Preparing For The Future
Succession Planning Process Ensures Long-term Success
Best Practices by Lou Dzierzak, Lkdcom@visi.com
Running a family business in the snow sports industry is often a multi-decade labor of love. Moving that passion on to the next generation can be a formidable task. According to Stuart Keiller, principle at Stuart Keiller LLC and author of SIA’s Succession in the Family Business Planning Guide and Workbook, the average life span of a family business is twenty-four years. Only about one-third of family businesses survive to a second generation and about ten percent to a third.
Keiller reports the primary cause of a family business failing to thrive through a second generation is lack of planning. “Succession planning is often overlooked. It’s not consciously worked at,” notes Keiller. “Everyone is so wrapped up in the day-to-day problems that thinking a year ahead, much less a generation ahead, is difficult. Since owners of small businesses are wearing so many hats, they don’t address succession.”
Dana Telford, a consultant for the Family Business Consulting Group notes that owners are often too consumed with day to day management issues to think about long range succession planning. “What happens is they spend so many years worrying about making payroll that only when an accountant or spouse whacks them on the head metaphorically and says you have a viable business. What are you going to do when you retire?” Telford believes the answer to that question can be found through a formal step-by-step succession planning process. Rather than a question that’s addressed shortly before retirement; succession planning can be a long-term endeavor with multiple succession scenarios to consider. “Successful succession planning is a ten-year process,” says Telford.
A shop owner who begins to ponder the future direction of a company may wish they started the planning process much sooner. “The longer period of time spent on succession planning, the more chances of success you have,” explains Keiller. “It’s not something you wake up at 65 and say I need to figure out what I’m going to do with the business.”
Telford adds, “What we have to be good at in continuity planning is identifying leadership capability and keeping it. Whether that leadership capability is exhibited in our family through our bloodlines or marriage is less important than finding that capability and keeping it.”
Succession options include passing the business to a second generation, long-time employee, selling the operation, or simply closing the doors. Transferring the business to family members or employees comes with special considerations.
“The obstacles in success planning are related to what I would call ‘protecting the castle,” explains Telford. “Imagine life 1,000 years ago. If you were a person of wealth you had property and assets and you protected them by erecting a wall and defending the castle against attack. Just because your dad built and protected the castle doesn’t mean the son will be able to do the same and avoid having his head put on a spike by raiders.”
While the second generation family member or employee may express a deep commitment and interest in buying the operation, financial restraints can hamper the sale. “When you transfer ownership of a small business, the employee may not have the personal collateral to assume the risks in the business,” explains Keiller. “The owner ends up still on the hook for the financial risks. It takes time to work that out.” He continues, “In today’s environment, virtually every kind of credit is extended both with business and personal guarantee; employees may not have the wherewithal to borrow the working capital that’s required to take over the business.”
When using long-term buyout terms in a sale, employees and second-generation owners may face short term financing issues. “For a period of time, the business may have to carry two different families,” notes Keiller. “Is there enough juice in the business to support two generations or an employee and owner?”
Telford explains that, “It is important to determine the best person to protect the castle and grow the territory. It’s not just the founder’s lifestyle that needs to be protected but also the successor’s lifestyle and in many cases there is another owner or family member that needs to be considered. You need to have growth and you want to buy a business that will continue to grow and succeed in the future.”
In some succession planning scenarios, expanding the business to open additional locations is a viable way to increase revenue to help fund a new owner’s acquisition.
Successful retail operations often begin with years of long hours, low pay and personal and professional sacrifice. Keiller notes that some second-generation owners may lack that depth of commitment. “They may not be willing or able to put enough skin in the game. Many times for a second generation, that skin is sweat equity or forgoing other career opportunities.”
Willi’s Ski and Snowboard Shop, mentioned in the Succession in the Family Business Planning Guide and Workbook, has successfully transitioned to the second-generation ownership through a careful planning process.
Kjerstin Klein, part of the second generation ownership at Willi’s Ski and Snowboard Shop, comments on the mindset of potential second generation owners. “A lot of those kids have a sense that succession is a birthright. They don’t bring any of their own self to the puzzle.”
Far too often second-generation operations don’t survive. “There are many cases where the hand-off to the second generation fails,” says Keiller. “It’s not that they don’t have the ability, but they lack the commitment to rolling up their sleeves and do all the nitty-gritty things their parents did to operate these entrepreneurial businesses. Second generation failures tend to come from not digging in enough and trying to operate on automatic pilot.”
New owners often discount the hard work that was needed to create the store’s momentum and success. Klein says, “It’s like starting to ride a bike. It takes a lot of energy to push off and start pedaling, but once it’s going it’s not as hard to keep it going. If you come into the business with the idea of just keeping it going, you forget how much energy and work it took to get started. You have to come into the business with the idea that you are not taking over somebody’s business, but taking a template to develop your own business to the next level.”
The success a storeowner sees today may not extend under a new owner’s tenure. “They see a growth line on a graph and expect that to continue,” says Keiller. “We know that’s not going to work. Owners have to deal with recessions and years with no snow.”
The generation that started snow sports specialty shops in the 60’s and 70’s are facing succession decisions and in some cases second generation owners are entertaining discussions with the third generation. “This is not a business for the faint-of-heart and at times people are ready to try something else,” says Keiller.
An aging Baby Boomer generation is also increasing interest in succession planning resources. Decades after starting to sell equipment from the kitchen table, back of a station wagon and first small store, ski shop owners are looking towards retirement. “It’s an active world. If the storeowners are still out there using the products that they sell, they want to be doing more of that,” notes Telford. “They understand the clock is ticking.”
Klein offers some insights to buyers and sellers. “Owners have to essentially let go of their baby and let someone else put their stamp on it. The new generation has to come to business not with the idea that it’s a birthright but with the idea that they have something to give. The business is essentially new moving forward with a template and experience that already exists.”
Getting started sooner than later will make those transitions easier for both sellers and buyers. To purchase SIA’s Succession in the Family Business Planning Guide and Workbook for $29.99, contact SIA directly at SIAmail@snowsports.org or 703.556.9020. Stuart Keiller is also available to help walk you through the steps necessary for a productive Succession Planning process. Planning consultation is available on an hourly, daily or multi-day basis depending on your needs. Take advantage of this affordable and valuable opportunity by contacting Keiller directly at 410.643.1324 or at Keiller@toad.net. Additional resources can be found at efamilybusiness.com.
Managing a successful snow sports specialty retail store requires expertise in an ever-changing array of business operations. Human resources, event planning, marketing, product selection, social media and e-commerce are just a few examples. Lou Dzierzak has written about these topics for over a decade. Best Practices will shorten the learning curve by offering case studies, resources and how-to tips from experts in specific fields. If you have suggestions for future topics, please feel free to contact Lou at Lkdcom@visi.com.