Does it matter? What is the best approach?
The majority of AWCI member subcontractors are in the small- to medium-size business category, often family owned. Many have been in existence for a long time. In this article we look at what’s involved in making sure those companies survive and thrive after a change in ownership and leadership.
As usual, we turned to AWCI contractor members for their experience and advice in this matter and were rewarded with a range of situations accompanied by hard-won knowledge and suggestions, which we share with you here.
The Importance of Succession Planning
“Succession planning is extremely important to us, as we are a closely held, family owned and operated business,” says Jeremy Barbosa, president of Precise Drywall, Inc. in Arizona. “Nearing three decades of trial and error, foundational development, implementation of systems and processes and creating a reputation and culture for a company is extremely hard work and a vast investment of time and money. It is for these reasons that a well-crafted succession is so important.”
Art Trautman, owner of Sonora Drywall in Arizona, will retire in a few years and his son will take over the company. “My research indicates that the failure rate of companies whose owner retires is greater than that of startups,” Trautman says. “Since I will not be selling the company to an outsider but to a family member, and the future security of my retirement and the future of all our employees depends on the company’s continued success, this is very important.”
“Succession planning should be a critical strategic planning topic for all companies,” says Kenneth Ottinger, director of quality assurance at Kitchell Quality Group in Arizona, who recently went through a company-wide shift in positions.
Veronica DeBonise, president of G&G Plaster, EIFS & Drywall, Inc. in Massachusetts, says, “Succession planning is something I have thought about for the last three years or so. I’d like to set up the company to continue for several reasons. We produce a good product and are able to maintain modest financial freedom because of it. Our company represents an opportunity for prosperity for those owning it and working in it. We are proud to be part of a union where good pay for good work is the standard.”
“Succession planning has always been and always will be important to the longevity of HRTLND,” says Scott Turczynski, chief operations officer of HRTLND in Iowa. “Ever since we formed, we have said succession is a process and not an event.”
Gabriel Castillo, director of business development at Pillar Construction, Inc. in Virginia, explains, “Pillar decided to become an ESOP (Employee Stock Ownership Plan) company two years ago. We looked at successful and unsuccessful stories in our industry when making the decision. It is never too early to think of a succession plan.”
“I am 70 and only have 20 or so more good years in me, so it is becoming a very important issue for our companies,” says Jerry Reicks Jr., president and CEO of Tri-State Drywall in Iowa.
Shawn Burnum, vice president of operations at PCG Inc. in Kansas, says, “The company is always better and healthier if you have dealt appropriately with succession planning. It provides a stronger leadership base when everyone understands the direction the organization is going in.”
“Exit strategy of a business is probably the single most important decision that the owner will ever make,” says Bill Fritz, president of Mission Interiors Contracting, LLC in Texas. “Placing the company in capable hands to service the customers you have built for your entire company history is essential. A smooth transition for a significant period of time will help ensure future business with existing clients and the success of their company.”
Michael Mazzone, president of Statewide General Contracting and Constructing, Inc. in Hawaii, says, “Succession is very important and, even though I don’t see myself retiring, it is inevitable. We (employers) put everything into starting a business from scratch. In the beginning, we are only wanting to survive to be able to do the next job. Next thing you know, you have been in business for 20 years and you want to slow down. You look around and ask yourself, ‘Who is going to be able to take the reins and run this business?’”
“This is key to maintaining the structure and foundation built,” says Adam Barbee, project executive at Daley’s Drywall in California. “So many roots have been established over the years of maintaining and evolving the company. It’s vital to have and plan the right successor to carry the company’s values forward to further success and growth.”
Successful succession planning seems to be a high priority for every company.
The Challenges
What are the main difficulties and obstacles to be overcome to ensure a smooth transition of ownership and leadership within a company?
Garrett Wickham, president of Acoustic Ceiling & Partitions Co. in Michigan, explains the complex dynamics of his situation: “I have kids who are just out of college, one of whom has worked in the business. It is not fair to him (or other employees) to assume he will want the burden of running the business eventually. If he does, I feel it would take another eight to 10 years of experience, which may not fit into my timing. I also have some partners, but they are close to me in age. It would be easy to have a deal where they take over, but they may want to retire before a buyout would be complete.”
“Whoever takes over has got to realize how much time, blood, sweat and tears you have spent building the business over the years (47 in our case), and it can go down real quick if you do not stay on top of it,” points out Mike Miller, president of Miller Drywall, Inc. in Missouri.
Trautman says, “The loss of a key person is devastating to a succession plan when there are no others within the company to fill their position.”
