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Planning for the next generation: leadership transitions in family businesses

May 1st, 2013 / By: / Feature, Management, Markets

Keeping family businesses strong when the owners retire requires a long-term strategy and realistic planning.

Evanston Awning Co., Evanston, Ill., is a family business currently being operated by its fourth and fifth generations. Edward Hunzinger Jr., MFC, is the president; his wife Ann Hunzinger is vice president and office manager; and their sons Eric, Daryl and Aaron are operations manager, production manager, and the guy who “literally does everything,” respectively.

Aaron recalls being doted on by the company’s seamstresses as a tot. “I started welding when I was 13,” he says. “My dad taught me how to sew when I was about 15. And I’ve been installing awnings … as far back as I can remember. All three of us remember, before we were old enough to drive, going out with these guys eight, nine, or 10 years older than us and taking ladders in and out of the truck and putting up one-story awnings and simple traditional awnings. It’s the perks of growing up in a family business.”

The company has a well-defined succession plan, and also has up-and-coming family members who, among the three of them, possess all the skills necessary to take the business forward. But that’s as much by luck as it is by design. It wouldn’t be this way if Eric, Daryl and Aaron had sought other paths.

“When we were younger, actually, our parents encouraged us to get other jobs and do other things,” Aaron says. “To see if we wanted to do something different. They by no means forced this business onto us. Very little pressure was put on us to come and work here.”

Forking paths

It’s never a foregone conclusion that any or all of a family’s members will join the family business, or that the progression will be linear. Mike Holland, president of Chattanooga Tent Co., Chattanooga, Tenn., runs his company along with one uncle, one brother and one son; they bought out another uncle some years back. Holland didn’t initially seek a career in the tent rental business, but he started installing tents in high school and never left. The same thing happened to his son: he started college, but after two and a half years, knew he’d rather be at Chattanooga Tent.

But Holland’s other son isn’t involved in the family business. “My youngest son, who worked here during summers, was a great worker and loved doing what he was doing,” he says. “But he knew he didn’t want to do this, and he is a civil engineer.”

Ken Robinson, MFC, chairman of Engineered Textile Products Inc., Mobile, Ala., is a fifth-generation scion of his family business. He’s not sure whether there will be a sixth generation; the kids are still too young for him to predict their trajectory.

“The oldest is 13, so we’re a little bit away from that, because who knows where their life’s journey will take them,” he muses. “And my father is still active in the business. So I guess the succession plan is still him passing it to me until that day comes.”

Even the best-laid succession plans can fail to match up with reality. Kathy Schaefer, the fourth-generation CEO of Glawe Awnings and Tents, Fairborn, Ohio, expected to share the helm of her company with her brother-in-law, but he became ill and had to leave the company. But even if things had gone as planned, she’s not sure it would have worked.

“My dad was originally going to leave it 50-50, and I think that would have been the kiss of death, because we would have had no tie-breaker at all,” she says. “What are you going to do, just beat yourself against the wall every day? I suggested we get a board or something, a lawyer, an accountant, impartial people to advise us.”

An advisory board would have been helpful had it come to that. In fact, there are many situations where non-family members can offer valuable input to family show-runners. Schaefer says her nephew, who’s the only fifth-generation family member in the business, is skilled at installation but still needs more experience at sales and customer relations. Depending on how events unfold, he may lead alongside other longtime employees whose talents are different from his.

“Our salesman, for example, is a businessperson, and probably sharper than I am when it comes to negotiating buying things and selling things,” Schaefer says. “I think sometimes you may have to look outside the family for complementary skills.”

Another kind of family

Mike Holland is lucky to have a family member to pass the company to. However, he is also mindful of the need to nurture skilled, devoted, long-term employees who will support his son in moving the company forward. Many of Chattanooga Tent’s lifers start out as summer installers, he says.

“Hey, you get out of high school and you don’t know what you want to do. Well, why don’t you come see the U.S. working with us?” he says. “By the time you’re 21, you’ve got leadership, you’re a foreman. You can get your truck driver’s license. You do this for four or five years and see a lot of cool things. By the time they’re in their mid-20s, they can do one of two things: they can stay here—we’d love to have them stay here—or if they decide to do something else, they have a lot of good skills to put on an application.”

