Take a look at yourself in the mirror. You are an independent manufacturers' representative in the electrical market. Like many reps, you got into the game because you are a “Type A” people-person who can sell splinters to assembly-line workers at a toothpick factory. You survive because the services you and your office support team provide customers keep the phones ringing with more RFPs from them. If you manage to do it a profit level that keeps the lights on and provides acceptable paychecks to the company's employees, it's a formula that can work for quite a while.
But what about tomorrow? Have you really thought about how or if you want to keep the business running down the road when you want to ease out of it and enjoy the fruits of your labors? The long-range strategic planning necessary to develop a succession plan or exit strategy doesn't come naturally to many family business owners, and independent manufacturers' reps in the electrical market are not alone if they don't have a succession plan in place. This article will point you in the right direction to get that done.
Having a well-thought-out plan in place is absolutely essential if business owners want to beat the long odds for the survival of family businesses into the next generation. According to the Family Business Institute, Raleigh, N.C., (www.familybusinessinstitute.com), only 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond. The Institute also says that for most family and closely held businesses, “Planning for succession is the toughest and most critical challenge they face. Yet succession planning can also be a great opportunity to maximize opportunities and create a multi-generational institution that embodies the founder's mission and values long after he is gone.”
Electrical reps aren't alone in their struggles to develop succession plans. Charley Cohon, CEO, Prime Devices Corp., Glenview, Ill., gets to know reps from all sorts of different market verticals through his role as the president of the Manufacturers Agents National Association (MANA), Aliso Viejo, Calif., and he says electrical reps and reps from other markets have the same issues when it comes to succession planning. “It doesn't seem like there is a differentiator in the electrical world,” he says. “They all have the same issues - Who am I going to sell it to? What are the terms going to be and when should I start?”
Start the planning at least five years ahead of when you want to be out of the company. It's probably a 60-month process from when you decide you want launch it and when you hand over the key and don't return.”
Tom O'Connor, president, Farmington Consulting Group, Farmington, Conn., works with quite a few reps on a consulting basis. He believes most reps don't focus on succession planning because they tend to live for today and not for tomorrow, and that the electrical reps who are focused on succession planning do it because some of their manufacturers insist they have one in place. “There has been a big emphasis on that over the last three years,” he says. “They demand of their reps to produce a viable succession strategy.”
During his 35-plus years in the electrical business, first in sales management roles with Tork and Federal Signal, more recently as president of the National Electrical Manufacturers Representatives Association (NEMRA), Portsmouth, N.H., and now as president, of the consulting firm Henry Bergson & Associates, Katonah, N.Y., Hank Bergson has seen his share of great succession plans — and absolute train wrecks.
When the succession plan involves a family member, the atmosphere is often supercharged with family dynamics, for better or for worse. Bergson jokes that you never hear much about the good rep succession plans because the transition works smoothly without much fanfare. But when a succession plan hits a rough patch, he says several dynamics are often at play:
- There are too many family members working for the company that the new owner may not want working for the company.
- Dad is glad to sell you the company, but after the sale he thinks you should still pay his salary, insurance and otherwise provide the same lifestyle to which he has become accustomed.
- The father who wants to continue to meddle with the business, when the kids want him to step aside.
- The parent who says, “I am giving you the business, so I don't have to give you anything else in the will.” But at the same time the son or daughter is thinking, “Give me the business? I have worked for it for 40 years.”
“The succession plans that work are the ones that are planned, the rules are set down, everybody knows what they are doing, and everybody agrees to play by the rules,” says Bergson.
The following tips will help you develop a succession plan for your business.
Consider getting outside assistance in developing the plan. Whether you need to objectively evaluate the potential of family members or key employees to take over your business, or assistance on setting up an exit strategy, plenty of resources exist. Brett Howard, principal, and Paul Lambert, founding partner, Cherry Street Business Partners, Denver, (www.cherrystreetpartners.com) works regularly with NEMRA members on their succession plans. Another good resource who has a long track record of working with NEMRA members in this area is Gerald Newman, partner, Schoenberg Finkel Newman & Rosenberg, Chicago, (www.sfnr.com). The sidebar on this page also has some other good resources to check out on succession planning.
Include your vendors early in your planning process. Ken Hooper, NEMRA's president, is a big believer in the need for reps to get the blessing of their top two or three lines when they are considering a transition, and says it would be a good idea if more manufacturers would require this consideration in their rep contracts.
This approval is one of the things that's differentiates succession planning for reps and electrical distributors. Many electrical reps are fairly small companies that may live and die by the personal relationships their key personnel establish with vendors, while the owner of a typically larger electrical supply house may or may not be integrally involved in vendor relationships. Says Farmington Consulting's O'Connor, “In the rep area, relationships are much more important than in distribution. A distributor exec can be much more removed. Part of it is because of the size and where they are in the channel. Yet a rising rep principal has to have the credibility from the manufacturers, distributors and end users. If he doesn't, he or she is pretty much cooked. Their career paths must be quite different.”
Adds Cohon of Prime Devices, “With few exceptions, reps live on that 30-day contract. It's not in our best interest to surprise the manufacturer. We can sell the company, but in 30 days they can terminate us. In many cases, reps go to a key principal and ask for permission. In some cases, it may be presented as, ‘This is something I would really like to do. Do you object?’ In other cases it may be presented as, ‘I am entertaining this as a possibility. If I chose to do it, would I have your permission?’”