Ottinger related the greatest challenges he has experienced in creating and following a good succession plan. First, insecurity of senior staff in their position makes them hesitant to start training a replacement. This is solved by good feedback and communication to all staff, letting them know they are important. Also, ensuring there is a promotion and advancement plan in place.
Another challenge is the lack of a full, formal understanding of their job on the part of the person now trying to train a replacement. This is remedied by having a robust training program in place throughout the company, supported from the top all the way down. This has multiple benefits.
Not having the right people positioned to become a step in the succession plan is another obstacle. Ottinger says, “You can’t be afraid to admit deficiencies in the plan, and you have to have the fortitude to re-establish the integrity of the succession plan.” This may involve tough decisions in order to create a smooth path to succession.
“We have standard systems in place; however, roles are not as clearly defined as they need to be to transition successfully ownership to management,” says DeBonise. “Filling the roles with the right people also proves difficult. Where do I find them? How do I properly train them while also running the company? Hiring management is a significant investment. What if those I hire don’t work out and the money was wasted? Overcoming some of these fears may be my biggest obstacle.”
“We are in the process of turning over my many hats to others to wear so I can shuffle out the door,” says Reicks. “It’s left me with only the estimation aspect that I totally oversee, and that is my greatest hurdle—finding the right person to take over that duty.”
Fritz says, “Finding the right person and team within your company is extremely important for a successful transition. The essential part of a transition is maintaining the current customer base while helping the new owner learn the best techniques to acquire new customers and grow the business.”
“I think the main difficulty will be me,” admits Mazzone. “Can I let go and give the person or persons I selected the opportunity to run the business as they see fit without pushing for them to be me?”
Barbee has similar thoughts: “Some leaders may find it difficult for someone else to take over. They must get past the attachment and start to envision someone else for the continued success of the company. One of the most important aspects and difficulties a leader/owner has is not planning soon enough.”
Successful Succession Planning
What successful actions have AWCI members taken to plan for the future of their companies?
Barbosa recommends a “lengthy and deep investment in potential successors’ ground-up training, mentorship for successors and continued education as necessary.”
“I have hired a consultant to value the business and also interview employees,” says Wickham. “I also began direct discussions with key employees to see what their thoughts are. These things take a lot of time, so it is good to start the process early before you actually want to exit.”
Miller says, “This has just been resolved here, and it takes some time with lawyers along with the accountant. I sold most of my business to my son at a real cheap price and backed him on the sale to help get him on his feet. You really have to think about it if you want to keep it going.”
Trautman recommends “monthly reviews of the plan and an awareness that at any time things can change.”
“Succession planning for us is a formal, transparent process whereby the path for advancement is discussed openly, expectations are set early and impediments are discussed frankly and early,” says Ottinger.
DeBonise says, “In the last couple of years, we have worked with consultants. We continue to make changes toward hands-off ownership, which is ultimately how we would successfully transition out.”
Turczynski’s company has transitioned ownership to an ESOP. “With the financial side of transition completed,” he says, “it allows us to concentrate on finding the right leaders, not just ones with financial ability. We revisit our succession plan and timeline at least twice a year. When doing this we concentrate on our young leaders, their skill sets, continuing education and their areas of needed improvements.”
“No one-size-fits-all approach!” cautions Castillo. “There is a solution for each company. To ensure culture permanence, start by looking within and ‘brew’ the next generation.”
Ron Karp, principal at Advanced Masonry Systems, Advanced Drywall Systems in Florida, says, “My son works in the business already, and he will just slide into my desk when I decide I have had enough.”
“We are employee owned, so ownership transfer is not a significant impact,” says Burnum. “Our leadership changes are, however. We do what we can to forecast them early. We give the new leaders time to be mentored and to experience the job before acquiring the title and the responsibilities. We talk about what is going well and what needs to be improved. We are not shy about crucial conversations to make sure we are transferring the right culture and direction for our people.”
Gilly Turgeon, former president and now consultant at Green Mountain Drywall in Vermont, says, “When we sold our company two years ago, one of the stipulations of the sale was that I would stay on as a consultant. This was a family business that my father had started back in 1970. My brother and I really want the new owners to succeed, so I am showing them the ropes. Manpower is the biggest problem. We have been able to hire many good subcontractors to help with this. Having the subcontractors fill our manpower issues will be crucial in the next few years.”
“I have known for many years that a family member would take over the business,” says Fritz. “They have been trained in the way we do business with our client base so that there would be a smooth transition as well as a smooth exit strategy for me. During the past five years I have diminished my contact with our clients little by little and had that role continue to grow with my successor. Business transfer is never easy when you have built companies from your own ambition, but it is something all of us will do eventually.”
Barbee sums up the subject wisely: “We never know what life has in store, and we must always have a co-pilot at the ready.”
David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.
