design experience, etc.—work smarter and harder and aren’t afraid of leadership roles and decision making positions.”
When equipped with the right tools, along with the flexibility needed to expand upon a person’s level of expertise, potential successors show great promise when utilizing their skills in order to benefit the business and help it to thrive.
“In closing, America is a great country that gives us the freedom to make choices regardless of what family we are born into and what we may inherit,” explained Jafri. “We write our own destiny so the people who are right for the leadership and the succession plan are the ones who understand the moral and can run with it.”