As business owners age, they need to ask themselves three questions

JACOLINE LOEWEN

Special to The Globe and Mail

Published Tuesday, Sep. 02 2014, 12:15 PM EDT
Last updated Tuesday, Sep. 02 2014, 12:15 PM EDT

Business owners make their wealth through concentrated efforts. The key to successful transitions involves focusing that same energy on planning the next stage of life and putting their wealth to work through investments outside their own companies.

The problem is, most owners avoid thinking about their next stage, their businesses don’t get sold properly, and they lose the wealth they spent their lives building.

“One business owner that we came across had no transition plan, no successor, a son in the business who did not have an interest in running it, and no estate plan at all,” says Maria Milanetti, a partner at MarchFifteen, a consulting practice specializing in business transitions. “The owner was 70 years old, running a highly successful business, and utterly oblivious to the risks for his family’s future wealth.”

This scenario is all too common in Canada.

Too often, the only part of a business that can be salvaged are its assets, but not a great deal more, leaving the family in a precarious position. The economy also loses a company that could have continued under new leadership.

Why is this lack of transition such a common scenario for too many privately owned businesses?

“It’s quite natural for founders and those running the business successfully to ‘want to keep a good thing going’ and to feel that they need to keep running the business themselves,” Milanetti says. “Often they want to ‘protect’ others from this responsibility.”

But their reluctance to share how they make decisions or influence stakeholders with their next generation leaders can have long-term negative effects. Milanetti acknowledges it can be difficult to start the conversation around transition or succession. She recommends asking the following three questions:

• Have you thought about the next chapter in your business, in the next five to seven years? This question should prod an owner to share the kind of company the next generation of leaders wants to build and retain in the longer term.
• How can we plan that future together? Suggest setting aside some time with a facilitator or business adviser and describe how critical conversations can be shared in a relaxed, reflective and safe situation. It makes it a safer process.
• What will the next chapter of your life look like? The emotional challenges of giving up control over a privately owned business and transitioning into a new role as “ex-entrepreneur” – whatever this new role may be – requires reflection about one’s identity and about other family members. This is not a natural state for most high-action owners. Dealing with this identity change can be very important to helping the transition to take place. However, this can be a tricky question as it starts to deal with the prickly topic of the business transition.

Many owners or founders are mindful that these transitions take time and that it isn’t as easy to make changes as they start to deal with the aging process and its challenges. It’s much easier to keep the Peter Pan complex of thinking that aging only happens to others rather than to plan the family’s future wealth.

Peter Pan whispers that planning for life after the business means retirement, and that’s for old people, not a dynamic business owner, no matter the biological age. That way of thinking can be disastrous for a family if the owner is forced to reduce his or her time at the business or stop altogether. It is better to address changes while everyone is healthy and has the time and energy.

“At every juncture, we recommend planning,” Milanetti says. “That is planning for the mentoring of next generation leaders, for the transition between current leadership and successors and, most importantly, planning for the owner to be clear what will make their lives meaningful in their next chapter. These are not people who are used to doing nothing.”

Planning is a bore compared with running a business but if owners want to fully benefit from their lives’ work, they need to grit their teeth and start tackling those three simple questions.

Jacoline Loewen is director of business development of UBS Bank (Canada). She is also author of Money Magnet: How to Attract Investors to Your Business.

Can Founders Let Go? What Love's Got to Do with Leadership

 

When you love something, you notice the details.

In a relationship, that might be a partner's laugh or particular way of moving. For Howard Schultz, who grew Starbucks from a local Seattle coffee shop into a globe-spanning giant, love was in the details of the coffee-making process — the hiss of the machines and the smell of the beans.

So in 2008, eight years after Schultz resigned as CEO, when the company's new management replaced hand-operated espresso machines with automated ones that took the theatre and romance out of coffee — basically everything the Starbucks Schultz had built was about — he noticed. And he cared.

How much? He returned as CEO. In his own words, "when you love something as much as I love Starbucks, there is a huge responsibility that goes with it." 

Exchanging Bootstraps for CVs

 

Love might sound a flaky topic for hard-nosed business leaders, but there are many similar stories of founders returning to their companies for love – those of Michael Dell and, of course, Steve Jobs, for example. And, on a much, much smaller scale, my own story.

I started Coffee Republic with my brother Bobby in 1995 (before Starbucks hit our shores). I had seen the new style coffee bars in New York and wanted to have skinny lattes and the muffins I had there in London. We had no experience in coffee or retail, but we went for it and learnt along the way. Our guiding light was looking at everything from the customer's point of view.

Which was easy because we were customers ourselves. So instead of paying for market research, for every question we asked: "if I was a customer, would I like this?" With this attitude we built Coffee Republic to 100 stores and were recognized by the Financial Times as one of the brands of New Britain.

