Published in September, 2017
In an earlier edition of this magazine we published an article on the perils facing a first generation entrepreneur who does not know when to step aside and let a new generation take over the business. That article, to our great surprise, created a huge impact among our readers and many people confessed it made them reflect seriously for the first time on the next step that they, as the chief decision maker in the stone company, should now take to ensure the future of the company.
In this article we highlight 2 real cases of a successful transition in typical stone companies. Names and countries have been withheld to protect the privacy of those who spoke to us for this magazine.
Company A was a successful stone company. The founder owner had started the company starting from scratch, previously he was in a totally unrelated industry. After 20 years, at a relatively young age of 58, exhausted after years of working long hours, he now wanted to take life a bit more easy. His only son, now 24, had just finished college and was now ready to enter the job market.
In most cases, the founder/owner would have simply incorporated his son in the business, gradually learning the details of the business. In this case, however, the entrepreneur made a dramatic decision. The son did join the business, and found he liked working in it. But the father wanted to move on, and also wanted to protect the company once he was no longer around the factory. How to ensure that the employees would respect the young new boss, and not bypass the son and consult the father for every decision- this was the main question that needed to be answered?
The father decided to simply stop coming to the factory. Just like that, one day to another. And the son was appointed formally as the new General Manager. The father also refused to take phone calls from employees whenever they tried to call him.
In this case, the founder had some big advantages. The company was doing well, the economic environment was relatively favourable. More important, the son showed interest and sense of responsibility.
The father did not entirely disappear from the business. The still inexperienced son consulted his father at first on a daily basis, but after a period of a few months, the consultation was less frequent. When it came to making major decisions, like purchasing expensive machinery, it was the father’s opinion that counted. But all the daily consultation and important decision making was done in the house, the father would not even appear in the factory just to show his face.
The son, too, was prudent. He did not fire anyone, and all the key people kept their jobs. Little by little, the employees too got used to the idea that the young boss was where they had to go to even when they disagreed with him. In the first three years, only one key employee left the company. More than a decade later, and with the business environment now very complicated and volatile, it is the son who still continues to make the major decisions. He still consults his father, who continues to be President of the Board of the Company, but it is now more of a family conversation. The world has changed, the father is no longer as knowledgeable about the industry situation, or even technological changes, and it is the son who makes his own decisions.
The business environment continues to be uncertain, but the company now has more than doubled its revenue, and remains a solid company in its segment of the market.
The second generation of a company was in charge of the company. The father, in this case, was around 60, he had two sons, both grown up. But the father also had other businesses requiring substantial involvement of his time. One son started working with these other businesses. A second son entered the stone factory, a typical medium sized, stone company.
At first there were problems. The young son was a headstrong person and wanted to make decisions straightaway, but the father would always overrule him. This constant second guessing by the father led to a lot of tension and conflict. Things reached a point that the son left the business to do something else. A few months later, the father and son had a frank heart to heart conversation. While the father was still in the early sixties, in good health, and with the motivation to continue running the business, he realized he would have to start preparing for the future. So a consensus was agreed upon.
In the first stage, lasting about a year, the father would make all the decisions and the son would blindly follow the orders.
In the second stage, the son would be consulted, but the father would continue to make the decisions. In the third stage, another year later, it was the son who would now make the proposals, but the father would make the final decision. A year later, it was the father who could propose, but it was now the son who would make the decisions.
And, this way, 5 years later, the transition was complete. The father continued in the business because he enjoyed his work, but now he was just one more employee reporting to his son, who was the real boss. The son was the decision maker, and the employees recognized it as such. Until one day the father decided he would rather spend his time doing something else. The transition was complete, and a success.
The key element in both these cases, even though the methods used were different, was the founders recognized the need for preparing for a transition, and implemented it in a deliberate, well thought out manner. More important, in both cases, even though the founders were in good health, relatively young and perfectly capable of running their companies for several years more, they made the voluntary decision to stand aside in favour of the next generation, resisting their own natural tendency to make all decisions relating to the company they had founded or inherited. That, in fact, may well be one key to a successful transition. To be mentally prepared to leave, even though there is no need to do so now. It does not mean one should take a forceful retirement from a job that one loves and in which one is intensely involved. But it does mean letting someone else make the important decisions, even keeping quiet and obeying them when not in agreement.
The successful transition in a company happens when the founder is willingly accepting his new role- that of the non-executive Chairman of the Board, the non-executive President of the Company. Obviously, the two above mentioned cases are not applicable everywhere- sometimes there are several family members and relatives working in the business and a new grownup generation only complicates the division of tasks, or even the division of the company, and one is not even asking the question of whether the new generation has the aptitude, skills and motivation to run the business. However, the basic reality remains unchanged- one day the founder will no longer be there to run the company, and how to prepare for this moment is the most important decision that the entrepreneur will be making at a certain stage of his life, well before he actually retires.