Armando (0:00 – 1:54)
Well, hello, founder. You’ve built your business over decades and now it’s time to think about that once in a lifetime exit from your business. You’ve come to the right place.
Here, you will hear business exit professionals involved in the buying and selling of companies talk about what you should know before you exit your business. If you’ve never sold a business before, this podcast can be super helpful to you. You will come away with an understanding of a successful business exit done right.
I’m Armando, host of the Founder’s Guidepost. Enjoy, but first, a quick disclosure. Opinions expressed are those of individual professionals.
The Founder’s Guidepost is a service of Axiom Founder’s Family Office, Inc., a registered investment advisor, licensed or exempt from state registration in all states in which it operates. The Scottsdale Founder’s Forum is a biannual live event for you, the founder, considering exiting your business in the next 36 months. More information available at ScottsdaleFoundersForum.com.
Hi, Armando Roman here with Axiom Founder’s Family Office, here today with Leslie Dashew, and you’re gonna really love hearing what Leslie has to say because her perspective is all about that family in the business. So just to set the stage a little bit, the conversation is gonna today be about that person who is, say, over age 50, has a business they built from nothing, and now it’s worth a lot of money. And now they’re thinking about their exit, how are they gonna transition out of it?
They’ve got a family, they’ve got some adult kids, and they would ideally love to leave that business to one of the adult kids or several of them. And that’s the stage for the conversation you and I will have, Leslie. So if you could, could you just talk a little bit about who you are, what you do, and how you help family-owned businesses?
And then we’ll have a conversation.
Leslie (1:54 – 2:43)
Delighted. My background is both as an organizational development consultant and as a family therapist. And about 40 years ago, I combined those two.
When I started to find there were more and more family businesses who were going through transitions, and there really wasn’t a lot of information about how best to do that. And so I began integrating my background in family therapy and organizational development and developed new models, which I’ve been using now for, and evolving over the last 40 years. In addition to that, in the community here, I am active as a volunteer with things such as the McDowell-Sonoran Conservancy and the Scottsdale Cultural Council.
And we just founded Scottsdale Community Bank because there were very few resources for families and business here, and the bank will serve them.
Armando (2:44 – 3:38)
Wow, fantastic. And so Leslie, you and I have had several good conversations about that family-owned business and the challenges that family-owned businesses face that are unique to the non-family-owned business. And a lot of it, of course, is with siblings and with children, adult children.
And families are unique, of course, with everyone being a unique personality, the situations are not the same, of course. And I imagine the way you help people navigate things is based on their personality and based on the desired outcome. So if we could talk a little bit, Leslie, about how a parent really helps set the stage so that the adult child or children can take over.
What does that typically look like? What kind of leading up to that point is there that the family really should be thinking about and doing? And how do you help them navigate that?
Leslie (3:39 – 4:39)
That’s a great question. I think the first point is that it’s really important to have a shared vision for the future. If a family starts with clarity about what all of the key people want to have happen in the future, then you can develop a plan, then you can deal with issues.
So I’ve had families where we don’t have a shared vision, where we have some people who say we wanna keep the business and others who say they wanna sell it. And then you don’t have the same path to work on and you have to figure out how to deal with those two different sets of issues. But in families where there is a shared vision, for instance, keeping the family, the business and the family for another generation, then you can begin to say, what does it take to help optimize the business and to have harmony in the family?
And what do we need to do to prepare for that in terms of competencies, roles and responsibilities, agreements? And so we can develop a map for them to get there.
Armando (4:42 – 4:57)
You talked about a shared vision and you talked about a map. I’ve heard you mentioned as well, a family constitution. And how does that plan, what does that family constitution look like?
How do you help them develop that?
Leslie (4:58 – 6:41)
Well, once you have a vision, then you can say, as I mentioned, you can say, what is it gonna take to get there? And sometimes we need to be clear about who has what rights or what opportunities. So many times people feel like if I have the right last name, I’m entitled to be in the company, have the CEO position, first born son gets to be the president.
That was an old tradition. And so what we know now is that those traditions may not be in the best interest of either the family or the business. So if a family comes together and has a set of agreements, what are the values that are most important to us that we wanna perpetuate?
What are our assumptions about what it takes to be successful in this business? And what are the rules for entry? If somebody wants to come to work in the family business, we create a family employment policy or rules for entry that say, best practice, somebody works somewhere else for a few years before they come into the family business, that you have to have a role that needs to be filled.
We’re not gonna create roles for you that you have to be competitive in terms of your abilities to do a job. And we expect family members to work as hard, if not harder than anybody else. And when you begin to articulate these and then another one being, how do we compensate each other?
So having a policy, for example, about fair market value for positions, not a lot over the market, not a lot under either. And so when you have those policies written out and those agreements, it really helps to make sure that everybody is on the same table.
Armando (6:41 – 6:57)
And are you typically, if this is a company, say that’s been built by husband and wife over 30 years, are you typically helping that couple define that? Or is it really more engaging the young adults in that process as well?
Leslie (6:58 – 7:38)
Ideally, you create a plan with the family because the more that the younger, the rising generation is involved in creating the rules that they’re gonna live by, the more they understand the importance of them. And so many times I’ll have the rising generation draft the first family employment policy and they’ll look at what other families have done. And in the process of doing that, then they come to understand what the issues and risks are and why this is important and what some of the choices are.