But by 2001 we felt the pressures most founders experience. The company was getting big. We had thousands of employees and a market cap of £30m. In a way, the baby we had brought into the world had become an adult, and the sense we got from the board and the new, more experienced management (with the proper CVs whom we couldn’t attract at the beginning) was that we, as founders, had reached our sell-by date. The entrepreneurial phase was over — the time for dreaming and passion was over. It was time to hand over reins to ‘proper’ management.

And so we did. We found a professional, polished blue-chip CEO with a great CV and plenty of experience in retail, and we handed over the reins. It seemed like the wise thing to do — clearly we were not equipped to run a big company (we had bought into the theory, or so we were made to believe). But the feeling we got was like a pat on the head: "Good job so far. Just give it to the big boys to run." We kept our shares and resigned from most positions. 

Packing Founders Away
Rather naively I kept my desk there, knowing I was so connected with the marketing and brand. Surely I can be of use to the new manager, I thought. I was willing to do the position for free. Why? Because, like Schultz, I loved the brand.

So it was quite a shock when on my first Monday morning after leaving the doorbell rang and I found a courier at my door — with all the contents of my desk packed up. Clearly the new CEO didn't want any trace of me there. I knew that professionals feel threatened by founders, but to this level, I had no idea.

 

I was forced to watch from the sidelines as the company my brother and I had founded declined. The new CEO, despite his CV, had no idea how to run an agile, fast-growing company. The share price started to drop and, as customers, we watched the brand we so loved be neglected.

A particular moment will stick with us forever. My brother and I were sitting in the window of one of our coffee bars one Sunday morning looking out when the newly appointed CEO stopped to buy papers from a nearby newsagent. To our amazement he didn’t even crank his neck to look at the Coffee Republic next door. It clicked that, of course, for him Coffee Republic was work, and this was his Sunday. 

Passion Has No Sell-By Date
This brings me back to the story of the second acts of the founders like Shultz and Jobs. On paper, entrepreneurs may not have the experience or qualifications to run big companies. But, time and again, perfect CVs fail where passion succeeds.

I remember reading about the rise of eBay and how the CEO Meg Whitman took over from the founder Pierre Omidyar. She said to him, in spirit, 'I will run the company if you stay by my side.' I was so moved. From a personal perspective, leaving a company you founded can be a real bereavement.

But staying close to your company after 'the professionals' take over isn't just about the emotions of the person who founded the company. It's also good business. Whitman didn’t let ego take over. She didn’t drive out the very person that built the business in the first place. She was aware that, as a professional manager excelling at processes of management, she missed the creativity and passion of the founder and wanted to take advantage of the intuitive connection founders so often have with their companies. Omidyar stayed involved, and Whitman grew eBay to a billion-dollar company.

It's certainly not easy to manage the relationship between founders and professional managers given that they approach business so differently, so why is the involvement of a founder worth the hassle? Saying too many cooks spoil the broth and packing away the founder may seem tidy, but founders have been immersed in every tiny detail of the business and, many times, are themselves the prototypical customer. Even the best-credentialed managers armed with the best spreadsheets can't duplicate their passion and intimate knowledge of the customer and brand.

In today's fast-changing business environment, where success often hinges on agility and innovation, that sort of love isn't flaky. It's essential.

The out-of-town founders

Country swing: Go Ape founders Tristram and Rebecca Mayhew say there are plenty of entrepreneurs in the country

 
Every day this summer, forests in the UK and the US have been ringing with ex­cited cries, and occasional screams, of adults and young people experiencing the thrill of clambering among the branches on rope bridges. 

These pursuits are thanks to the entrepreneurial talents of husband-and-wife team Tristram and Rebecca Mayhew and their business Go Ape. The brand extends across 34 centres in the UK and the US and is a multimillion-pound business. They plan to open more sites and expand into Russia in the next year.

Received wisdom is that the city is the place for ambitious founders, while the countryside is for bumpkins and where city folk spend a pleasant holiday. But what if entrepreneurs could just as easily spend their working lives in bucolic bliss? 

When the Mayhews hit upon their business idea 12 years ago, they were city- based. They had made home in the fashionable south-London area of Clapham, just as an influx of early-stage venture capital, networking clubs and general buzz about entrepreneurship was fuelling a boom in start-ups in the city.

However, rather than turn their spare room into an office and launch a web venture, the couple upped sticks to the Suffolk village of Hargrave, a 90-minute drive away, used a tent in the garden as their workspace and launched a treetop-climbing business on Forestry Commission land. “The countryside is full of ambitious people,” Ms Mayhew says, noting she now has a group of friends that she meets at the pub who are founders of high-growth companies. 

