Pop has a deal with Junior that he will transition the business within a time or price that’s not really specified. Nevertheless, someday this will all be his. In preparing Junior for his responsibilities in running the business, Pop puts him on the Executive Track and begins bringing him up through the ranks. What could go wrong? Well, Pop could retire in place and then abruptly change the deal and begin a “cat fight” as we described last week. Oops. Pop did that. Now, is there anything Junior can do that still might save this deal?
Here’s the Problem with the Transition
Pop retired in place. Oh, he continued the role of General Manager, at least on paper. He then even officially named Junior General Manager a year or so ago. But, Pop figured, he would still run finance or the checkbook as it were. Now the problem with that is the General Manager can’t be in charge of the business if they don’t have control of all functions of the business (production, sales and finance) and that includes the checkbook. Organizationally, Pop as Finance Manager can’t report to Junior as General Manager who is going to report to Pop as the owner. Come on. Pop’s just letting Junior play General Manager in this scheme and reserves the right to rip the business away from him the moment anything goes wrong.
But this is the Real Problem
The real problem is Pop who gave up his involvement with the work of the work in order to retire in place. Junior worked himself up through production to become production manager. He knows the new digital do-dads the business bought. Pop never bothered to learn anything about the new equipment.
Junior then morphed into sales and was successful bringing in new accounts. In fact, he brought in several of the really significant accounts and now has a stranglehold on three of the top five. That’s because Pop abdicated his responsibilities as General Manager to maintain a personal relationship with the top accounts whether they are old customers or brand new ones.
The accounts know Junior, they don’t know Pop as well.
Theory of Cat Fights
I know I told you this last week, but it bears repeating. Know what nature’s way of transitioning is? Say you have a big cat at home and introduce a kitten (I did this). The first time you put out food for them, the kitten thinks it is okay to jump right in. Big cat slaps them across the room and the little cat learns to let the big cat eat first. That goes on until one day, the little cat decides to take on the “now much older” big cat and the fur flies once again. Only this time, the results are that the younger cat prevails and eats first from that day forward. And that’s a transition in nature.
This Cat Fight
Pop, sometime AFTER he decided to make Junior General Manager, got a valuation of the business. There’s no way to know for sure, but I’m guessing the valuation wasn’t as high as he figured. Pop also went to see the lawyers. What happened there was the lawyers presumably told him, “Oh, just ‘will’ the business to Junior when you croak. There are no complications that way.”
I presume these events took place because recently Pop abruptly announced to Junior (in a heated discussion about something else), that the “transition was off the table. He would get the business in the will.”
Hum. Okay, Pop has laid down the law and Junior must obey. After all, what alternative does Junior have? Well, I see three of them.
First, he can accept the conditions set by Pop and wait for nature to take its course.
Second, he can quit. Go somewhere and get another job. This will have ramifications for the family.
Third, he can quit, start a competing business and “take with him” many of the significant customers he’s developed as well as others and potentially maybe some of the workers. This is the “nuclear option” that will definitely split the family apart. Goodbye Thanksgivings at home.
Unfortunately, this third option is what so many Pops set up by laying down absolutes as this Pop did.
So, if you are Junior, which option would you choose?
Remember, you’ve invested the last decade of your life learning about this business and building up a relationship with these customers. Add in the tiniest dash of stubbornness and poof, we’re into the nuclear option of tearing the business apart.
But is there a fourth option? Yes. Junior can try to understand where Pop is coming from and make a counter offer. It might not work. In fact, it probably won’t work but it’s worth giving a try before going “nuclear” as in option three.
Counter Offer
Here it is.
Why did Pop come back with this “line in the sand?” I guess either:
1) Junior did something to lose Pop’s trust
2) Pop realized his next step, after selling, is croaking and got cold feet.
3) Pop realized he didn’t have enough money to retire even if he sold the business to Junior
It could be any of these three and maybe a few others I’m not thinking about. Point is, Junior needs to try to come at it from Pop’s standpoint and identify what Pop fears. Yes, fears. It’s a fear or he would have stayed with the original proposal.
Then identify a workable scenario for each.
1) Junior Did Something to Lose Pop’s Trust
That seems to me to call for a straight-forward reaction. “Pop, I was thinking about your decision to not sell me the business. Have I done something to destroy your trust in me?” Then Junior will have to deal with the response if so. This could result in additional rounds of pondering after the issue is known.
2) Pop realized his next step, after selling, is croaking and got cold feet.
Those who have no plans for the future, other than retiring to the couch, aren’t ready to transition and shouldn’t bring up the subject. Pop has to deal with his next career. Only once he has something he wants to do MORE than what he is doing today will he be ready to sell. Otherwise, he will want to continue doing what he is doing. Here’s more information on that next career phenomena at: https://cprint.com/cash-whats-next-career/
Now, in this case, there is probably some truth in this scenario. Pop and Mom frequently travel. Pop comes into the shop a couple days a week for about six hours when he’s in town to “handle the checkbook.” And Pop’s salary is $60k per year while Junior’s is $45k.
So why shouldn’t Pop continue doing what he has been doing? There’s no reason for a change.
If this is the case, then Junior could start with an inquiry about what Pop is going to do after printing? If Pop has no real plans, Junior might explain how this is a common cause for transition failures and he’d hate to see this one fail because of that.
And here is the gut check.
Junior’s only real alternative to a no deal is option two or three: quit and either go somewhere else or start a competing business (understand Pop put him in this position). If Junior isn’t willing to quit, then Pop’s position prevails and there’s nothing to negotiate. Junior will have to wait for the will to kick in.
So, Junior needs to say, “Pop, waiting for the will to take effect in order to own this business isn’t an acceptable plan. Do you have any other ideas?” And then take it from there. As with scenario one, some additional pondering rounds may be required.
3) Pop realized he didn’t have enough money to retire even if he sold the business to Junior
Real poor planning on Pop’s part is the problem here. He thought he knew what the business was worth, but apparently didn’t and started holding the carrot out before it was time. Well, as they say in law, you can’t un-ring the bell. So my guess is that Pop got a valuation after broaching the subject with Junior and found he wouldn’t have enough money to retire if he sold at the valuation price. That’s probably the real reason. So Pop’s alternative is to stay the course. He’s comfortable and doesn’t have a reason to change.
Well, this calls, unfortunately, for another confrontation that Pop has brought upon himself. Here there could be a couple of solutions.
Is Junior willing to pay what Pop needs for the business and will the business be able to afford it? If so, then a deal could be based on that.
If that’s not doable, then an annuity might be the basis for a deal. Pop is living now on $60k per year so is Junior willing to pay Pop that until he and Mom croak? If so, then that might be the basis for a deal.
No Deal
If there’s no deal after these counter proposals then I’m out of ideas. Junior will leave under scenario two (escape to another business) or three (start a competing business).
And Pop will forever blame Junior for “doing it to him,” when, in fact, Pop did it to himself.
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At CPrint, we assist owners with internal transitions as well as help get the business ready for sale through improving performance. Should you wish to have a no cost or obligation transition conference with me about your situation, email me at tom@cprint.com. I’ll be glad to chat.
Tom Crouser
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