And then they can bring it back to the whole family and say, here’s some ideas we had about this. And it’s better than having it be imposed on them.
Armando (7:38 – 7:48)
Yeah, and so you said you’re giving them some context by letting them see what some other families have come up with. So that gives them some outside reference?
Leslie (7:48 – 7:50)
Right, exactly.
Armando (7:50 – 8:01)
Okay, good. And then the assumptions, then you said values, assumptions, rules for entry. What about us?
Talk about assumptions, please.
Leslie (8:03 – 8:58)
Well, a lot of times the arguments that people have are their arguments over the conclusions that each person is holding. So I may assume that this business has always been intended to pass to the next generation. And dad may have assumed that this is something that is just an asset and can be sold at any point.
And so they may get an argument about what’s gonna happen next. And they haven’t really looked at those underlying assumptions and begun to look at where did those come from? And then once we understand where they came from, then we can say, what assumptions would help us that do we share, that are shared assumptions that would help us move forward together and come up with solutions that address our shared assumptions?
Armando (8:58 – 9:28)
That makes sense. That makes sense. And it helps to verbalize and get clarity and then get that written down so there’s not confusion going forward, it seems like.
Right, right. So that everyone understands and either abides or doesn’t. Right.
That I imagine, if they don’t, or maybe they think they are, but they’re not really measuring up, that there’s some kind of measuring stick where they can see, and it’s clear that maybe they’re not at the right place after all.
Leslie (9:29 – 10:15)
Right. And I think that the challenge we have is that in family businesses, families operate informally and businesses must be more formal and structured. And so a lot of times when you grow up in a family business, you just think about this, oh, anybody can do anything.
And it’s very informal. Whereas in a proper business, you have a budget and assumptions about the financial performance of the company. And so your decisions about what you’re spending or what you’re retaining have to do with those assumptions and that plan.
And if you haven’t operated from that framework, you’ve operated more as a family. It says, okay, we’re gonna take out money whenever we want. It’s a family bank.
And a lot of people use the family business that way.
Armando (10:16 – 10:47)
Yep, I can see that. I can see that. So Leslie, when you’re working with families, you have to, of course, get an assessment of how those relationships fit together.
And if it’s a blended family, maybe that’s maybe more of a challenge. Maybe it’s not, I don’t know. But how do you help?
So that you can help that family in that business. How do you get to understand the individual player, the people? How do you get to know them?
Leslie (10:48 – 12:59)
That’s a really important question because there are many family business consultants out there now. There didn’t used to be when I began, this was a new field. But people have to have somebody that they really trust and they’re very comfortable with.
Because typically a good advisor is gonna know everything about you. And I know about all the issues and challenges in the family, who’s had an alcoholic and who’s had problems keeping a job. And I’ll know all the details that happen in the family.
And part of how I do that is first of all, when a family wants to consider hiring me, we do a half day program called the Perils and Pleasures of Family Business. And through the course of that day, they get to know me and I get to know them. And we decide if we can work together.
And then if we go forward, then the next step is I do individual interviews and get to know the whole cast of characters, including spouses and key employees. And I get a lot of information about people from themselves and from other people who interact with them. So dad’s perspective on one of the kids and the CFO’s reaction to that kid as well.
And sometimes they’re advisors. And through that process, then I can come to a better understanding of what are the strengths? What are the challenges?
What does each of them bring to the table in terms of their competencies and what’s interfering with them using their competencies? And then we can move forward in doing certain tasks together or projects together in developing the family constitution or in coming up with a plan for the future and doing some succession planning, for example. And as we do that, I have more of an opportunity to see how they follow through on projects, to see how they bring their intelligence to the table.
And I’ve seen times when someone who didn’t look very talented at the beginning, who was seen as a family, as a black sheep perhaps, given the right support and tools and a place to show them where they’re not feeling intimidated by the family, they have an opportunity to shine and we see other sides of them.
Armando (13:00 – 13:03)
That must be very rewarding when you’re able to help that to happen.
Leslie (13:03 – 20:25)
Yeah, very much so. And I think one of the keys here when you talk about the families that are looking at transition is the sign of a good leader is the fact that they have been able to put in place a successor and they have left a system in place that can persist, that can be sustained over multiple generations. And so many times you hear about failed succession because people haven’t prepared well for it.
And when I think about succession, I’m not just thinking of succession of leadership, that’s one component. There are really seven components to succession. Leadership that defines where are we going as an organization?
How do I enroll my employees in making sure we accomplish our goals and our vision for the future of the business? How do I help encourage all the stakeholders, those who have invested either family or independent to feel like their assets are being protected? So leadership is one aspect.
And most people think about leadership succession and they think that succession. But then there’s also, the second one is management succession. And in many cases, family businesses might wear multiple hats and you might be a leader, but you also may be managing to make sure things get done.
So the leader defines where you’re going, the manager makes sure that it’s getting done. And in some family businesses, you’ve got someone who may have the leadership talent, but is not quite ready because they haven’t really mastered the management piece. And so we need to look carefully at who’s taking care of making sure things get done.
