Just like the family oriented products the pool and spa industry sells, the companies themselves are family focused with many either being family owned or sole proprietorships with a close “family” of employees.
While that family friendly business model can be a strength, it can also become a major liability—without the proper planning. What’s more, many company leaders wait too long to start planning for the next generation to take over, often putting their livelihood and their families in jeopardy. In fact, “some 70% of family owned businesses fail or are sold before the second generation gets a chance to take over,” according to the Harvard Business Review.
That reality came sharply into focus during the pandemic, according to Scot Hunsaker, former owner of a pool design firm who’s now managing partner of the Ardent Group, a consultancy that helps businesses turn employees into owners.
“The pool and spa industry had the gift of being a product that was very desirable during COVID,” he said. “If you were a sole proprietor your ability to react to that growth rate was limited. But organizations with a leadership team could scale and take advantage.”
Not only did the lack of those types of leadership teams emerge, but so did the need to start planning earlier. How early? Hunsaker says it’s at a younger age than many company leaders believe because it actually takes five to 10 years to transfer institutional knowledge and business processes. He uses a green, yellow and red scale for the following age groups:
- Under 55: This is the green zone for business leaders to start planning to pass the business on to the next generation, whether that’s family or other employees. There’s still ample time to put a plan into place and retire at a comfortable age.
- Between 55 and 65: This is the yellow zone, which means business owners are fast running out of time to properly transfer the business and all the institutional knowledge.
- 65 and over: This the red zone, and unfortunately, Hunsaker said, this is the age when many business owners start to think about passing the business on. But often it’s too late. In one case, a client was diagnosed with Alzheimer’s disease and the business was lost.
To avoid that scenario, the most important thing for business owners of all ages to start doing now is planning. “It needs to be purposeful, and you need to take action,” Hunsaker said. “It’s not just going to happen someday.”
Here are five questions Hunsaker said business leaders need to ask themselves about their succession plans—before it’s too late:
1. How are you providing company information? Providing data such as monthly sales figures and profit margins are just a few examples of information necessary to allow your leadership team to make timely and accurate decisions and prepare for the future. Unfortunately, many business leaders are reluctant to share such information, or have simply never taken the time to do so. Or they fear sharing sensitive data. But with proper guidance, such data can be shared smartly and safely.
2. How do you identify those with the willingness and ability to lead? Many owners think they can just pick the next leader. But Hunsaker said it’s better to create a “leadership team bench” along with protocols that allow the natural leader to emerge. Family members should have the right to compete, but just because they have the last name doesn’t mean they’re the next leader.
3. How are you transferring your institutional knowledge? Many owners have the old 1950s attitude that if you want something done right you have to do it yourself. But that means that all the key knowledge that keeps the business humming is trapped inside one person. To have any hope of passing the business on, owners must put processes and protocols in place to pass on that knowledge to the next leadership team.
4. How are we teaching the next generation to manage change? The pandemic was a stark reminder that the world can change quickly, and businesses must react. Most recently, those who were able to manage and plan around supply-chain issues came out on top. In 2008, the big change challenge was how to manage the Great Recession. Whatever the next big change is, owners need to make sure their team is ready to manage it.
5. Are you trusting with confidence? To answer this question, owners need to let go of the attitude of “Here’s the perfect company I built. Now don’t change it, and don’t screw it up!” Instead, they must trust the new leadership team to make changes that will make the business even better. That means embracing new technology, new processes and new attitudes that are in keeping with the times.