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Now That We Have It, What Do We Do With It?

A case study of a family’s business succession

The Jones family was enjoying the afterglow of a sumptuous holiday dinner. They were relaxing and thinking about how different things are today than they were in 1973 when Joe got the chance to own his own material handling company. Mountain Materials Handling (MMH) has grown from a struggling startup to about $30 million in sales and 55 employees.

Founder Joe Jones was accompanied in the den by his wife Anne, 58, who was crucial to the early success of the business in her role as bookkeeper, human resources manager and chief morale officer. Son Mark, 29, who’s been with the company since he finished college in 1998, is joined by his wife Susan, 30, an attorney in a medium-sized law firm whose professional reputation is growing rapidly. Daughter Jane, 26, a Ph.D. candidate in history, also was visiting for the holidays and participating in the discussion of the fortunes of the family company.


After many years of sacrifice, hard work and meager profits, Joe and Anne became an “overnight success.” The last three years were their best years ever, and they’ve made more money than they ever dreamed they would. They attribute a great deal of their success not only to the family but also to two key employees: Ken, the 60-year-old CFO who joined the company in 1989, and Rusty, the general manager, who’s 58 years old and joined the company in 1997. Both Ken and Rusty brought valuable experience from larger material handling dealers.

Joe got his start working as a mechanic for a local material handling company, where he quickly rose to be the leader in the shop. The owner, Mr. Barnes, began to rely on Joe’s intuitive understanding of business and customer needs. Mr. Barnes didn’t have any children, and he looked to Joe as a potential business successor as he neared retirement age and his health declined. Because they didn’t have any capital of their own, Mr. Barnes agreed to finance Joe and Anne’s purchase of MMH over a ten-year period and, in effect, serve as their banker. Joe and Anne really struggled in those early years. Mark and Jane came along soon after they began to purchase the business, and life was very complicated. Money was tight, and there were long periods of time when Joe was away on business.

Mountain Materials Handling Today
Joe and Anne have always been very thrifty with money and have resisted some of son Mark’s initiatives that require funds for marketing, information technology and expensive new employees. At 62, Joe is beginning to think about slowing down after many years of hard work. Now that Anne has lots of free time on her hands, she’s urging him to travel and enjoy life a bit while they still have good health.

Joe’s first love remains the mechanical side of the business; he still works in the shop whenever possible and relies on the mechanics to be his eyes and ears to the customer. Today, he sometimes feels left out of the loop as Ken, Mark and Rusty introduce new technology, management and people practices and new lines of business into the company. Joe is hardly involved in finance at all, and he’s not sure he shares the same vision with Ken, Mark and Rusty for where the company should go in the future. Depending on the day, Joe could argue persuasively for more aggressive growth or, just as vigorously, for more conservative, restrained management. He sees pros and cons to each argument and just isn’t sure what the right answer is.

Joe is somewhat happy with the way his son has grasped the business and believes he has the makings of a good salesman. However, he wonders why Mark doesn’t have the same passion for the business he did at that age, and why he isn’t willing to put in the necessary 70-hour work weeks. Joe and Anne also think that Mark is influenced by his wife Susan, who as a white-collar attorney, doesn’t always understand what it takes to be successful in a hands-on business like MMH.

Due to her former role as bookkeeper and money manager, Anne wonders if Ken exercises the same degree of caution and diligence she did when she was handling the accounting. She’s happy with the way the business has grown, but worries about where it will go next and wonders if they have the know-how, people and money to take it to the next level. If business growth consumes all the money, where will Anne and Joe get the wherewithal to have a decent lifestyle in their golden years? Worse, what if all the ambitious plans don’t pay off, and the business struggles? She admires her son’s ambition but knows he’s just not ready to take over from his dad at this stage.

Anne is very proud of her daughter, but doesn’t understand how she can spend her life as a “professional student” without having a “real” job. Anne also wonders if Joe has become too detached from the day-to-day operations and has entrusted Ken and Rusty with too much authority in the business. She worries that the employees might not really know who’s in charge.

Setting the Stage for Succession
Back in the Jones den, Jane has an announcement. She’s just been offered a post-doctorate research position in England, and she’d like to take it. She’s not interested in employment in the family company, but it’s not cheap to live overseas. Post-doctorate researchers don’t get paid much, so she wants to know if it is possible to cash in a little of her MMH stock on a periodic basis so she won’t be living hand-to-mouth.