I’ve seen in many cases where a dad or a mom will name somebody as the president, but they stay in the role of chairman or CEO and retain all the authority. They don’t let the arising generation, whether it’s in the family or an independent outsider, have the authority to make any key decisions. And so the succession of authority is really a third kind of transition.
So people have to be really prepared, practiced in making strategic decisions and living with their decisions. And so part of that preparation that you talked about is not just having that vision, but also developing the skills and competencies of the rising generation to do these kinds of things, to handle authority appropriately. So the fourth aspect, which also you were alluding to before, is the succession of ownership.
So who is gonna own the business? And this gets into a question of, is it a person who’s leading the business, the leader, or is the family gonna retain ownership in a trust? Or are other siblings who are not working in the family business gonna retain some ownership?
How is that gonna work? And, or I may feel like it’s time to cash out. You know, an owner, entrepreneur, as you mentioned, who built a business from nothing may say, you know, I really wanna have the opportunity to enjoy what I built and financial rewards.
And selling it to somebody independent who may or may not keep my kid in the business is an option, but it’s one that has to be thought through carefully. So that ownership transition is really important. So the fifth aspect of succession are values.
Many times I find that the elder generation can’t let go of authority or ownership because they don’t trust that the younger generation shares their values. And one example of that is if you founded a business, you know, every aspect of it, you’ve worked 40 hours in two days and you’re the first one there and the last one out and you’re committed to your team. And a lot of times a founder’s kids value having balanced life, having time for their own families.
And they miss that with their entrepreneurial parent or parents. And so they oftentimes really want to have more of a balance in life and don’t wanna work that hard. They wanna have time off.
And so sometimes that leaves a question of trust in the parents. So working through what are our shared values and what do we think are critical success factors for the business? The sixth is relationships.
And many times people raise their eyebrows, what relationships? Well, a lot of the success included in developing a business is your relationships with your team. People have been dedicated, have worked through the tough times.
It’s relationships with the bankers who’ve loaned you the money to help you to build the business. It’s relationships with advisors and customers or prospects. So those relationships have to be transitioned as well.
Now, sometimes the rising generation are gonna get new advisors because the old ones may not be sophisticated enough for them, but still there are many of these relationships that have to be transitioned to the next generation if the environment in which they’re working is gonna be successful. And finally, there has to be a succession of knowledge. And that’s the other reason that a lot of times the older generation can’t let go is they don’t trust that the next generation knows enough.
And it’s ironic because most founders say, I’m no big smart person. I just work hard. Anybody can do what I do if you just work hard enough.
But what they fail to understand is over the 20 or 30 or 40 years of working, they have accumulated a lot of knowledge. And what is simple now to them wasn’t simple 30 or 40 years ago. And so a lot of times they get frustrated that other people, particularly their kids, don’t know what they know.
And it’s just in their minds, it’s a matter that they may not be motivated to work hard enough. And so it’s really important during this planning process that we identify what is the important knowledge that the rising generation needs to know and what are those categories? So that we can then develop them, give them development plans that will help make sure that they can check the box, as you say.
And yep, I know how to read a financial and I know how to make a decision about keeping or not keeping an employee. And many of the other kinds of aspects of knowledge. So when we think about succession and transitions in family businesses, it’s important that there’s an integrated process that considers all those seven dimensions.
Armando (20:27 – 20:42)
It sounds like it’s not anything that’s gonna happen overnight. It sounds like, as you said, put together a plan and put together a map and probably a timeline that goes along with it or an expected timeline. Right.
Staying on top of managing the process.
[Speaker 4] (20:43 – 20:43)
Yeah.
Armando (20:43 – 20:57)
So depending on what you, on the skillset and experience of the people in the company, then your project might be a, what a 30 day or a five year plan, it sounds like.
Leslie (20:57 – 23:17)
Yes, it really depends on the sophistication of the family and the experience and the advisors they have available to them already. In some families, we can get everybody together and open up the communication. And sometimes that’s what’s missing.
It’s just that a safe environment to have open communication about these issues. And once we get the moving, they can implement it all and it doesn’t take a lot of time. And there are other folks where we really need to develop more of a governance system where there’s more need to have, for example, a board of directors, which is a really useful strategy to help businesses grow and become effective.
That’s a whole nother topic we can talk about. And if it’s a large family, many times we wanna do a family council where people come together and think together about the future of the family and its assets, and then set those policies that we talked about and set that shared vision and talk about roles and responsibilities. Because an important aspect of, if you’re going to keep harmony in the family, is that you engage everybody and you surface issues and you get them addressed and you get comfortable and practiced and have the tools to do that.
And there’s one other component to that, and that’s the other CEO, and that’s the chief emotional officer. And what we found is that many times there’s someone in the family who everybody goes to to say, you won’t believe what dad did. And they can ventilate and they can get advice and support and coaching.
And somebody who will make sure that everybody’s getting together and that the holidays are observed and that Sunday night dinner happens and that when there’s a crisis in the family that everybody’s pulled together to deal with it. And in my experience, succession for the chief emotional officer can be almost as important as the chief executive officer, because I’ve seen families fall apart when mom dies and nobody’s pulling the family together now. And it isn’t always mom, it’s often mom, but it can be even an advisor sometimes.
And sometimes it’s dad or a brother, but it’s somebody in the family who takes that responsibility.