Schaefer says she’s a big fan of cross-training everyone, so that if one employee can’t come in, the whole company can still run smoothly. Cross-training creates the kind of well-rounded employees who know every aspect of the business and can move up in the organization. Unfortunately, she says, long-term employees are often very threatened by cross-training. The solution? Cross-train on someone else’s turf. It’s one of the perks of knowing and trusting a lot of colleagues in the specialty fabrics industry.

“There was an instance where I asked a friend of mine, ‘Hey, can [my crew] spend a day with you on the job and work for you, and see what’s going on?’” she says. “I think I might do it again, too.”

Grow your own talent

A lot of the work at Outdoor Ventures Corp., Stearns, Ky., is repetitive manufacturing line work, but there’s still plenty of opportunity to move up in the ranks, says president J.C. Egnew.

“Our creativity actually comes from taking a product that in a lot of cases was designed for functionality by an engineer or an architect, but not necessarily designed for manufacturability,” he says. “If you’re making one or two, the manufacturability isn’t a real big deal. But if you’re going to make hundreds or thousands of something, then it had better be manufacturing-friendly, or it’s something that will cost you way too much to manufacture.

So we have engineers and technicians who do that creative work. All of them have their supplemental education one way or another, but a lot of it is from hands-on experience. Some of them started out as operators and are now quality control technicians, maintenance technicians, management.”

Sometimes Outdoor Ventures brings in talent from outside, but it doesn’t tend to work as well. The company is headquartered in a small community, and newbies often pick up and leave again.

“What we try to do is grow our own talent,” he says. “We try to pick people early who show promise, get them on a track to progress and grow, supplement that with education, and have them be ready for the new positions and the retirements and the things that occur as time goes along.”

Tight-knit family businesses like these, which really value their employees and try to keep them for the long term, often end up employing multiple members of other people’s families. Aaron Hunzinger tells the story of a welder who has been with Evanston Awning for 11 years.

“When he was two or three years into it, he would bring his son around, who was eight years old at the time,” he says. “There would be days in the summer, if they didn’t have a baby sitter, he would just come here. And it was never really an issue for us, because my parents were used to having little kids around the shop. We kind of brought him up the same way we were brought up in the company, and now he’s 19 years old and working for us.”

The welder’s son has expressed an interest in making a career with Evanston Awning, and the company has offered to put him through welding school if he wants to go.

In the 1990s, Chattanooga Tent recruited four Bosnian refugees through a resettling program. Three of them—two brothers and their uncle—are still with the firm. The company also employs an installer whose father was an installer in the 1970s and 1980s.

In many cases, employees with this kind of legacy and longevity are ideal candidates for becoming “the next generation,” even when they do not share DNA with their predecessors. Ideally, family businesses offer their long-term employees the same opportunities for enrichment and advancement as they offer their blood relatives—because ultimately, everyone’s talents may be necessary.

Moving on

Sometimes a family business must undergo transition rather than succession. Chandler Clark, owner of Signature CanvasMakers LLC in Hampton, Va., says he and his wife, who run the business together, do not have any children and are not planning to stay until they’re elderly, as many entrepreneurs do.

“We’re not going to do this forever,” he says. “We’re not even probably going to do it into our 60s. Our exit strategy is to go sailing.”

Clark says he and his wife want to get everything they can out of the business when they retire from it. Selling it to the employees is a possibility, but so is selling it to someone else. Central to their retirement strategy is the fact that they own their building under a different company name; after they sell the business, they’ll rent the real property to generate a continuing income.

But like a family succession, this type of transition takes planning.

“If somebody’s at the point where they’re looking at getting out, they need to have it on the market,” he says. “I think the times when the right person walks in the door are few and far between. So I think people need to be prepared for that. When the right person comes along—the person with the money, with the personality, with the business sense—I think you need to jump.”

Jamie Swedberg is a freelance writer based in Woodville, Ga.

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