Mark, it turns out, has a bigger bombshell. Someone just offered him a position as sales manager at a company across the state. He’d have lots of new responsibilities and a significant pay increase. Susan likes the idea, and her law firm has an office in the other city where she could continue to expand her practice. Mark looks at Joe and says, “Dad, I’ve been offered a job at Sands Materials Handling, and I’m seriously thinking about taking it. I need to know what my future really is here at MMH and when I can expect more responsibility and compensation in our organization.”

Joe and Anne look at each other. Each knew this day was coming, and they share the desire to distance themselves a little from MMH, but this seemed awfully sudden. They’ve spent almost no time talking about these scenarios. How should they answer Jane in her request to cash in some of her company stock, and how should they respond to Mark’s request for more responsibility in the face of a job offer at a rival company?

Addressing Family and Business Solutions
This scenario illustrates both family and business issues. The family issues include Joe and Anne’s wish to retire comfortably, Mark’s career choices (with MMH or elsewhere), and Jane’s becoming an adult independent from her parents. Business issues include continuing MMH’s success beyond Joe, Ken and Rusty, all of whom are approximately the same age and will probably retire within a few years of one another; succession of management responsibilities and decision-making authority; transition of company ownership over time; and financial support for Joe and Anne while simultaneously balancing the cash flow needs of the company in its current growth mode.

The family should schedule a meeting within a week or so of their informal discussion with a trusted facilitator. (As a rule of thumb, never lead a meeting in which you have significant input and a stake in the outcomes.) The family should come to the meeting with the following agenda:

  • Review the current financial and competitive situation of MMH.
  • Create statements of and elaboration on each individual’s personal goals.
  • Brainstorm goals as a multi-generational family.
  • Brainstorm goals for MMH.
  • Brainstorm growth opportunities and challenges facing the family and the business.

Following this initial session, the family will need to commit to follow-up meetings with steps to address the most important issues raised. Everyone needs to do some soul searching.

Joe and Anne: What should “retirement” look like? Where will the money come from? Is it important to me to continue the business? What is my proper role in the business? In the family? What do I want to get out of life in the next ten years?

Ken and Rusty: What are my personal goals? Can MMH help us meet them? How long do I want to work? Do I have any interest in running all or part of the company? If Mark were to take over at some appropriate time, would I be willing to stay on to help in the transition process? What is the time frame for making these decisions so I’ll know what my future holds?

Mark: What are my dreams for myself and my family? What kind of skills will it take to run this company in the future? How will I develop the appropriate skills? By when? Where does Susan stand on my career? How will our two careers fit together in the future as we think about starting our own family? How can I tactfully take on more responsibility without stepping on the toes of Dad, Ken and Rusty?

Jane: What are my dreams for myself and my future family? Might I ever want to be a part of MMH? Where would I be able to add value or find a meaningful role? What are the living costs I’ll incur if I take this research position? What other costs might I expect if I continue to pursue my academic career in the next few years? Who should be responsible for financing my continued education and research? Where will the money come from?

Depending on the answers to the soul-searching questions, the family will need to develop a transition plan with clear timelines and milestones. The key elements of the transition plan are:

A management succession plan, including a buyout agreement for Mark to purchase some or all of the company over time (perhaps including Jane’s stock). The plan needs to include financial training, activities and goals. Depending on Mark’s current capabilities, someone other than Joe might be assigned to evaluate his progress.

Key employee continuation plans for Ken, Rusty and others. Their good-faith commitment to a timeline and success orientation until they retire is key. As a reward for their diligence and commitment, they should receive financial incentives. Activities for them will include mentoring Mark, hiring and training successor managers, and documenting or developing internal company processes and procedures to serve future jobholders.

Retirement plan for Joe and Anne, including financial and activity goals (travel, charitable, community involvement, new business ventures, etc.) and methods of funding their retirement and stock buyout. Joe and Anne must also be careful to respect any new authority given to Mark, Rusty, Ken or others to avoid unintentionally undermining them.

In addition to the key transition items, a strategic business plan should be developed that integrates the business goals and focuses business activities on building the company while simultaneously accomplishing a seamless intergenerational transition.

Thorough discussion of all these elements is essential to transitioning your material handling company effectively.

Material Handling Equipment Distributors Association
Wayne Rivers

Meet the Author
  Wayne Rivers is president of the Family Business Institute Inc., located in Raleigh, North Carolina, and on the Web at www.familybusinessinstitute.com.


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