Armando (23:18 – 23:29)
And as you’re interviewing people, when you first come on board, those relationships become apparent. You’re identifying who is that emotional link for all the family members.
Leslie (23:30 – 23:33)
Absolutely. It becomes quite obvious very quickly.
Armando (23:33 – 23:34)
Wow.
Leslie (23:34 – 23:54)
Yeah. And who might be successors, because sometimes there’s somebody in the next generation who’s kind of a protege for mom or for aunt Sophie, who’s the chief emotional officer. And they’re already starting to do some of those things.
And so that may become apparent as well.
Armando (23:55 – 24:11)
Okay. So it sounds like a lot. And as you described what you described about what really needs to happen, I can see if that could take some time to navigate and get that done.
What size business needs this kind of help?
Leslie (24:13 – 27:09)
Well, I think most size businesses need this help, but it’s a question of whether they’re gonna take their eye off the day-to-day operation and move up to 30,000 feet and look at the whole system and say, where are we going? And how are we getting there? And how are we going to do this planning?
And do we have the competency in our family to do it on our own? And most people don’t feel like they do. They get stymied.
And if the older generation wants to do it, sometimes it’s harder for them to initiate the conversation with the younger generation because they wanna be fair to everybody. They don’t know how to handle the dilemmas. For example, in a family where there’s a, I think you mentioned that maybe one of the kids is likely to be the successor CEO and the other kids may not be working there anymore.
And what happens in that case? How does dad take care of his dad role of being fair to all of them? Well, I think you have to wear multiple hats.
And so if you put your dad hat on, you say, I really want my estate to treat my kids equally. And so in that space, equal might be fair or equitable. It comes to the business.
If you say, okay, gee, most of my assets are tied up in the business. So if I’m gonna be fair, I have to give a quarter of the shares in the business to each of the kids. Well, what does that do to a kid who’s maybe the only one working there and having a minority interest?
It really makes it very difficult. And I’ve seen situations like that where the others don’t understand why they need the cash that’s in the company to help continue to build it and they can’t make distributions. And so then you have to step back as a parent and say, are there other ways to do that?
Well, sure there are. Life insurance, for example. If dad takes out life insurance and at his death, the shares that the other three have are bought out.
And then each kid gets an equal benefit of his estate. The one who’s in the business just gets it in stock and the others get it in cash. Or real estate.
A lot of times families have real estate that they’ve built their businesses on. So sometimes the real estate will go to the other kids and the active business will go to the operating kid. So there’s a lot of different ways to approach that.
If you think broadly and not narrowly about what are the ways, and then you look to your advisors to say, what are some ways we can address this issue?
Armando (27:10 – 27:47)
Yeah, that makes sense. Yeah, there’s a lot to navigate to make it all work. And I’m making, you might see me writing, I’m making notes of our conversations.
I can ask you some questions here as well. This is all very, very helpful. So for, do you ever get, Leslie, do you ever get pulled in when a company is starting and it’s starting with a family?
I mean, it sounds like, it seems like with any startup operation, the more you can do ahead of time, the better you set the stage on day one, then maybe some of the lesser amounts of conflict will be there because it’s already been addressed upfront. But I imagine that probably rarely if ever happens.
Leslie (27:47 – 29:12)
Yeah, it is rare. And it will happen more often when someone has had experience historically with a family business. So if they’ve come out of a family business, they’ve sold their business and now they’re starting up, I’ve had that happen.
And they say, okay, I was in business with my parents and my aunts and uncles and we sold out and now I’m starting my own business with my spouse and I hope my kids will come in. So how do we, how can we set it up right now? So that has happened.
And at that point, we talk about how do they wanna structure ownership? How do they want to set up the opportunities? And a lot of times in those early days, they want everybody to pitch in and so they don’t want to have rules for entry like that.
They want everybody to jump in and help out, but that can set up the wrong expectations. So then being really clear and intentional about those ground rules becomes very helpful. I remember one client who started a new business and said, okay, mom’s gonna come in and help us out.
And then she had to fire mom. And that was very uncomfortable because there wasn’t clarity about what’s expected if you’re gonna help us out.
Armando (29:12 – 29:14)
Was she the chief emotional officer too?
Leslie (29:15 – 29:19)
No, no, the daughter was, unfortunately.
Armando (29:21 – 32:01)
So I spoke with a business owner recently who told me that he had bought his father out of the company. Dad started the company way back when, ran it for 30, 35, 40 years. And then son who started at an early age in the business and pretty much worked every role in the company, he bought the company from dad.
So they had an outside appraisal, they got the CPA and the attorney involved and did it all the way I would say is probably ideal in terms of documentation, assessing value, et cetera. And son, since he had been there so long, he’d been through all the different positions in the company. He was very knowledgeable and it made sense that he should take it over and that he could take it over and he bought it.
And that’s turned out to be a very, very successful transition. So now that son has the company and son is of course Gen 2, son is thinking of his own adult kids and thinking of transitioning to one of his adult children who are not as involved in the company as he was for so many years, as many years as he was, he has a lot less confidence in their ability. And with him, of him and his siblings, he was the only one in the company, but for him and his adult children, there are multiple adult children in the company.
And his situation of course is different than for his successor versus when he bought the company from dad. But I know that as he and I talked about, how does he address this? How does he resolve this?
