By Loyd H. Rawls, Rawls Group
“So what do you think Loyd?” asked Missy, our client’s daughter. She was a genuine 34-year-old, “kick butt” COO whose energy and aggressiveness had brought her family’s dealership out of the doldrums and onto the performance throne of their 20 Group. “This is exactly what we have been looking for. Sure this is unexpected, but I have checked with the bank and they will finance both the blue and the operating capital! We will have the platform of our dreams.”
“This sure looks like a good opportunity Missy,” I responded, “but I think we need to look at this opportunity from a family perspective.”
“10-4 to that Loyd,” responded Jack, her uncle, who was her Dad’s 69-year-old minority partner who just recently retired from working in the dealership. “We just stripped this store of all the excess working capital that we have built up over the last 30 years and borrowed a fortune to purchase our neighbor last year; which we all agreed was a ‘must have’. And now you are proposing that we borrow more.”
“Jack, you’ve got a valid point,” injected Bill, Missy’s 65-year-old dad and CEO of their two dealerships, located in a prosperous, semi urban community. “However, we have to think about the future so let’s hear what Loyd has to say about the family perspective.”
I acknowledged Jack, who had always been the organizational leader. “Well, Bill and Jack, this is certainly an attractive opportunity at a very good price. However, this is not a ‘must have’ deal and at your ages your perspectives may be different from Missy’s.”
“Now that’s about the biggest understatement I have ever heard!” Loyd’s blunt alter ego Dr. Merlot, who came along with Loyd to the interview, interjected with his typical sarcasm. “Come on Loyd, stop the politics! Let’s get to the crux of this issue, what we have here is vision conflict!”
Looking at Bill and Jack and raising his arm for emphasis, Dr. Merlot took over the conversation and continued, “You guys have financially nothing to gain and everything to lose from this ‘great opportunity,’ which from your perspective means that this is not a great opportunity. If everything goes as presented by Missy, the fulfillment of her vision will not improve your lifestyle one bottle of fine wine. On the other hand, if this acquisition goes sideways for any number of reasons, your vision for a ‘no-worries’ retirement would be transformed into a life-altering nightmare when you are out of runway to make up for your losses. In other words, there is little to no upside for you and endless downside!”
Typically using drama to make his point, the Doc went silent and just stared at the brothers, begging a response. On cue, just as Bill started to say something Doc continued, “It’s worth noting I have lived through some life altering nightmares back in 2008 and 2009 while you guys were doing mighty fine due to your generous capitalization. The catastrophe of the automobile industry was a non-event for you. But now, due to the last years’ acquisition, your excess cash is gone, and for a good purpose, I might add.
“However, with this next great opportunity you have no cushion to break a fall. Your personal financial security will be at risk. In ten years when conservatively you will have paid off the debt, you will be like me, older than dirt and another million or two in cash flow will have zero impact upon the quality of your life.”
On the other hand,” he continued, “This ambitious young lady and your other children will optimally be living large off of the fruits of your risk exposure or minimally continuing to grind out a living like you’ve done for the past fifty years.”
“Dr. Merlot, you expressed the bold, cold truth again!” injected Jack. ”Don’t count on me to put my security at risk so the next generation can live large.”
The family in this drama faced what Dr. Merlot appropriately labeled “vision conflict” among partners. With the age of our dealer body and the aggressiveness of successors trying to keep up with the likes of Berkshire Hathaway, we frequently encounter this vision conflict. And as you hopefully surmised from the above dialogue, risk, reward and financial security are very important succession planning issues.
Fundamentally, any topic or plan that impacts the continued success of a dealership is an important succession planning issue. So what should we be thinking about when we are developing and endeavoring to deploy a growth vision?
First and foremost, you must accept that the fruits don’t grow close to the trunk. In order for you to savor the sweet flavor of growth and/or your definition of success, you must be willing to go out on a limb.
Growth without risk is an unrealistic expectation. The question is, who is really at risk and how deep is the downside? No one is saying dwell on the negative, but understanding and reconciling the downside risk is the best path to find full commitment to your plan.
Develop a clear understanding of your resources that would be applied to the fulfillment of your growth vision, which in the above example was a larger platform. Those resources can be categorized in terms of people, time and money. In the example, there were plenty of people (managers) to effectively operate a new store but there was insufficient money to pay for it and insufficient time for the owners to amortize the debt before they would be more worried about their health than their new vacation home. Recognize that if there is any shortfall of anticipated resources to fulfill the vision there will be risk.
When it comes to assuming risk, think “we” not “me”. You are never alone in a growth plan and as the owner or leader of a business you are never assuming all the risk. Obviously if you have partners you should think of their circumstances.
But if you currently don’t have partners and you are thinking about succession, you think of the contingent partners; your successors. Effective succession planning aligns the vision of all concerned and therefore precludes you from biting off something that your successors could not comfortably digest in your absence.
Have a worthwhile purpose for your growth that you can explain to anyone interested, especially those who may be suspecting vision conflict. Only the crazies assume business risk just for the thrill. If your purpose is logical and if your purpose considers the “we” perspective, you will be well on your way to avoiding vision conflict with partners, family, advisors, lenders and manufacturers.
And finally, having built the above foundation for your vision, develop a detailed plan as to how this vision is going to be fulfilled without distorting resources or subjecting a part of the “we” to unreasonable risk. When you can respond to a uniformed naysayer with “I thought you would never ask!” you are on your way to building a common vision and approving a plan that will support the continuation of success through the next generation.
Loyd H. Rawls, President/CEO of The Rawls Group, has specialized in succession planning for closely-held, family owned businesses since 1973. Well respected in his field, Mr. Rawls is a highly requested speaker and has published numerous articles and publications on this subject such as “Seeking Succession: How to Continue the Family Business Legacy.” “The Succession Bridge: Key Manager Succession Alternatives for Family Owned Businesses,” “Estate Planning Heartburn Relief,” and “Family Business Heartburn Relief.” For more information visit www.rawlsgroup.com
