By Bridget McCrea
Succession planning is imperative for precasters in today’s business environment.
Succession planning isn’t an easy subject for precast manufacturers who know they should be thinking about the next generation of ownership. Busy putting out daily fires and managing their companies, many owners either don’t have the time or simply don’t have anyone coming up behind them who can one day take over the reins.
Family-run firms have a particularly difficult time with succession planning. According to the Family Business Institute’s most recent surveys, 88% of current family business owners believe the same family or families will control their business in five years, yet actual succession statistics undermine this belief. For example, just 30% of family businesses survive into the second generation, 12% are still viable into the third generation and only about 3% operate into the fourth generation or beyond.1
With the huge baby boomer generation heading into retirement at a high rate, the stark realities of poor succession planning are hitting companies hard right now. And it’s not just ownership that’s at stake. Succession planning also affects employee recruitment, retention and engagement.
According to Software Advice, which develops software that companies use for recruiting, succession planning also plays a critical role in successful talent management and organizational growth. In a recent survey, the firm found that 62% of employees would be “significantly more engaged” at work if their company had a succession plan. And 94% of employers said having a succession plan positively impacts their employees’ engagement levels.2
But even with these truths staring them in the face, most companies continue to operate without a succession plan.
“Business owners function at such a rapid pace to remain competitive, it’s no wonder that developing their exit plan and replacement doesn’t seem like today’s priority,” said Kirt Walker, president and COO of Nationwide Financial.3 “Yet, there isn’t a more critical component of an operational plan than a solid business succession plan for providing seamless continuity in a time of crisis or transition.”
Holding out hope
Gainey’s Concrete Products is one NPCA member that has invested time and effort into its succession plan. Based in Holden, La., the company is largely dependent on its president, Greg Roache, for leadership, strategy and growth. While having a strong leader in place is critical, that much dependency on one person makes Roache and his wife, Lisa Roache, vice president, a little nervous. To calm those nerves, they’ve already tried a few different approaches to succession planning, none of which have worked.
“The simple, classic answer is let’s hire ourselves a young graduate engineer and teach him the ropes, and then hope that he wants to take over the business someday,” Roache said. “We went into it thinking, ‘OK, if we find the right person, we’re going to offer him the opportunity to be an owner in the business’ – knowing that would turn into an opportunity for that person to make the same amount of money (or more) than they would in a different industry.”
Together, the Roaches have interviewed a few people for the position, but said most of them were hung up on the amount of work that it would take to get fully up to speed. One candidate seemed interested and participated in a series of phone interviews, but wasn’t prepared to work on Saturdays or put in long hours. So, it became clear that recruiting a successor and offering an ownership stake probably wouldn’t be a good fit.
“It was pretty discouraging,” said Roache, who admits he obsesses over whether he’ll ever find the right successor. “What I’m really worried about more than physical issues is if my mind slips one iota this business is really going to suffer. There comes a time when we all slip, and we’re in no position for that to happen.”
Contemplating a transition
At Jefferson Concrete in Watertown, N.Y., Mark W. Thompson shares many of Roache’s pain points. With a handful of silent partners and no children who are interested in taking over the reins, Thompson is leading a successful firm in a very capital-intensive industry, but nearing the end of his career.
“The only way for my partners and me to get a hold on succession planning is by selling the company,” Thompson said. “We’re constantly looking and I’m not sure how many more years I can go here. Every year, I think it could be the last one.”
But even a sale may not make Thompson and his partners happy. After all, Jefferson has turned down at least one offer to merge with a larger conglomerate in the past. Exacerbating the challenge is the capital-intensive nature of the precast manufacturing business and the fact that business fluctuations can heavily impact the balance sheet.
“When you start putting numbers on paper, sometimes things don’t look quite as rosy as you would like to have them as you contemplate some kind of transition,” Thompson said.
Mills Snell, a partner with Pendleton Street Business Advisors in Columbia, S.C., cautions precasters not to rule out a possible sale as a viable succession planning strategy, noting that even capital-intensive companies can be attractive targets for a certain type of acquirer. Snell said one of the biggest issues that a company like Gainey’s Concrete or Jefferson Concrete would face during the due diligence and/or sales process is an owner who can’t be effectively separated from the company that he or she built.