He wasn’t quite sure what to do. And his thought was that what he would probably end up doing is somehow sell the company, not to an adult child. And by doing that, he would then have a chunk of money that then he could decide how to divvy that up amongst his adult children.
He could get full value out of the company, didn’t have to worry about the value of the company dropping, declining because the adult child maybe wasn’t fully prepared to take over. So in that kind of a scenario, if the desire were to pick one of those, say four kids that are in the company as the successor, how would you address that? How would you help them help navigate that to have it be a successful transition for the family and the business?
Leslie (32:02 – 33:07)
I think first and foremost is really being, he needs to be honest with himself about, A, what’s his vision for the next stage of his life? And if he wants to cash out and have the freedom and flexibility to live his life without worrying about the business and worrying about the competence of the next generation, then he needs to honor that. And that is sometimes difficult.
A lot of times families feel guilty about selling the family business. And then it does give him the opportunity to help his kids financially. And if any or all of them are really contributors to the business, they might continue to be employed by the new owners.
So that can be an option as well. The second thought that came to my mind is a family I worked with that had six kids. And dad was one of three in the second generation.
And when his father appointed him to be his successor, his other brothers never spoke to him again.
[Speaker 3] (33:07 – 33:07)
Oh, no.
Leslie (33:08 – 33:10)
And they worked with him.
[Speaker 3] (33:10 – 33:11)
Oh, no.
Leslie (33:11 – 33:31)
And so that became really uncomfortable. And dad said, I don’t want that to happen as I plan for my own succession. And so what we did was we did some education of the whole family.
And then I said, let me work with the kids to come up with their recommendation to you about who should be the next president.
[Speaker 3] (33:32 – 33:32)
Wow.
Leslie (33:32 – 35:22)
And that was a lot of trust that he placed in me. And so then I worked with the kids to say, what would it take to be a president of this company? And several of them said, anybody can do it because dad didn’t have that much education.
And he did it and he did fine and he built it. And so any of us could do it. And that was not entirely true.
That wasn’t true at all. There was only one of them that really had the capacity and the potential and the ability at that point. And so we did some education about the size of the company that it was at that point, which is not what it was when dad took over.
And what does it need to take it to keep it at this size or to grow it to be larger? What kinds of competencies, what kinds of ability to think strategically, to get out there and help market, to build a team and so on. And so as we did that, then we also gave several of them who thought they could be or might like to be candidates the opportunity to get further education.
And so the young man who had been there the longest, he was elder to the candidate who we felt was the most equipped. We sent him to a leadership development school that included psychologists doing assessments. He came back and he said, there’s no way I can be the president.
He said, I don’t want that burden. I don’t want that responsibility. I’m too introverted.
I don’t wanna be out there talking to people all the time. I’m not organized and structured enough. It would kill me.
And I would really be worried that I would let the family down and lose the asset. So I don’t wanna do it.
[Speaker 4] (35:23 – 35:23)
Wow.
Leslie (35:24 – 36:14)
And so then we dealt with some of the other issues and by the end of the process, all of the siblings said, the youngest is the only one who can do it and he can do a great job. And we’re now 20 years out from that process and the youngest has done a great job and he’s now getting ready for his succession. So when you ask how long I’m involved with families, I’ve been involved on and off with them for all those years.
I can tell because the youngest son was a month old when I started working with them and he’s now 20 or 21. And so for their periods of time when a crisis happens and they’ll call me or a transition’s happening and they’ll call me and we’ll work on whatever’s going on. But they very successfully worked through that transition.
Armando (36:15 – 36:31)
Wow. Yeah, that’s beautiful to hear that the family came together versus the siblings fighting over who should take that role. Right.
And they all pointed to the same person who accepted that responsibility and took it and did well with it.
Leslie (36:31 – 38:37)
Right. And the principle behind that is the more people are engaged in the process, the more they’re gonna accept the outcome. If dad had come to them and said, this young man should be my successor and will be my successor, they might not have accepted it at all because they didn’t see how that would be fair and appropriate.
And so once they went through the process of learning, what does it take to be a president and who they are, then they were able to come to the conclusion and support it fully. The other area that’s very touchy in families is money. And what do people get paid?
And that’s always a very difficult subject because so often people equate their value with their compensation. And as I mentioned earlier, we believe that fair market value for positions is the best way to go because you can defend that. You’re not creating untenable compensation if it’s too high and you’re not creating resentment if it’s too low.
And what was interesting was we did, when the young man that I talked about took the position, his dad did a compensation study, which we had recommended. And in fact, he did two because he wanted to be sure that he had the right data. And the salary that the young man deserved was probably twice what he was getting at that point.
And he said, the company can’t afford that now. So I won’t take it yet. And I think that showed a huge amount of maturity and a real appreciation for understanding what the business needed and that his role as president was to make sure the business was run effectively and sustainably.
And so, again, that’s the kind of thing that once you have these conversations, it makes these issues a lot easier to work through.
Armando (38:40 – 38:52)
So what are some of the common things you come across, Leslie, when you meet somebody new who thinks they could use your help to get further along? What are some of the common reasons why they call you?
Leslie (38:54 – 41:37)
You’ve named several of them. When a parent is concerned about how to be fair and how to preserve the wellbeing of the family into the future and the wellbeing of the business. And the tricky one of saying, who’s gonna be my successor?
