Experts say one of the biggest crises facing businesses is the imminent succession wave, as thousands of baby-boomer entrepreneurs prepare to retire and pass their companies on to other people.
The risk is real. Whether you're planning to transfer your business to your children, to your employees, or to strangers, there are huge pitfalls. How do you, the owner, let go? How should you structure the share transfer? And how do you manage transition in a way that will minimize disruption to employees and customers?
While every succession event is different, there is much to learn from entrepreneurs who have already been through the process. One such entrepreneur is Hank Gelderman, the burly, 58-year-old owner of Gelderman Landscaping in Waterdown, Ont. Although his transition isn't complete, Gelderman's grounded-but-flexible approach proves succession isn't a matter of luck.
Gelderman Landscaping was founded by the late Jan Gelderman in 1955. Hank Gelderman took over his father's business at age 21. With an instinct for growth, he developed a secure niche tending to condominium properties in the Mississauga-Burlington suburban corridor of Toronto, and he stabilized the firm year-round by moving it into snow-plowing services. By 2005, the company had 30 trucks and more than 60 employees.
By 2005, Mr. Gelderman started thinking about retirement. "I was ready to slow down," he says. "I didn't want to work my butt off until 60 or 70 and then drop dead."
But none of his five children showed much interest in the business. Then a son-in-law, agricultural consultant Nathan Helder, expressed interest in buying shares in the family firm. Mr. Gelderman told him there was only one share available: Was he interested in taking over the whole company?
Mr. Helder, then 31, did not expect the offer - he was happy with his job and he was only looking to invest. But he respected his father-in-law's achievements, and he had always enjoyed talking business with him on their annual vacations. "I didn't know anything much about Gelderman Landscaping," Mr. Helder admits, "but I thought, 'Wow, what an opportunity.'"
Mr. Gelderman then approached his most senior staff member to ask if he was interested in buying the business. The employee turned down the offer. Then Mr. Gelderman and Mr. Helder canvassed the company's two most senior staff to get their buy-in if Mr. Helder were to take over. "I was thinking, 'if they aren't on board, what chance do I have?'" Mr. Helder says.
Then it became a question of how to manage the transition to balance Mr. Gelderman's needs with Mr. Helder's inexperience and lack of funds. Over the course of a year, working with an accountant and a financial adviser, Mr. Gelderman hammered out a plan:
• Mr. Helder would join the company and work his way up to president over a five-year period.
• Mr. Gelderman would adopt the title of chairman and gradually delegate responsibilities as Mr. Helder proved himself.
• By 2011, Mr. Helder would begin buying shares from his father in law. The share transfer would take 13 years.
The beauty of the deal was in the details. For instance, the company's value was determined as of 2005, and the two parties agreed it would increase 2 per cent a year subsequently. Growth beyond that would accrue to Mr. Helder, rather than adding to the total value of the firm. That solved a common problem in which successors buying shares over time have to pay more for the company if they are successful in building it up.
Of course, no plan survives contact with reality. When Mr. Helder joined in April, 2006, Mr. Gelderman suggested he start working on a crew, become the crew leader, then move up to supervisor. Mr. Helder was willing to learn the business from the ground up, but he didn't want it to take too long. He agreed to perform every job at the company, from pulling weeds and pushing lawn mowers, to answering phones and dispatching crews, in order to gain experience and the respect of the current Gelderman staff.
After four months, Roy, the operations manager, concluded that the succession plan was moving much faster than anticipated and suggested Mr. Gelderman step aside.
Mr. Gelderman agreed: "We need one leader, not two."
Over the next few years, as Gelderman Landscaping grew, it needed more office space. When Mr. Helder asked Mr. Gelderman to give up his smaller office, again Mr. Gelderman agreed. "Did it bother him?" Mr. Helder asks. "Yes. But did he fight me? No."
"I delegated myself out of a job," Mr. Gelderman admits. He says his decisions were all based on a consistent mantra: "What's best for Gelderman Landscaping?"
No matter how you structure succession, Mr. Gelderman says, the secret is simple: "You've got to let go. If you don't want to let go, don't go into a succession plan."
Like his father before him, Mr. Gelderman resisted telling his successor what to do. "Let him make his own mistakes," he explains. "I learned to wait for him to come to me for advice, instead of shoving it down his throat."
Mr. Helder admits he made mistakes, but says he has learned from them. At one point Mr. Helder realized he was moving too fast to try to adapt the company to changing market needs. "One thing I learned: Don't forsake the past. Do not forget your current customers that have been with you for a long time. Do not take them for granted. We thought past history was enough, but it wasn't."
Similarly, Mr. Helder realized he had to spend more time nurturing his staff. "These people have a lifetime with the company. As the company moves forward, we're going to the next level, and I have to remember to help them with it. I can't discredit them for their experience."
The secret to successful change, he adds, is small steps. "Instead of big changes, you make a lot of little changes."
To make succession work, clearly both parties must learn to plan for the worst, adapt for change, and learn what to let go of and what to hold on to. In the end, Mr. Gelderman says, success is a choice. "There's an old Dutch saying: You either desire it whole-heartedly, or you don't."
Special to The Globe and Mail
Ken Tencer is CEO of Spyder Works Inc. and co-author of The 90% Rule: What's Your Next Big Opportunity, and he is currently at work on the book SUCCESSion is a Seven Letter Word: Lessons in Transitioning the Family Business.