Cohon says the manufacturers want to be sure that when the owner leaves, there will be continuity — and that sales results that are as good or better than with the previous owner.
Don't force a family member to be a “Mini-Me” — your company and family will be much better off if you let them focus on their own strengths. Several sources contacted for this article pointed to the succession plan that Tom Gorin implemented at his company, Gorin-Hopper-McCoy, Norcross, Ga., to groom his son, Michael, who won EW's 2010 Ganzenmuller Electrical Marketing (GEM) Rising Star Award for Independent Manufacturers' Reps. While Tom is considered by many to be an old-school master salesperson, Mike's strengths are in strategic positioning, management and marketing. Says O'Connor of Farmington Consulting Group. “He and his dad did the right things. Mike carved out his own thing. Very often reps try to replicate the style the father had. That doesn't work out most of the time.”
Another electrical rep whose succession plan follows this same principal is ElectroRep, Sausalito, Calif., where Ron Haedt, CEO, hired Kelly Boyd in 2000, an electrical industry veteran with experience at his family's electrical supply house, City Electric Supply, Iowa City, Iowa, and more recently at Pass & Seymour. Boyd, another EW GEM Rising Star Winner, has been instrumental in developing Electrorep's Southern California division.
At Don Hickey and Associates, Novi, Mich., the partners also have had success with customizing a succession strategy to the talents of the individual rather than forcing a one-size-fits-all solution. Brian Hickey, partner, said that when Mike Hickey, Jr., the son of his brother, Mike, started working for their agency in 2011, they wanted to be sure to utilize the sales and management background Mike Jr. developed at Murata Manufacturing Co., a Japanese auto parts company. Says Brian Hickey, “Mike Jr. was brought in as part of our succession plan. I am still only in my mid-40s, but I think it is important to have the broad outlines of a succession plan and to review it every year. Mike is going to be an integral part of it.
“He has brought some ideas from outside the industry that we can implement. You always have to sharpen the saw. When you get the right person, make sure you empower them. Have that conversation about where they think their talents lie and where they can most help the organization and empowering them to do so. It will keep their creative juices flowing.”
Develop a formal training plan for your successor. SCORE, a nonprofit association supported by the U.S. Small Business Administration (SBA) that provides business consulting services for small businesses at no charge or at very low cost recently posted an article on its website, “Developing a Succession Plan,” that says once a business owner selects a successor, the next step is to identify the critical functions of the company, and then have the successor work in each of these areas. “This may sound simple enough, but there is a certain amount of letting go that goes along with teaching your successor by allowing him or her to learn, grow and make mistakes before assuming the helm,” the article says. “By creating a culture that encourages the person to take charge within broad guidelines, you establish space for your successor's style to fit with your broader business goals.”
SCORE is a great resource for small businesses like reps because it has 12,000-plus volunteers who are often retired business executives who offer their expertise as mentors in a wide range of business areas, including succession planning. It also offers retired reps a terrific opportunity to volunteer their expertise on running a rep firm.
Establish a timetable. The SCORE article, which is available in its entirety at www.score.org/resources/developing-succession-plan, also emphasized the importance of setting up a training timetable and a timetable for shifting control of the company. “If succession is to be successful, you, your successor and your management team need to know who is in charge of what and when,” it said. “Your successor can't succeed if you overrule decisions routinely. Also, a timetable helps motivate your successor to move through his or her training program quickly and successfully, with a clear understanding of what the coming roles and responsibilities are going to be when you move out of day-to-day operations.”
Don't underestimate the importance of open communication during the process with family, vendors, customers and employees. The National Federation for Independent Business (NFIB), Nashville, Tenn. (www.nfib.com) says in a posting on its website that to avoid hard feelings and confusion, it's important that everyone in the company needs a clear understanding of who will take over the business and how the transition will work. “Hold scheduled meetings with family employees and critical non-family staff to review the succession plan, head off any problems and discuss other business issues, NFIB says.
Hank Bergson of Henry Bergson & Associates says successful succession planning is in many ways mostly common sense. “The biggest piece of advice I can give anyone is start early,” he says. “Make a plan, stick by the plan and don't let the thing get too convoluted. The other part of it is when the principal has finished everything, they have to walk away.”
Cherry Street Business Partners, Denver, Colo.
As one of NEMRA's approved service providers, this firm is quite familiar with independent manufacturers' reps and the challenges they have with succession planning and exit strategies.
Schoenberg Finkel Newman & Rosenberg, LLC, Chicago, Ill.
Another NEMRA-approved service provider, this law firm has provided legal services to independent reps for quite some time.
Henry Bergson & Associates, Katonah, N.Y.
With 35-plus years of electrical experience, including several decades as NEMRA president, Bergson has seen the good, the bad, and the just plain ugly when it comes to succession plans. He helps rep firms do a better job of succession planning.
Family Business Institute, Raleigh, N.C.
Along with extensive for-pay consulting services, the Institute's website offers a ton of good information on succession planning.
SCORE, Washington, D.C.
SCORE is a nonprofit association supported by the U.S. Small Business Administration (SBA) that uses 12,000 volunteers to provide business consulting services for small businesses at no charge or at very low cost. These volunteers are often retired business executives who mentor small business owners.
National Federation of Independent Business (NFIB), Nashville, Tenn.
NFIB's website offers some good general information on succession planning.