Who’s gonna rise to be in what roles? The issues of to keep or sell. The notion also of how to best sell a business.
I’m not a mergers and acquisition person or a banker, well, I guess I am a banker now. I’m on the board, but I’m not a financial person. But I’ve had a number of my clients decide to sell their business.
And we put together a team that really helps them think about what is the best way to do that and how to prepare the business to really go to market effectively. And I have colleagues who I’ve seen work really well with my clients who have probably doubled what they would have gotten otherwise because of their knowledge of how you prepare the business for that sale. And that should happen, the longer in advance you do that, the better it is.
But being clear about that objective is a really important thing. Another challenge that a lot of people talk to me about is what am I gonna do after I sell the business or after I retire? And so many people who built businesses have neglected the other parts of their lives and haven’t been active in the community or in recreation or other kinds of things.
And they’re absolutely at a loss when the time comes. And there’s statistics that say that people haven’t prepared for retirement often die within a year because they don’t have a purpose in life anymore. So there has to always be a purpose in life and you have to be prepared for what is my purpose and how do I wanna use my resources, my time, my energy, my talent and my money in the next chapter of life to feel fulfilled.
And many people don’t recognize what a void that will be until they get there because it always looks like the grass is greener on the other side and you get there and you say, whoa, I have no experience in having free time.
Armando (41:39 – 42:19)
So how do you, you touched on this earlier when dad started the company 30 years ago, son came up and he wants to grow the business and there’s this conflict. Dad’s happy just the way it is, does not want to borrow money or invest heavily in the company because he’s very content, very happy just the way this company is. Son is younger, more energy, a little more antsy, wants to grow and take on the new technology, et cetera.
How would you help a father and son come together in agreeing what should they do, what makes the most sense for them?
Leslie (42:20 – 46:15)
That is such a common challenge. And since I’ve been doing this work for so many years, I’m at the stage now where my successors are kind of more aggressive about stuff and I’m a little bit at that more conservative point. So now I appreciate the elder’s point of view more, but I think the ability to have a real dialogue about the future.
Again, I go back to those ability to have difficult conversations and to be able to talk about what’s important to each of them. So for the father to be able to say, I really need some security and I don’t have the energy for this. And for the son to say, I’m really willing to take the risk and I do have the energy.
And so for them to talk through a plan for how do we secure dad and how does the son find the capital to do it. And sometimes there are ways to bifurcate the company so the risk stays with the younger generation and the security stays with the elder generation. So the ways of looking at structure, at finances, at how to reduce the risk.
I mentioned a board of directors before and having an advisory team or a board of directors can really help with that because it can provide some objectivity and some perspective. So in one family I’m working with, we have that dilemma going on right now. And so the board is helping to look at what is the probability of this company being successful in going into a whole new direction with new technology and a rather significant investment required for it.
So they come from different perspectives, they are presenting their point of view and then they got an advisor, a consultant who could provide them some industry specific data on what kind of investment would be required and what kind of financial and what kind of energy requirement it would take to really push to make this work. And so with that information, then the board knows the father and the son, they can say if they’re the right kind of board, they’ll say, here’s what we think the probability of success is and give that objective perspective. And then I’ve seen youngsters leave the family business because the father’s moving too slow or mom’s moving too slow.
And they really wanna test their own wings and see if they can fly to the sun. And so sometimes, there’s an expression, a Native American expression that goes it’s hard to find your place in the sun in the shade of the family tree. And so often young people find that that’s the case.
And that’s one of the reasons we always advise that people work somewhere else before they come in the family business. And then the other option we’ve also seen is when they said, we’re gonna create a subsidiary and let the rising generation run the subsidiary that has less risk involved. And then if they do well, great.
If they don’t do well, then they haven’t hurt the whole business. So a lot of different strategies.
Armando (46:15 – 46:41)
Okay, you mentioned a board of directors, either governing or advisory or something. Can you talk more about what that board looks like? Not the big public and traded company that has a board, but the family owned business that is trying to be, keep the family successful and keep the family harmony and keep the business also successful and growing and doing what that company should do.
So what should that board really look like?
Leslie (46:42 – 50:20)
So it’s really important that you have a board, a board of people who are independent. You may have the CEO and you may have a family member that represents the family owners, if that’s a separate group. And then the rest of the people should really be independents who have no vested interest is the optimal.
And that means not your lawyer or your accountant because they’re not independent. They’re being paid separately and you can get their advice separately. You want people who’ve been where you want to go.
So if you want to grow or you want to try new ventures or you want to look at succession, it’s really helpful to get people who have that experience. It’s useful sometimes to have somebody who is from your industry, but that’s not even as necessary. And oftentimes we’ll look for, we do a matrix of what are the competencies that the company doesn’t have.
So with the board I’m helping to develop right now, they want to move into new territory and they’ve not moved into a new territory before. They’ve always been in the same geographic area. So one of the competencies or sets of experience we’re looking for is how do you expand into another territory?
And so we’ve found several people who have done that and they’re candidates to serve on the board. So they can help avoid a lot of mistakes and help provide critical information about how to do that well. And so we look at what are the holes in the perspective or competency.
And then putting together a prospectus. And I have a short article that you can post if you want, I’ll send it to you on how to set up a board of directors. And it’s useful because it kind of outlines all the steps.