Rural start-ups in other parts of the UK include eco-clothing brand Howies which was founded by Clare and David Hieatt in the west Wales town of Cardigan after they quit London to indulge their passion for surfing and the outdoor life. Similarly, Jack Wills, the youth clothing brand, began in the Devonshire sailing village of Salcombe. Dyson, maker of bagless vacuum cleaners and bladeless fans, is also still headquartered in the Wiltshire town of Malmesbury, and exports around the world.

The image of the city as the only place for fast-growth start-ups is a myth, according to Grant Thornton, a UK accountancy firm specialising in founder-led companies. It recently noted that 40 per cent of the companies on its GrowthAccelerator programme were based in rural locations. 

Pros and cons of starting in the sticks

● Advantages
Lower cost base. Whether it is rent, wages or support services, such as accountants and lawyers, the cost of doing business tends to be lower. 

A stronger position when recruiting talent. The best people locally are likely to have fewer alternatives.

Networking. It can be easier to get candidates with personal recommendations when everyone in a community knows each other. Local suppliers are more likely to want to do a good job because they know that news about the quality of their service will travel fast in a small community.

● Disadvantages
Lack of choice in certain services. There may be lawyers and accountants in the countryside, but the best ones are more often found in the cities. 

Poor transport links. You may not miss the commute, but the lack of a decent rail service or fast roads will make it hard to get to clients and customers based a long way away.

Inadequate infrastructure. The countryside is usually the last place to receive the fastest broadband and mobile phone services. Getting a line connected to a remote location where there are no other buildings is expensive. 

Networking. Chance encounters with people you might need are less likely when everyone lives a long way from one another.

The Kauffman Foundation, a US-based think-tank that res­earches ent­re­preneurship, found that Montana, which ranks 48th out of 50 states for population density, had the highest proportion of start-ups per capita. That may be because there are few other sources of employment. How­ever, second on Kauffman’s list is Vermont, home to one of the most famous US start-ups of recent years, ice-cream maker Ben & Jerry’s.

One of the fastest-growing companies in the US is the Greek-style yoghurt manufacturer Chobani, based in upstate New York. It started trading six years ago and is now the market leader, with more than $1bn of sales. It has been credited with saving and creating hundreds of rural jobs. The area is a lot like rural Turkey where Mr Ulukaya grew up, and this was important. “When I arrived it immediately felt like home,” he says. “When you are home you can do your best work.”

Even some of the benefits usually ascribed to busy city clusters are present in the countryside. It is often observed that one of the characteristics of Silicon Valley’s highly successful urban start-up cluster is the deg­ree to which people help each other out without expecting anything in return. Potential explanations include that many founders have backgrounds in the sciences, where collaboration is encouraged, or that entrepreneurs do not view their activity as a zero-sum game.

However, generosity of support is something Christian Jones, managing director of Gro Group, which makes baby sleeping bags and other nursery items, claims is a benefit of its location amid the farming communities of Devon. “People here are genuinely more willing to help without a need for you to do something reciprocal.” 

Raised in the rural northwest of England, Mr Jones worked mostly in London before moving his family to Devon after his wife fell ill with lung disease. They also felt it would suit their two sons.

Mr Jones joined Gro Group as managing director before taking control through a management buyout, back­ed by the bank HSBC and London-based venture capital trust Mob­eus. Access to capital has not been an issue. “We had no shortage of offers when we did our last funding round at the end of last year.” he says. 

But not everything is rosy for rural entrepreneurs. There is less choice of people for recruitment and transport links may be poor, making it hard to meet potential suppliers, clients and investors, and for staff to commute – although that can become a benefit. 

“There is a real advantage, if you are going to do it, to moving to a place where it is not easy to commute daily [to the city],” Mr Mayhew says. “By doing so you instantly remove a lot of the competition for the best local talent because, for these people, moving to a city job is just not a realistic option.” 

On the other hand, he admits that good transport links are desirable for getting to the city for meetings with backers or advisers.

The lack of broadband connections is another big frustration. “Increasingly, our business is digital with demand for online bookings and the need for faster communication with suppliers and customers, but we suffer a lot of power and broadband outages,” Mr Mayhew says.

Reliable broadband would enable Go Ape to accelerate its growth, but that would require paying out about £100,000 for a dedicated cable to the of­fice. Ironically, extra sales generated by a faster digital line would probably mean Go Ape having to move its headquarters to a location with a larger building.

Although the Mayhews are happy to have set up in business outside London, they do recognise that it has nevertheless helped them in their ambitions. By renting out their Clapham home, they were able to cover their living costs in Suffolk for 22 months when they did not draw a salary.

Even the most successful rural founders admit that they could not do without some city support.