Starting at the bottom

A common thread in most situations that have progressed successfully is how the younger generation was indoctrinated to the business. They were typically brought in young and at the bottom of the totem pole. I’ve seen situations where they were brought in at 14 years of age or younger and started with assignments like cleaning the bathrooms, sweeping the warehouse, filing service tickets, breaking up cardboard boxes, helping with deliveries or similar tasks. Bringing them in at this level accomplishes a few key goals. This initial step helps them understand that businesses ownership has many levels. It is not just sitting in an office giving orders to others, taking long lunches and cashing checks. Succeeding takes hard work on many levels. Next, this strategy helps the younger generation connect to the frontline workers in the business as a peer as opposed to the boss’ son or daughter. 

If this process leads to success it is fairly easy to see what would not. I have seen situations where the owner brings a son or daughter into the business and immediately places him or her in a higher level position, though this position has not been earned. This almost always leads to failure since there hasn’t been sufficient training or preparation involved. Next, the staff will often resent this automatic placement and will either openly or covertly work against them. 

Avoiding entitlement and special treatment

Hand-in-hand with starting at the bottom, successful transitions occur when there is no feeling or display of entitlement on behalf of the younger generation coming in. For this transition to work, the younger generation person coming in must earn everything he or she gets. In fact, the most successful situations I’ve seen take this a step further. The owner of the business who brings in his or her child holds them to a higher level of responsibility and accountability than anyone else in the organization and everyone knows and sees it. This can and should be discussed in advance. I have coached many of our clients to sit down with their son or daughter to tell them clearly that they will be held to a higher standard as the son or daughter of the owner. The morale of the group wil suffer if this doesn’t happen.

The entire organization takes notice the minute your child gets preferential treatment. From here forward people look at you and the organization differently. I have had numerous dealership employees tell me that they are looking for another job because they don’t feel that they have any future potential with the organization or that they think the company will crash when the son or daughter takes over the organization. The problem is that they will rarely tell this to the owner. They just quietly leave.

'When you own a business and have children the natural progression is to bring the children into the business at some point either to learn the ropes or simply to help out or have a job.'

Jim Kahrs
When looking at the make-up of the business systems industry one quickly realizes that there are many family-owned and operated dealerships or resellers. When looking at the roots of many of them it is easy to see why. A technician or sales rep working for a larger company gets the entrepreneurial itch and decides to start his or her own company. Typically the business starts small and builds. As the owner builds the business he or she also begins building a family. As the two mature they often become intertwined. When you own a business and have children the natural progression is to bring the children into the business at some point either to learn the ropes or simply to help out or have a job. Dealerships have achieved different degrees of success in this process.

I’m sure you have all heard the stories at either end of the spectrum. There is the successful transition where the next generation comes in and takes over the business and brings it to a new, higher level. The revenues grow, profitability grows and the business heads in a very good direction. Then there is the unsuccessful transition where the next generation comes in and the business falls apart. So what are the driving factors behind each scenario? For the balance of this article I will outline the elements that lead to success or failure. Much of what will be covered has come from first-hand observation of what works and what doesn’t.​
Successfully Transitioning a Family-Owned Dealership

Learning all disciplines

Another observable key to success is having the younger generation learn all parts of the business. Some of this is accomplished by bringing him or her in at the bottom. However, it should go further. If your son or daughter comes into the business on a full-time basis as a technician and you have intentions of having him or her take over the entire business it is wise to get them front-line experience in all aspects of the business. Once you feel that his or her skill as a technician is strong I would suggest having him or her spend a significant period of time as a sales rep. In doing this you are creating a well-rounded individual.

One of the biggest challenges we face in our industry is a disconnect between sales and service. Many dealerships have a level of animosity among the departments.This animosity comes from a lack of understanding and respect for what the other team does. Having spent a significant time in each department puts a future manager in the unique position of full understanding of both sides.

However, I wouldn’t stop here. I would have the immersion continue into the admin area as well. Someone that is being groomed to take over the business needs to have a keen understanding of what makes the business run day in and day out. The admin team holds everything together and makes sure that what we do turns into profit. Along with this education in admin it is critical that the younger generation be fully engaged in the finances of the company. Too many people think that profit is generated solely by selling more. Unfortunately this is not the case. Profit starts with sales as we need revenue as the first step, however, true long-term profit is created through good financial management. It is very easy to spend money. One must understand how and when to spend money in order to generate net profit. Handing a company over to someone that doesn’t understand finances can be suicide.

Embracing generational differences

Some of the most successful transitions between generations that I have seen have been brought about because of different viewpoints and skill sets of the generations. I have a fortune from a Chinese fortune cookie taped up by my desk that reads; “When two men in a business always agree, one of them is unnecessary.” Successful transitions have come about when the generations put their heads together to work out plans.

This can be seen very clearly when looking at the differences between how millennials and Baby Boomers communicate. The decision makers at many of our prospects are now millennials, we need to change how we communicate in order to reach them. Having and embracing the millennial viewpoint in the organization can be a huge help. I have seen the most success when both generations learn from and adopt strategies of the other. This new hybrid manager can cross many boundaries and understand their employees and customers better.

Having a plan

Those who have made the successful transition from one generation to the next have had a plan. Unfortunately it doesn’t typically happen by itself. The plan should include some key elements. First there should be a rough timeline. For example, the goal is to fully pass the torch and exit the business within 10 years. With a timeline in place you have a means to measure progress and have some prediction of what else is needed.

The next step is to have a training plan. As mentioned earlier, you’ll want the future leader of the company to have experience in all areas. You will likely also want him or her to have some formal schooling often in the form of a college degree. Have this planned out and worked into the timeline. Additionally, you’ll need to have a financial plan. If the goal is to turn the business over and move into retirement you will need cash flow to maintain your lifestyle. There needs to be a plan for this as your son or daughter will not likely have the money to buy the business in a lump sum. The business will need to spin off the cash needed to continue to support you while having enough cash flow to keep the business going and pay your son or daughter to run it. This can definitely be done; it simply needs to be planned out.

The concept of building a business and a family together and passing the business on to the next generation is an old one. There have certainly been varying degrees of success achieved. However, the concept is a viable one when you take the right approach. You’ll find that a little planning goes a long way. If you consider the important elements listed above and have a strong plan the results can be fantastic.