And so you do a perspective and you say, why do I want a board? What is it we want to accomplish with it? What are the talents we’re looking for?
How often are we meeting? What are we paying? And then the background on the company and the cast of characters.
So that you can give that prospectus to people like yourself who can say, oh yeah, I’ll know of some people who might fit that and then send candidates to them so that you widen the circle. So I’ll have candidates coming from all over the country for any of my clients because we’re looking for the best abilities. And what’s interesting is there are so many people like the retirees we’re talking about, but others who really want to help family businesses and are excited to serve and have their opinions and perspectives considered.
And so it’s a very valuable, it takes a lot of time to build a board and to do it properly and to make sure you’re getting the most out of them. But nearly every person I’ve ever helped build a board has said, I wish I’d done this 10 years sooner because of the expertise and perspective that you can’t buy because of if you get their wisdom. And in crises, like many of the boards that I work with during the pandemic, they were talking monthly on the phone about how to handle the situation with companies and providing a lot of good support.
And so I think those are the kinds of things that can be very helpful.
Armando (50:21 – 50:42)
And the business, Leslie, that is maybe in a smaller community, maybe they’re the big employer in that small community, they might be reluctant to bring people in from the local community and kind of open up the books and open up their dirty laundry to the local community. How would you help them address that?
Leslie (50:42 – 51:09)
Well, it’s really easy to get ahead. I had a client in a tiny town in Texas and almost all of the board members that we looked at were from other parts of the country or other parts of Texas. So they didn’t know them and they weren’t gonna run into them at the local restaurant.
And so I think that’s a reasonable approach.
[Speaker 3] (51:11 – 51:13)
Okay, good.
Armando (51:13 – 51:22)
So other common problems maybe we haven’t touched on in this conversation that you’ve seen over the 40 or so years you’ve been working with family-owned businesses?
Leslie (51:22 – 53:17)
You know, I think one of the most important dynamics is the willingness to learn and grow. And as you know, being in business for a while, that there are always new challenges that come up. And the folks who say, we’ve always done it this way are not responding to a changing environment.
Just look at the issue of the supply chain and the challenges with the supply chain. If you say, we’ve always done things a certain way, we’re not adapting or changing, then you get a real problem when you can’t get your equipment or the tools you need or the supplies you need for your business. You have to find new ways of doing things.
And what are the strategies and how do you learn to adapt to new realities? And so I think those are challenges that people have to look really carefully at themselves and say, if we’re in business over many decades and wanna be over multiple generations, we have to figure out a way to be flexible and adapt. And I think that’s key.
And sometimes the rub that you talked about between generations is around how much we can flex. And we’ve seen a lot of dinosaurs that have died because they were unwilling to do that, unwilling to try something new and adapt to the new environment. So they die, they perish.
Those who weren’t willing to use computers in the olden days or those who weren’t willing to market, competition comes up and swamps them. So being able to be adaptable and be flexible and to be willing to learn and grow are some of the critical components of success over multiple generations.
Armando (53:18 – 54:02)
Okay, excellent. Leslie, this has been very, very helpful. And I’m gonna ask you to touch on just a couple of things here.
You know, there’s this fair versus equal concept. And you talked about that a little bit about what is fair and you’ve gotta be fair in terms of keeping that business healthy, but fair to the siblings who are maybe gonna be the next generation of leadership of that company or somehow involved in it. And then for the health of the business, which of course has many employees and families that rely on the health of that business.
So can you just touch on again, if you don’t mind, the fair and equal concept when Gen One who founded the business is now going to, at some point, hand the reins over to Gen Two?
Leslie (54:03 – 54:59)
Right. Well, number one, I think we have to separate out fair is not equal, it’s equitable. And that’s a concept that’s on the family side.
And even there, if you think about it, if you have four kids and one of them gets desperately ill, are you gonna say, oops, I’m only gonna give one quarter of my financial assets to help that kid? No, you’ll give everything you have and the other kids wouldn’t expect something different. And so here we’re talking about what would make me feel fair?
And no matter if you have six people in the family and you cut a pie in six microscopically equally divided pieces, every kid’s gonna think somebody else got a bigger piece. Some ways it’s impossible to be equal. But then really talking through what is fair is important.
Armando (55:00 – 55:01)
It sounds like you’ve been at my dinner table.
Leslie (55:02 – 59:22)
Yes. Yes. So I think having really good discussions about how does everybody define fair?
What are their assumptions about what is fair? And so if you look at the family business and you say continuing to have a business that thrives and that continues to provide a livelihood for the employees and the owners is fair. And that we have to look at what is it gonna take to make it so.
And one of the many years ago, probably 25, 30 years ago, I had a family and it had five kids and each of the five kids had 20% of the ownership. And we, again, put in place fair employment policy and compensation. And before that, they were all paid the same whether they were shop floor foreman or the CEO.
And that wasn’t fair because the CEO could go somewhere else and make a lot more money than he would with his brother-in-law who was a shop floor foreman. And so the family with education came to realize that fair in that situation meant paying market value, fair market value. And they would have lost the young man who was the CEO at that point who had turned the business around because his father-in-law was a great inventor but not a very great businessman.