In reality, a manufacturing company is a thriving entity with a lifespan that could extend long beyond that of its founder if given the opportunity. And while second and third generations of family owners generally give the founders incentives to “keep things going,” Snell said other companies close when their owners pass away or retire.
“A lot of business owners think that if they work and save for a number of years that they can just push a button and retire, and that everything else will work itself out,” Snell said. “So, they give their notice, say goodbye to the company they worked at for 35 years and then start their retirement.”
With the exception of the highly paid executive who started saving when he or she was 18, this approach doesn’t usually work – mainly because 80% of the typical business owner’s net worth is tied up in the company.
“That’s not something you can just convert into cash within a few days,” Snell said.
On a positive note, Snell said the acquisition environment is friendly right now, with interest rates remaining at historic lows and the lending environment being more favorable than it’s been in years. Combined, these two elements can boost a company’s chances of being purchased. In addition, the cost of borrowing money to purchase a business is affordable right now. This also creates more margin in terms of how much someone would be willing to pay for a business.
Snell said companies that have substantial balance sheets should take these points into consideration, particularly if much of the power and ownership is concentrated in one individual.
Succession planning success
Linda Henman, Ph.D., is in business for one primary reason: Too many business owners wait until they’re 64 years old and then say, “Uh-oh, now what?” With no transition or succession plan in place, many owners either close up shop or work beyond retirement age, neither of which is ideal.
“They struggle with succession because they haven’t been thinking about it,” said Henman, president of Henman Performance Group in Chesterfield, Mo. “Most have been living in some sort of denial and not thinking about the future.”
So what’s a better approach? Henman said the answer is simple: as soon as you realize the need for a succession plan, start acting on it. This is a good way to ward off the need for “emergency replacement,” said Henman, which can become necessary if the current leader becomes sick or is unable to work.
So when is the right time to start succession planning?
“Right now,” said Henman. “If you start five or even 10 years before the estimated departure of the CEO or other key leaders, it may be too late. Unforeseen circumstances can interfere with your best-laid plans, and the company will be faced not with the ‘quiet crisis of succession,’ but with a screaming one.”
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade-technical feature statewide.
Resources:
1 familybusinessinstitute.com/consulting/succession-planning/
2 softwareadvice.com/hr/industryview/succession-planning-report-2015/
3 finance.yahoo.com/news/nationwide-survey-finds-majority-business-140000687.html
9 WAYS to be Proactive About Succession Planning
Linda Henman, Ph.D., president of Henman Performance Group in Chesterfield, Mo., offers these nine strategies:
1. Clarify expectations. What does the current CEO or president expect from each level of the organization?
2. Review the current succession plan for the organization. Determine if this leadership pipeline supports the mission, vision and values of the organization.
3. Determine future talent needs. Examine current versus required performance, existing enhancement initiatives, projected turnover, anticipated retirements and talent-growth projections.
4. Establish competencies for each key position. This ensures that key positions underscore and dramatize important work processes that must be carried out.
5. Identify excellence markers and critical success factors. for each position on the leadership team. What are the skills, experience, knowledge and personality characteristics required for exemplary performance?
6. As a team, agree on standards for high-potential candidates. The criteria for determining a high-potential may include the ability to advance two job levels in five years, a willingness to relocate or acquire requisite field experience and the potential for at least 10 to 15 years with the organization.
7. Identify strengths and weaknesses for each individual. you are considering for key positions. Assess “ready now” people, identify a timeline for “ready now” in the future and examine each high-potential candidate.
8. Identify high-potentials currently in the organization and one or two possible successors for each key position in the pipeline. For immediate decisions, compare this list of high-potential candidates with the list of “ready now” candidates or look at the timeline for projected readiness to determine when they will be able to take on new responsibilities.
9. Hold everyone accountable. Assign members of the leadership team accountability for development plans for each high-potential candidate.
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