So we went weathered that whole storm. And then it was clear that what everybody was compensated for worked in the business. So one of the sons-in-laws, the oldest of them dies and the daughter says, you should give me his compensation.
And he happened to be the head of marketing. And the family said, that wasn’t the plan. The plan is we have to hire somebody who really knows how to do marketing in order to keep this business going.
And she said, but I need the money. Well, you knew your husband was sick. Did you guys save for it?
Did you have life insurance? No, and I’m desperate. Well, the family is family said, what can we do to support you?
But your expectation that you would take over your husband’s salary means that you think that the business is just a part of the family, not a business that requires certain competencies in order to survive and flourish. And so that was a very difficult conversation. And what she was really asking was that each of her siblings pay for her to stay afloat and not take some compensation themselves because they had to hire somebody in that position.
So she was really asking them to support her. And we had to work through a process of helping her to understand that isn’t fair. And that the fact that she wasn’t responsible in her planning didn’t mean that the family had a responsibility to take care of her.
They could as a family if they wanted to, but it was not the business’s responsibility. And so when we get back to equal, her family unit getting equal compensation was not fair. And so you have to have these tough discussions and that’s where pre-negotiating it with discussions, with education, with documentation and a constitution or something becomes very useful.
And we did go back to the documentation about compensation that we had come up with and said, here’s what you all agreed to 10, 15 years ago. And so, yeah, so fair means what’s appropriate and how do we not kill the golden goose? Because if you begin to say, everybody’s gonna be able to take money out of the business for their own needs as a family member and not based on what the business needs are, then you’re gonna kill the golden goose and nobody’s gonna have anything.
Armando (59:22 – 1:03:02)
Right, exactly, exactly. Well, thank you. That story is a little heartbreaking, of course.
And that was not the answer that the widow wanted to hear, but it makes perfect sense. And having the family have that dialogue and going back to those original documents that you helped them formulate can certainly help get the family back to where it can begin to get beyond that. Right, right.
So let me just recap a couple of things and thank you for, again, expanding on fair versus equitable. You talked about having a shared vision for people, mapping out what’s it gonna look like. You talked about values and assumptions that need to be there, rules for entry, how family members get in the business and defining what those need to look like.
You talked about successor and having systems in place and having leadership. And you talked about seven components of successor. You talked about leadership, where is the company going?
Management, how’s it going to get done? And you talked about the authority, succession of authority, real succession of authority and decision-making authority in that business as well. About ownership, how does that flow?
What are the values? What relationships matter? The team, the clients, the vendors, et cetera.
And then knowledge, transferring knowledge from that gen one, from that founder to gen two, that that all matters in the system as well. You talked about a family council, about having a government system. And I like what you said that the chief emotional officer where often there might be mom coming in to save the day and make sure that those boys and those men keep talking to each other.
I can see that. You talked about maybe having a compensation study to look at the marketplace. What is real compensation in the marketplace for that role out in the open market and having people engaged in the process as these are being developed because then they take ownership.
They’re part of the process and that way they will be much more receptive to the outcome, accepting of it and supportive of the outcome as well when you’re going through that process. Yep, and so you also mentioned a couple of things about father and son. When son wants to ramp up the business, Dan’s ready to kind of sit back and just enjoy the fruits of his labor, getting through that.
And a board, a board of directors where that board really needs to be independent. Not the attorney of the business or the family, not the CK of the business or the family, people who are independent and people who have been where you want to go so they can share their experience with the people running that company and more likely help them get to the right place where they do wanna get to. So, a lot of good information here, Leslie.
Thank you so much for just sharing your wisdom and your experience. I’m sure that when you get done with a family-owned business and you help them get through maybe some of those rough spots, I’m sure that must be extremely gratifying for you and for the family, very gratifying for them that they can continue being a family as best they can, of course, as they run this business. So the business stays healthy for the employees who all depend on their paychecks from that company and the family can still be together at Christmas and feel good that life is good.
Right. Yes, it’s gratifying. So, go ahead.
Leslie (1:03:02 – 1:03:06)
No, I just said it is gratifying when that works like that. It is wonderful.
Armando (1:03:06 – 1:03:19)
Excellent. So, Leslie, if somebody has questions and they just really liked what they heard you say and really wanna get in touch with you to see how you might be able to help them with their family business, what is the best way for them to reach you?
Leslie (1:03:20 – 1:03:39)
Probably the simplest is an email to L-D-A-S-H-E-W at gmail.com. That’s my personal email. And my first initial, my last name at Gmail.
And that’s the easiest. And they can call my office as well, the human side of enterprise.
Armando (1:03:40 – 1:04:13)
Okay. So L-U at gmail.com? Right.
Okay, great. And we’ll also write that down below so people can see it as well. Leslie, thank you so much.
Really excellent just to hear your insights and helping that family maintain the harmony. Because as I meet with founders and talk to them about their businesses, yes, the business is important and the family is even more important often than that business. Of course, they both matter to a lot of people, but they wanna have both healthy and doing well for both.
Leslie (1:04:14 – 1:04:15)
Right. Very important.
Armando (1:04:16 – 1:04:18)
Excellent. Leslie, thank you so much. Really appreciate this time with you.
Leslie (1:04:19 – 1:04:19)
My pleasure.
Armando (1:04:20 – 1:04:21)
Excellent.
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